Volatility in the Indian Stock Market Who will protect the retail investor? By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

December 22, 2014 | Posted by bobbysrinivasan << back to blog

Student: Professor, is this a good time to talk to you about investments?

Professor: Yes, I am going to give you a lengthy lecture about investment in the market. Do you have time?

Student: Yes prof., I do.

Professor: Well! I have to start with Warren Buffet. He is an American stock trader who made hundreds and billions of dollars through shrewd investments but first; let me tell you what he says about investment point by point.

Rule no.#1: Never lose money. Preservation of capital!
Rule no.#2: Never forget rule no. 1
It is not risky to buy shares at a fraction of what they are worth. It means do you know what and why you are buying. Have you asked the question; is the price reasonable in this market?
Know your risk profile. This means asking the question, what is your risk profile.
Develop your own philosophy. This is an expression of your personality, abilities, knowledge, taste and objectives.
Always invest in industries you understand. Warren Buffet made a billion dollars buying and selling Coca-Cola.
If you do the correct research, you will know when to buy and sell. Price is the determinant.
In simple language, you should be equipped with the know-how of what to buy, when to buy, what price to pay, how much to buy as a percentage of the portfolio, protecting oneself against systematic risk, handling crashes. One must also constantly monitor progress of their investment performance.
If the trading philosophy doesn’t work, look for alternatives.

Student: Prof., it is so clear. Is there anything else I should know?

Professor: Of course, know your adversaries in the game- foreign and domestic institutions. Their actions will speak volumes about how they trade and their words and there strategies for success that have been published should have very limited weightage in your decision making. Don’t pay heed to the earlier textbook methods. Those methods were meant for a different time. Today the players are different and the global markets tend to move in tandem. For example, if the New York Dow Jones was down yesterday, its domino effect will be seen in the Indian market today.

Student: What about personal traits? Can you throw some light on that?

Professor: For sure, in fact it is the most important thing about investing. Greed, for example, is one end of the spectrum and at the other end is fear.

But the essence lies in developing a system that best suits you and sticking to it. Many times after you sell, the price may go up but tell yourself that there are plenty of buses coming; I will get ready for the next bus. Above all, trust yourself and your abilities. Trust in God and believe that you can make it happen. Good luck!! When you make lots of money, buy me lunch.

Student: Sure prof. will do. Thank you for all your help.

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