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How to invest in 2009

Often, short-term stock market movements do not favour the rational investor. Mr Market seems to have a mind of his own and is willing to bet against you. Patience, backed by conviction, is the best way out.

Dipen Sheth | Print Edition: January 8, 2009

Dipen Sheth
Dipen Sheth

I know someone who is constantly on the line with his broker, forget global recession and FII exits. Many of his calls on the market hit home and he books small profits in these trades. The beauty of it is that this (besides the endless gazing at the charts) is all that he does for a living, and continues to do it rather well, if you consider that he has accumulated a big chunk of wealth. This is his trade, his occupation and his calling.

It’s not mine, for sure. While I agonise over numbers, management quality and macro-environment, my friend wants to buy what his rumour network tells him. And he sells this stuff the minute he’s got news that his punter friends are exiting the counter.

I don’t like this style of batting. It sounds like he’s a pinch hitter, who plays across the line every time, and wants a boundary for that. No, investing is not a 20-20 fixture or a 50-over ODI. It’s a Test match. If I want a better average (as opposed to doing well only today), I’d rather accumulate ones and twos. And wait for the loose ball.

Sometimes my friend buys really screwed-up stocks. He thinks there’s serious money to be made by being a kabaadiwaala in the stock market. And, indeed, there is. Just look at what IFCI, RNRL, IOL Broadband, Oswal Chem and other such items did for their shareholders in the recent bull run. To this I say: when we buy a share, we allocate capital to it. We must allocate this capital to a business that has the potential to become more valuable over time and not just get traded at a higher price.

Often, short-term price movements do not favour the rational investor. Mr Market seems to have a mind of his own and is willing to bet against you. Patience, backed by conviction, is the best way out. My friend usually exits his ‘bad timing’ trades at a 10% loss if the promised action goes against him. That’s because he doesn’t know why he entered the stock in the first place! Sometimes you do know why and still end up with an egg on your face. An analyst in my team recommended a sell last week on NTPC based on what I thought was impeccable reasoning. It was up 5.3% by the afternoon!

Imagine the agony of the early stage investors in Bharti Airtel, which did not budge for several months before it galloped from the mid-forties to four digits across five stupendous years. Their conviction was based on an understanding of how the telecom business could evolve and Bharti’s ability to garner market share and deliver profits. My friend would have sold this 20-bagger at a mere 20% gain!

Investing is not just about winning and losing at the sweepstakes, but also about how you win and lose. Because that, and that alone, is what determines your average score, not the great trade you did last April.

Dipen Sheth, Head of Research, Wealth Management Advisory Services. He can be reached at dipen@wealthmanager.ws

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