IT stocks which have been in a downtrend for quite a while now seem to be getting into an uptrend. With rupee hitting new lows against the dollar, things are not looking that bad for the sector.
This might be the beginning of a new uptrend in the sector.
Infosys and Wipro looks a lot better to make an upmove.
It looks like the world is still debating if this is a bull market uptrend or a bear market rally. We are working with couple of “what if” scenarios and so far we have been long on this market from the 4950-5050 levels. Infact a timely entry has ensured 5-10% gains in many stocks.
Infact in the beginning of this rally I was not too sure if this was a bull market uptrend or a bear market rally but analyzing deeper, I am finding this more of a bull market uptrend. So I’d advise people to play for even 6000 in the next 1-2 months if you really want to take this low risk trade. At the same time, I’d watch for 4950-5000 on the downside. Any break below that will invite fresh shorting of this market and shall confirm a bear phase.
So ride the uptrend till you are proved wrong! 5400 level on NIFTY is a good place to book partial profits.
And keep yourself away from a lot of expert advice. An expert takes time to reverse his/her decisions whereas markets do so almost in a hurry.
Stick to large caps-especially IT,construction and banking sectors. In auto, check a stock like Hero Honda or Ashok Leyland- look very interesting.
Most of us hear the advice- “Buy XYZ stock and hold it for a long time”. These advices are more rampant when markets are down and the current stock prices are usually below your purchase price. This is because no “buy and hold” expert wants to acknowledge his/her mistake . So till the stock price gets above the recommended price, you can continue to increasing the holding period ( From 1 year to 3 years to 5 years to even 10 years). Some might even recommend to buy even more while the stock continues to fall! I don’t blame them-after all their job is to offer you some hope in bad times.
There are couple of things which I have observed for “buy and hold” investing. One thing which often gets quoted in favour of “buy and hold” is that it is not possible to time the market. Of course, I can’t pick tops and bottoms but one can’t surely pick a few uptrends and avoid a few downtrends.
Secondly-people often quote the famous Warren Buffet while advocating “buy and hold” strategy. Now can you be as patient as Warren Buffet in holding a stock like Coca Cola for last 10+ years without generating any significant returns. He holds Coca Cola for its “brand value”. Mr. Buffet can afford to “own a business”and influence the way it is run. Can an ordinary investor emulate that? How many “buy and hold” investors can stay on cash like Mr. Buffet did from 2004-2007 (during the great bull run) ?
I feel that “buy and hold” carries a lot more risk for a normal investor.
From the recent memory take a stock like JP associates. The stock went from 150 in June-July 2007 to 500+ in December 2007, only to fall back to 200 in January 2008.
If you consider a “buy and hold” investor who bought at 150, he would have made 30% on his investment but his drawdown from the top would have been 60%(risk). And those who bought at above 200-250 might have experienced a negative return.
Now lets take the case of picking a few trends. Even if a trader bought at 170 and sold at 400 or even 350 (not at the peak of 500), he/she would have made a return of more than 100% (in 6 months) while having a drawdown of just 20% from the peak (your risk). Doesn’t it offer a better risk/return profile?
Another advantage is that “buy and hold” guys never know when to cut their losses . They are so blinded by their hope and conviction that they sometimes miss the real picture. Take the JP associates example again. When do you think will the “buy and hold”investor bail out? Add to it the psychological pain of seeing such huge drawdowns (50-60% sometimes) in “buy and hold” strategy. It shakes your confidence and affects your mental ability to seek superior performance in the markets.
On the other hand, if you are trading the momentum you are always prepared to cut your losers(again not easy!) and get the best out of your winners.This results in better risk adjusted returns.
The only word of caution is that you don’t want to be over leveraged while trading trends. This is because one bad reversal can ruin your trading account!
“Buy and hold” is more about the future and I feel future is unknown. Do you know how stock markets shall look like in next 10 years? Would they still be generating 20% per annum returns or will the returns shrink to 5%? Is it a good idea to hold a stock for 10 years when you don’t know its future?
Many people ask me to recommend a stock they can hold for the next 10-20 years. Although I personally like a stock like Reliance which is in long term uptrend but I am not too sure if it shall stay that way for next 10 years. What if oil falls back to $30/barrel? Will Reliance stay at these elevated levels? What will a buy and hold investor do if Reliance stock reverses sharply in case of such scenarios?
Thats I why I feel uncomfortable giving such “buy and hold” recommendations. To me they appear more risky as it involves a lot of guess work.To me a simple”buy and hold” offers no real edge to the investor.
The global markets have bounced with S&P in the US crossing the critical resistance of 1405 level. This might be encouraging for the US bulls ad we might see further upside momentum.
Indian market have held firm for last couple of days and clearly trending up. It is very difficult to say as to how long will they move up. As the house is divided on this being a “bear market rally” or “bull market uptrend”, the volatility might begin to pick up. Personally, I like this skepticism. I am also seeing many stocks that are ready for a good 10-20% bounce .
This is not a “buy and hold” market. This is a market where trader shall make decent money. Infact my gut feel is that coming times shall be really bad for “buy and hold” investors.(especially we actually stay in a range)
If you are a passive investor it is better to preserve your cash and live for another day to fight it out later. It might not be prudent to expect 2003-2007 like upmoves in this market. During last 4 years it was more about your putting your money into equities rather than any stock picking skill.By any stretch of imagination, we might not go from 20,000 to 100000( in next 4 years)like we moved from 3000 to 20,000! If it does happen, that shall be real party.
This market might move both ways to give a lot of money to smart traders.
BUSINESS NEWS INTERNATIONAL NEWS AMUSING STUFF
COMMENTS