Saturday, March 7, 2015


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Few Stock Market Mistakes Investors Make

Investing in the stock market is one of the best things you can do with your money, provided that you know what you're doing. If you don't know what you're doing, you might as well take your money to Vegas — you might even get better odds. But if you're going to play the market, do it right.
Here are some common mistakes many investors make. Know them and avoid them.

1- Buying a stock because it pays a dividend
A profitable corporation can distribute profits in the form of dividends. In other words, each share gets a certain amount of money. While it's great to get a dividend, it's not wise to hunt them. So, the mistake that a lot of guys make is to buy a stock shortly before they expect it to pay a dividend.
While that sounds good, the problem is that the price they pay for the stock likely reflects the anticipated dividend. In other words, shopping for dividends means you're overpaying.
What to do instead: It's good to have dividend stocks in your portfolio, but they're not the only way of making money. Instead, hold a diverse portfolio, knowing that some of your stocks will likely pay a dividend and others won't for a very long time (if ever). If you do that, you'll find that you're one step further on the road to holding a collection of blue chips (which tend to pay dividends) and more speculative securities (which may be years away from profitability, despite increasing stock prices).
2- Buying a stock before an earnings report
An earnings report is like a quarterly scorecard from a company. But before that scorecard is released, market analysts spend their days making predictions. Most companies meet or beat expectations. The mistake, then, is taking an earnings report too seriously because meeting or beating earnings just isn't news. So, if your strategy is to speculate based solely on earnings reports, you'll be basing your predictions on accounting tricks.
What to do instead: Earnings reports have their place, but you want to use them as a signal. What should you be looking for? The company that doesn't meet its earnings.
Well, it may be a good investment, depending on why it didn't make its earnings and what it can do to change that (you'll have to investigate). But in the meantime, the stock price has likely gone down, which means there could be an opportunity for you.
3- Buying into the hype
Remember It was pretty much the poster child for hype in a boom market. In fact, there was so much hype around that Jeff Bezos (CEO of later confessed that investing in that company was one of his biggest mistakes. But what happened to Jeff happened to a lot of guys: They got carried away by the hype (and by a stock price that grew in leaps and bounds daily). In the end, the company was worth nothing.
What to do instead: It's easy to tell you not to believe the hype. But that is, in essence, what a lot of guys should do. Few companies out there can live up to the hype, so you should take it with a grain of salt. When you see a rocketing stock price and all you hear is about this hot, new company, think to yourself that these are warning signs, not investment signs. Remember; living up to that kind of hype is a once-in-a-lifetime investment.
4- Assuming that if a stock price is low, it's good to buy
Buy low, sell high, right? Well, maybe. Just because a stock price is low, doesn't mean it's a good buy. And, conversely, just because the price is high, doesn't mean it's a bad buy. The mistake is not knowing that "buy low; sell high" is really shorthand for "buy stocks that are undervalued and sell stocks that are overvalued."

What to do instead: High and low are relative terms — $300 may seem like too much for a stock, whereas $3 might seem like a bargain. But you have to put the trade in context. Ask yourself if the company is under- or overvalued at its present price, based on market cap and P/E. That's the mark of 6- Blindly following the lead of an anchor investor
Sometimes it's easy to get the business page confused with the gossip column; after all, both do a ton of name dropping. A lot of guys make the mistake of following a big-name investor like Mark Cuban or Kirk Kerkorian.
The even bigger mistake is thinking that by copying them, you're guaranteed a payday. First, there are no guarantees. Second, even if they are right, they haven't told you their strategy, so you won't know when to sell.
What to do instead: You should follow what some of these investors are doing (if only because they have the capital to move markets). But by follow I mean pay attention to, not copy. In short, know everything you can, but think for yourself.

5- Not cashing out & locking in your profit

At some point, you need to take profits. But when you take profits (sell), it can make all the difference. The truth is that there is no easy answer for this. Sadly, a lot of guys get a gambler's mentality when it comes to profit taking. That's the mistake. Or, they see a little bit of profit, and hit the panic button and sell too soon. That too is a mistake.
What to do instead: Look at the profits (rate of return) that are common to the sector. The key is to be realistic. What you need to do is stay disciplined and not get greedy or scared. Plan your profit taking as carefully as you plan your investing.

6- Not cutting your losses

Stocks move up and down. But sometimes a stock suffers a steady decline. Surprisingly, some guys see that happening and they root for their stock like it's their favorite sports team. In other words, they become emotional. Day in and day out, they obsess over a declining stock price as they lose more and more money.
What to do instead: Short and sweet, sometimes you need to cut your losses. Success is a relative term when it comes to investing. Ideally, we think of success as how much you make. But sometimes success is about how little you lose. A smart investor not only knows when a stock is in a tailspin, he has the courage to let it go, so he can take his money elsewhere and start making it back.
7- Not doing your own research
Chances are that you have more than a few friends with their own ideas about investments. The mistake that most guys make is taking their friends' advice at face value. This isn't to say that you shouldn't trust your friends. They could be right. But copying them without questioning them is like giving away your money and hoping it comes back.
What to do instead: Find out where your friends get their information. If they have a broker that has made them a lot of money, ask for a referral. If they have their own strategy, ask them to teach you (it may not be the best strategy, but any worthwhile strategy should be able to hold up under the scrutiny of a student).
8- Gambling on penny stocks
With their low prices, penny stocks look like sexy investments. But there are two problems with such stocks. First, small prices typically mean smaller margins, so the transaction costs can eat you alive. Second, penny stocks are more susceptible to fraud and manipulation. While most penny stocks are legit, it's an area where crooks ply their trade.
What to do instead: Penny stocks aren't for green investors, despite their price. Why? Because to make money in penny stocks, you need resources. Furthermore, transaction fees are likely higher when you're trading a high amount of stocks. Investing always means doing research, but you won't read about penny stocks in the business section, so you'll need the resources to dig a little deeper.
9- Being afraid to invest during bad times
For the most part, the economy moves in cycles. Boom years are followed by bust years. While you can't seem to keep guys away from investing in boom years, it's like pulling teeth to find investors in the bust years. Of course, there are more bargain investments in leaner times, so staying out of the market in those years can be a big mistake.
What to do instead: Remember this rule: economic downturn is an investment opportunity. While that doesn't mean going all in when things turn south, it does mean that you should look at the market with a different eye. Don't be discouraged when things are tough, and don't follow the crowd.
10- Blindly following a broker
Do you have a friend who begins every sentence with, "my broker says..."? Well, so what? More than a few guys get burned by blindly following their broker's advice. Is he an expert? Yes. Does he have an agenda? Quite possibly. Does he have the power to predict the future? Of course not.
What to do instead: You should listen to your broker. But you should also question him. Remember; at his core, he's a salesman, so he's trying to sell you something. Press him on details. Why is this stock the next great stock? Did he invest his own money in it?

11- Not staying on top of your investments

Some guys spend months doing research, setting up a diverse portfolio only to make their initial buys and go to sleep at the wheel. It's puzzling, but it does happen. The trouble is that the market won't call you before things change. As a result, a lot of guys wake up one day to find themselves busted.
What to do instead: It depends on the type of guy you are. If the trouble is that you'd like to follow your investments but you just don't know how, you'll want to take advantage of the tools offered by your brokerage house. All brokers offer them and they work like household accounting programs. On the other hand, if you're just lazy (it happens), you probably shouldn't be so active in the market: look for mutual funds where you'll only have to review things on a quarterly basis.

12- Entirely selling a winner

When you make a profit, it's only natural to want to sell and take that profit elsewhere. Conversely, a lot of guys look at their losses and hold onto them hoping they'll get back to even. While those may seem like different problems, they have the same root cause: misallocating your money. While nothing is constant, the above strategy actually has you pulling away from winners and getting closer to losers, which doesn't make any sense.
What to do instead: It's okay to take a profit (in fact, it's smart). But unless you think the bottom is going to fall out on your stock, don't sell it all — hold on to some of the winner stock.

13- Trading too much

Being a trader or being active in the market doesn't mean making a ton of trades. But some guys make trades the way the rest of us order drinks (pretty much without thinking). While they may know what they're doing when it comes to the trade itself, what they're missing are the transaction costs. Each trade has a commission fee and each trade has tax implications. So, if your profit margin is slim, chances are it will evaporate with fees and taxes.
What to do instead: Never let fees and taxes dictate your trading moves. If you have to change your position, do it. But don't ignore fees and taxes, and don't get trade happy.

14- Assuming that if you like the product, the stock is good

How often have you and your friends enjoyed a product (like a Krispy Kreme donut) and said that you should own stock in the company? Well, some guys incorrectly assume that a great product equals a great stock. But the truth is that there's more to a good company than a good product.
What to do instead: Look at the product as a good starting point. Okay, you found the next big thing. Now do your homework. Learn everything you can about the company from its management team and its business plan to its stock performance. Then make your investment decision.

Make money by avoiding mistakes

In total, we discussed 16 common mistakes that investors make. Sadly, this is by no means an exhaustive list. The truth is that all guys make mistakes with their money. But what separates the winners from the losers are the guys who can apply what they've learned.
A mistake is bad in and of itself, but it is insurmountable if you don't learn anything from it, because you'll likely repeat it.


  1. Sir, whats your view on HFCL?? Profit is 10 times more than Salzer plus FII's & promoters are continuously increasing stake and best point is attractive valuation.. I think its real value pick..

    Best point is Reliance Industries is having holding in this stock and if you read the latest news HFCL is also entering in Defense sector. It has lots of clients from Telecom sector including Government of India.

    Reliance has already declared that they are going to start 4G with help of HFCL so it can be turning point for the stock.

    Sir, please go through this and give your comment..

    1. Company's image damaged twice in the past due to the presence of its name in Telecom Scam and later in Ketan Parekh related price rigging allegations . I am not tracking this stock strictly and hence not in a position to comment about it.

  2. Hello VP Sir. Hope you are doing great.
    Sir could you guide me for Helios & Matheson as i have bought it on a average of Rs 140 for 200 Shares & currently share is trading around 62. Could you guide me what should i do as I am losing a heavy amount on d above said shares. Kindly suggest on d same if u can.

    1. I have no idea about its promoter quality , hence no comments.

  3. Dear Valuepick,

    Between RJ-Biotech & Nath Bio-Genes, which one would you prefer at CMP ?


    1. My views on both companies already expressed here

  4. Thanks a lot sir for these great lessons and would like to learn and follow.

  5. Thank You Sir ! With the words mentioned they really meant a lot to beginners like me!

  6. Thanks for another helpful post. Sir, I've trying to find your latest updates/remarks about Bilcare that you posted. I have tried to search this forum but in vain. I could really use some advice about Bilcare as of its current status as I am invested in it.

    Could you please share your current views on Bilcare and future outlook again?

    1. When some accounting related issue came to light , I suggested everyone holding Bilcare to mail personally to me and expressed my opinion to each and everyone who mailed to me at that time.These issues noted few months back when BILCARE published FY 2013-14 Annual Report.Since I believe there was some compromise of business ethics , I explained the situation and expressed my dissatisfaction and hence suggested to take a call depends on your own ethics and belief

  7. Thank you so much for the invaluable lessons. Tussi great ho. Just wish to ask you if its worth investing in MCX at cmp.thanks. Awaiting your reply pls pls pls

  8. Useful article...indeed certain very silly n common mistakes some of us make..thanks

  9. Respected Sir I am trapped in a penny stock Suryac hakra power in my early trades as u mentioned at point 8 & 10 now what to is in court for its payment from A&N Govt from a long time .Please share or Guide us.Thanks

  10. Dear Sir

    Thanks for all recommendation and all you teaching on how to pick a stock. In Five year before I entered in stock market and I had a huge loss but after your recommendation from 2014 Feb I am able to recover my loss as well as now i am able to find my self some value stock and I succeeded also.

    Thanks for all your knowledge sharing.

  11. Is pipava defence or astra micro wave a good choice in defence sector

    1. Astra Micro already suggested @ Rs.35. Not tracking Pipavav

  12. Dear VP Sir,

    What is your Opinion about Prakash Industries. They are making profits. But I Understand they are still facing issues with Coal Block Allocation.

    Would be grateful, if you please put your thoughts

  13. Hi Sir

    Do you have outlooks on the comapanies DCM Sriram Limited and Maithan Alloys?

    Thanks in advance

  14. Thanks sir,every investor should read this at least twice

  15. Dear sir, wrt SKM margins, do you feel across countries they will manage uniformly or some countries may give better margins so they will concentrate on priority basis.

  16. Dear VP Sir,

    Thanks for your enlightening blog.

    My question to you is about the Mistake No. 14. It's about Agro Tech Foods.

    Yes, I like their products e.g, Sundrop Oil as well as Act II Popcorn. But, is the stock good for investment?

    The company is a MNC subsidiary. Con Agro is one of the largest food conglomerate of the world.

    And yes, it is one of your earlier recommendations. You recommended it in 2010 at Rs 320/-. Considering your magnificent track record, the stock had appreciated 100% from your recommended price i.e. not very much.

    Do you still recommend it to buy at the current price? I'd love to know your opinion.


    Dr. Bishan Basu

    1. Don't think stock appreciated due to my track record.It appreciated due to the business growth of company and overall re-rating in market for the past few months . One can hold it CMP and fresh buy may consider after analyzing he impact of recently introduced products of company and their future plans to introduce more products from parents portfolio

  17. Sir, any news in Arrow coated product. I googled and also went through BSE site but could not find any,
    The stock is getting punished on a daily basis.

    1. As you are aware , Promoters sold few lakhs of shares in open market . Increase in floating stock will always an important factor affecting stock price movement and the same will be more visible once market sentiment turn negative.

  18. sir your view upon prozone intu thanks

  19. Sir, can we enter aimco pesticides at current price levels?

    1. Company's business showing improvement. Recently they decided to increase authorized capital by 50 % . For fresh entry , nothing to loose if you wait till the details available about allotment ( To whom ,at what price ..etc )

  20. Sir,what will be your take on alok its debt manageble or will prove a trap for investor.

  21. Sir, your current views on Glenmark and Ashapura Minechem. Can I hold them for long term. Thank you very much

  22. The information is very useful for the beginners.Thanks for your post.

  23. Kindly share your views on following scrips for 2yrs time .
    1) Dish TV Network
    2) TV Today
    3) NIIT Ltd
    4) KNR construction
    5) Canfin Homes



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