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Rama
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Stock Market Enthusiast. www.niftydaily.com
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Indian Stock Market Analysis
  • why buy and hold does not make sense in the Indian Stock Markets 0 comments
    Aug 9, 2009 6:34 AM


     Well we all have heard of the old adage of stock market, "buy and hold" and you would end up making lots of money, but does it really work? and does it work in all sorts of market conditions?

    I think the answer to that is perhaps no. . .

    Why? Here is a small analysis of why. . .If one had invested ones money in a software co in 2000 then it would perhaps take another 10 years just to get the return back. Nasdaq is still half of where it was in 2000! If one had invested in the year 2008, in the Indian Stock Markets, then one and half year later perhaps the value would be just half. . .now if someone even had invested in the Indian Stock Markets at the time when the markets were at the way down, at 19000, 18000, 17000, 16000, 15000 even then one would still be having negative returns. Then also it is not that the stock that one had invested would have come back to the same levels. Some companies have performed very badly, the market conditions are very different. E.g. financial sector that was hot fav until a year back is not in favour anymore. Brokerages that were commanding 25+ multiples are not being owned even in single multiples anymore, and not to mention if one had invested in companies that have gone bust, then it is a completely different story. . .

    So whats the learning. . . .The story is that the financial world has changed. . .with real time information the response times have changed. Now a news can impact a stock price in seconds. Now it does not take years for markets to fall, it happens in one month (what we saw in October) similarly when markets have to go up they can be on circuit and that's enough to increase the wealth of the shareholders in a day. . .

    Hence it becomes important to set goals, keep strict stop losses, and if a trade becomes profitable then sustaining it till the time it starts to retrace ( I think a 20% kind of trailing stop loss should be kept). The age old adage of buy and hold is not completely baseless however it is important to review ones investments, cause things can change and as we have seen things change very very fast!!!

    Disc: Long on Indian Stock Markets
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