PRECAUTIONS WILL INVESTING

VALUE COMES AT A PRICE - DIFFERENT WAYS OF INVESTING

When we invest in a market we have various psychology in mind we are going to discuss few of them 

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Psychologies while investing :-

1. Bottom fishes bliss
2. The cheap trap
3. Broken leader syndrome
4. Overbought and oversold positions
5. Value doesn't more stock prices people do

Bottom fishes bliss

Many a times it is recommended by  the experts to buy a stock that when stock is at severe

decline and

the justificationfor this buy is is that the stock earning would rise in future leading to rise in price. Now

here comes the real problem if the earning of the company doesn't rise as per the expectations of the

market then theprice is going to fall surely and we are going to loose our capital. So if any expert advice

basedon price earning ratio then we should be careful expert is assuming that the earning of corporate

is going to rise and so the price of the corporate would rise.

RecommendationWe should be sure that there would be rise in the earning of the corporate leading to rise in prices as

assumed  by the experts. Is there is not a rise in the in the earnings of the corporate then the expert would

revise his estimate and give you a new target and stoploss but your capital is already lost after the

quarterly results are announced.

The cheap trap

When we buy a stock for a reason that it is cheap and when the price falls and when the price further falls

we generally buy more stocks to average the cost because the only reason to buy the stock watch that

it was cheaper and we keep on investing our capital in the cheap stocks rather than leaders leading to a

great loss.

RecommendationWhenever we buy the cheap stocks we should always know the reason why the stock has become cheap

and why should it rise in future if any of the reason which is recorded by us is not valid now we should not

invest more capital in it and keep ourselves emotionally detached from investing more capital in it.

The broken leader syndrome

First of all letters define the broken leader syndrome let's see how it works some traders refused to buy

stock which was a emerging leader at that time and now they know that it is an emerging leader they want

to buy at a bargain so that when it rises again they would earn profit. Let's see and example suppose

a Reliance industries limited has a range of 800 to 1300 and traders who do not buy shares at 800 I

would like to do it now on 800 so that when it again rise to 1300 they would have a gain of 400 per share.

Broken leader syndrome means buying a stock when it gets slammed  due to market conditions or

change in fundamentals of the stocks or any other reason. Now it has two possibilities if the fall is

temporary as assume by the trader then trader is surely going to gain around 400 per share but if if

there is fundamental fall change in market conditions or change in micro environment then trader is

going to lose as stock mein define its new levels being 800 its high level and trade between new range

of 600 to 800 for few years.

There are one more type of broken leaders syndrome when a stock falls by 80% in price

We tend to buy the stock as it was a leader in history and we assume that we are investing at 20% of

price but there is a mistake in our assumption as our capital is our always 100% in the stock when we

are investing stock my father fall by 80% leading to 80% loss of our capital.

RecommendationBefore buying a market leader at a bargain first investigate the reason of fall in the prices as leader may

not rise again as a market leader due to to above mentioned reason or entrant of New competitor.

For second type of broken leaders syndrome we must always remember that our capital is always 100%

and it may fall as the leader may have lost its leadership in market

Overbought and oversold positions

There are many technical indicators that helps us to find Overbought and oversold market positions

some traders tend to to buy at oversold position and sell at overbought position so as to maximize the

gain.

Recommendation

Overbought and oversold position may be accurate but we should always use stop loss and we must

not rely on technical indicators heavily as history may not repeat itself.

Value does not move prices people does more prices

Sometimes we may see many stocks that have good potential to grow their earning and have good

balance sheets as well as statement of profit and losses

But they are not actively traded by people for domestic domestic institutional investor are foreign

institutional investors which leads to stability in their prices if we buy these shares we may not get the desired results from the stocks as people are not investing in such stocks therefore the demand is not created in the market which can result in the capital gains.

Recommendation

Before buying a stock with good fundamentals we should also look the perception of market for the

stock otherwise we main note on a good profit in near future.

We should keep recommendation in mind while investing in market to avoid huge capital loss.

HAPPY INVESTING KEEP YOUR CAPITAL SAFE.