Tuesday, June 3, 2008

Investing in the Indian Stock Markets--Introductory Comments

For those who have never invested in the stock markets, it might seem like a muddle and there are some who would say that the stock markets are a gamble. There are some colleagues of mine who are academics and they feel that it is quite unbecoming of an English Professor like me to invest in the stock markets or to possess an active interest in investing. But my interest in investing goes back a long time. It was active in my family and the first person in my family to invest in the stock markets was my grand uncle. He invested in the Bombay Stock Exchange [BSE] most probably before the Second World War. So, I bring a genetic experience to investing in the markets that is at least six decades old.

I never attended a workshop or a training session on investing nor did I ever complete a degree or a diploma or an MBA in Capital Markets or an MBA in Finance. But I picked up my skills slowly, observing at home, reading widely and investing myself.

If you study any great investor, such as the great Warren Buffett, who I consider a guru, there's always something very precious that you will learn. Buffett is never in a hurry to buy. You can always say that well, he's old, so, he could afford to wait. But this is actually a very sound strategy and it has reaped rewards for many people in the past.

The first lesson that you learn from these stalwarts is that what goes up always comes down and what comes down always goes up in the stock markets. So, when there is a great euphoria in the stock markets, that is probably the best time to sell and make a profit. And even if you buy in the euphoria, you should buy in limited quantities and you should buy only front line, blue chip stocks.

To take a small example. In February 2008, I bought some shares of Parsvnath Developers [NSE Code: PARSVNATH] for Rs. 190 per share, then by May 2008, it had gone up to Rs. 235-240, which is a gain of Rs. 45 or 25% within a span of three months. And today, on June 3, 2008, it is back at Rs. 189 per share. As of today, the year low is Rs. 169 and the year high is Rs. 598. We know that there are fears of a depression in the markets and that most people are scared of the recessionary fears in the US. But Rs. 190 is not a bad price because when I tracked the stock price last year, there were at least five occasions when I had bought the stock at Rs. 270 a share and sold it at Rs. 350 a share. And today, at Rs. 190, the stock seems to have few takers. The fears are justified because the markets feel that Parsvnath is a real estate company and that the subprime crisis will affect its fortunes. One doesn't discount the market fears and one does not doubt what the markets think but unless the company were to be completely wiped out like Bear Stearns, there isn't much of a crisis. And even in the case of Bear Stearns, after the controversial J P Morgan deal was sealed, its stock price went up!

I hope you liked this small introduction to the Indian stock markets and I will follow up with more posts on this subject in a regular manner. Please do feel to comment and to share your views.

1 comment:

Rajeev Shahi said...

Roomy sahab apke blog kafi achhe hai...khaskarke naye investors ke liye jinhe market mein utarne mein jhijhak hoti hai....main bhi stocks mein invest karne ki jaab bhi sochta tha, mujhe lagta ki yeh sab risky hai...lekin abhi kucch dino se main isme dubki laga raha hoon..albata abhi toh shuruaat hi hai..