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Monday, November 04, 2019

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Share Investing SELL and THINK

Share Investing SELL and THINK 

We tend to buy a company's shares when it seems to exhibit good prospects. But, suddenly something happens like an earthquake or terrorist attack and the share prices tumble like the twin towers (9/11).

Retail investors remain trapped and hope that they would recover the purchase price but it rarely ever recovers.

Since the last few months many people ask about YES Bank, DHFL, Reliance Capital etc.

These kind of once gems, becoming problem companies will also be there in future.

The powerful Mantra is to take a decision:  SELL and THINK.

Whenever you travel in a taxi and the tyre gets punctured, you get down from the taxi, pay the bill and say goodbye to the taxi driver.
You only fix the tyre and continue with the journey if its your own car.

Whenever there is a major change in the fundamentals of a company, just use this Mantra: SELL and THINK

Do not try to apply technical analysis to fundamentally crisis ridden companies.

Just because you have a hammer in your hand (knowledge of technical analysis), do not use it to hit everything that looks like a nail.

Please try to understand the basic assumptions of technical analysis.

Technical analysis is applicable to only fundamentally sound companies at a given point in time. 

SELL & THINK - Why will this mantra work?

When you own the shares of a company, your  judgement is clouded especially if you are into losses.

You tend to feel that there are signs of revival or reversal and you keep hoping. It's  called as confirmation bias (We always believe and see what we want to see).

When you sell and square off your position, you become neutral and you can then think rationally. Rational thinking is crucial in share markets.

What are the signs of a serious accident?

1. Owner / Driver (Promoter)  runs away after an accident. (Sells own shares or pledged shares).  If the owner or driver runs away from his car (company) after an accident, we have NO reason to sit in the car. Car driver  भाग रहा है, और तुम बैठे हो?
Its pure insanity or ego. Public will come and beat you after the accident, police may question you etc. You lose time, money and opportunity.

It's possible that someone else may come and buy /fix the car and drive it better. Its like another promoter or CEO who may come and turnaround a company. But, we do not know if and when this will happen.

Why do you have to sit in a accident hit car and get frustrated?

2. Company's business is under threat: Continuous losses for two years.

3. Debt ridden company much in excess of assets, with loss of hope in business.

4. Share price has gone below the prior 10 year level i.e. 2009 lower level. This is an objective criteria to EXIT. Sell!!
(Eg. Yes Bank) if the share price goes below 2009 low - just get out as fast as you can.

In a nutshell, if you are confused about any company and unable to take a decision, use this mantra  SELL First and THINK Later.


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