About correction and more-
We were enticed to write this article, by the feeling of amazement the investors were experiencing when they see several stocks making yearly and new lows without making any noise!
They were amazed to see their many of the hi-performer stocks that were analyst favorites and giving them a kick n ride while the hay period of the markets and when it was anything but green on the stock screens.
Correction is a word that is known by all in the market.
You will see any ‘averagely intelligent’ investor saying ‘he will buy in correction’ and that ‘he is waiting’.
But that never happens. Either he jumps at the last movement out of impatience or steers clear by fear of further correction and aversion and pain of notional loss.
Basically, most investors want their stock only to go up from their buy price. Otherwise they will not invest! Or the market is not perfect then!
Why this does happens?
The fact is that they are ignorant and un-knowledgeable. This might sound harsh. But we are not here to please anybody!
Investors simply do not understand when to stay in, when to wait for correction and when to jump in. We will also emphasize the importance of ‘what’ in all these along with ‘how’. Because ‘what’ is what the bottom-line come in the market.
Some of them may know that correction is an opportunity (it is an all-together different subject how to tell a transient correction and a beginning of bear phase. I said ‘beginning’, because as such the bear phase in its form is a boon to investors for a 3 year horizon. We will discuss about it in other article.
So, I believe there are there always a bear phase and correction going on in market! How?
Let’s understand it this way, there are 3 types of correction or bear phases. Any one or more of them is always going on.
- For the whole market, which most of us are aware such corrections
The following two might sound unfamiliar to you,
Yes, at any point of time any one or more of the ‘correcting’ phenomena is going on.
Correction is a great indicator of which sectors and stocks are weak or are going to underperform. But to gauge that one has to analyze them under a certain span of period. One has to understand the mini-phases of ups and down during a smaller duration such as 3 month or in a year.
So now from where we started speaking about the investors becoming amazed at the down-dip of their stocks which were all fine until now before they saw some of them in a 52-year low quote list or hearing negative news or may be the un-raveling of the facts that their underlying fundamental no longer supports the stock price. They are shocked how the bull market is not supporting their investment wisdom. Their so called assumed ‘shield of bull-market’ is not over their stock. And they start becoming loss-averse.
This results in a spiral of other mistakes. Such as total exit from stock market. A negative attitude towards investing. Averaging out in bad stocks. Start trading/speculating in stocks and so on.
A loss of moral and belief is bigger than loss of money.
We welcome, investors, traders, academics and experts of investment and finance to contribute to such articles and content which gives the right understanding to general investors class. Because one can become a successful investor by someone else’s knowledge for some years. But to sustain it life-long and continue the journey forward one has to accumulate the gist and ‘basic wisdom’ of investing. We say this and we endorse it.
Some practical points for investors,
ü A stock is never bad because it is making 52-week lows
ü A stock is never good because it is making 52-week highs
ü Similarly a stock does not qualify for buy or sell for the same above reasons
ü Don’t invest by the classifications of the markets, such as midcaps and small caps etc. Use and re-classify the market and its constituents according to your objective and strategy of investment.
ü First analyze the ‘company’ and then the ‘stock’. Once you know the company, and then many of them, you will have the knowledge which is the right price to buy or to sell. Market will, then present a bountiful of opportunities every now and then to you. But of course nothing can be read out of a blank slate!
ü See it like these. The stock quotes are valuations of units of ownership of businesses. They are affected by the working of the company, the sector they are in it, the allied and connected sector, then the geography they are working in, then comes the government policies. There are more under each heads but these are for basic understanding.
ü Have you ever asked for intelligent question from your advisor or analyst? Then do that. Don’t ask for tips and advice every now and then. I will give you a tip how to judge a good advisor. Ask him about a advice and if he tries to explain you the ‘how’ before the ‘what’ then he is a person worth listening.
ü “Remember- the performance of your stock is not a collective wisdom or effort of the whole market’. It is only dependent on that particular company, along with the economic factors. And market is not ‘the economy’. Yes it is said as ‘the barometer of economy’, but in fact ‘sometimes extremely overstating’ sometimes extremely understating, while ‘stating nothing at all’ at most of the rest of times!! It is not useful when a barometer is used like a thermometer only when a ‘person’ becomes a ‘patient’!
ü “Always remember that’ Your investment return does not depend on how your stock is performing at present, but on how it will perform in future”
Stay tuned for more on the topic…
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