Are you losing faith in your stock investment?
Smart and patient investors (like mutual funds) never lose trust, as they know, even if a particular stock might not have given any return for past 3 years but suddenly if it gives 100% return in the fourth year than the average return per year (for 4 years) will still be 25% (100%/4) which is quite good. Infect this is nothing. Some Indian stocks have even given 300%-500% return in the 6th year though there was hardly any return given during the first five years of investing. 300% return in the 6th year is still a 50% return per year (for 6 years investment) which is tremendous.
Most people trade based on their emotions. Even I used to do that and as a result of it, I missed some huge profits, though I didn’t lose. To give you an example, it happened that I kept a stock for 2 years but I sold it when the price had just risen to 5 more than my buying price. I never bothered what the business model of the company was. Actually, the price had gone down below my buying price and stayed remain below for the two complete years after I bought. The only thing that was going through my mind was to somehow get rid of this loss-making stock but without any loss. In a way, you can say I was dominated by my emotions and so I sold the stock as soon as I realized that I have already got my buying price on the stock after 2 years of investing. And this was the biggest mistake I did as the stock price then rose to 200% in the next 6 months once I sold.
These sorts of things keep happening in the stock market. The important thing is to not get carried away by your emotions and better concentrate on the fundamentals and business model of the company you bought the stock of. Stock listed companies dealing with consumer durable goods is always a better choice for long-term investing but you need to buy the stock at the start-up phase of the company’s lifecycle and then wait for the rapid growth phase which is usually the phase of the steep rise in sales and profits and as a result the stock price.
Actually, it takes time for the company’s product distribution network to grow but it really takes off during company’s rapid growth phase if their product is really good and worth buying for the consumers. You need to do a lot of research on this before buying. There is no point investing in a company which is in the decline or maturity phase. You may want to know more about all the four phases of a company to understand better.
If you are a long-term investor the strategy should be to buy right and then sit tight with complete faith.
Written By:Rajesh Bihani, Assistant Editor at sharemarkethow.com.