Reliance power- Is it a long term hold?

A lot of people are asking about Reliance Power- Hold it, buy it or sell it?

Now there is no definitive answer to this question but one thing all of us have to understand is that Reliance Power is a speculative investment. Stocks/Companies with no earnings are vehicles of speculations by the momentum players(operators, hedge funds,trend traders etc.) in the markets. Since fundamental guys can’t “value” these stocks(there are no earnings!), any price can be justified for them! These stocks can command 400+ forward PEs in good times and may be a forward PE of 10 during bad times. So Reliance power shall only move on the basis of announcements, news, deals etc rather than any actual value creation. This is something similar to 1999-2000 when dot com companies had no earnings but moved on “future potential”.

Considering this, I feel that the best way to make money on such a stock might be to do short term trading on the stock. If you do a “buy and hold” on the stock, there is a significant risk that the stock actually trades at much much lower levels in the longer run!

The promoters and investment bankers do a good job of selling their issue at high prices using all the media blitz but it is the public which gets sucked into the system impressed by the tall claims of the management. Unfortunately we spend so much time researching on that next TV or laptop we want to buy but never put enough time into researching our investment ideas. All we focus on is making “easy money”.

Coming back to the category of speculative stocks, RPL- another stock in the same category,might be getting closer to having actual operations this year and we might witness less speculation in the counter after that.

So its important to be clear in your head if you want to “trade” a stock or adopt a “buy and hold” strategy.