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August 16, 2017, 07:03:35 PM
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: Philosophy of the stock market  ( 2867 )
« : December 03, 2009, 10:45:35 PM From Poonam»



Philosophy of the stock market


Once upon a time in a village a man appeared who announced to the
villagers that he would buy monkeys for Rs. 10. The villagers seeing
that there were many monkeys went out in the forest and started
catching them. The man bought thousands at 10 and as supply started
to diminish and villagers started to stop their effort he announced
that now he would buy at 20 rupees.
 
This renewed the efforts of the villagers and they started catching
monkeys again. Soon the supply diminished even further and people
started going back to their farms. The offer rate increased to 25 and
the supply of monkeys became such that it was an effort to even see a
monkey let alone catch it.
 
The man now announced that he would buy monkeys at 50! However, since
he had to go to the city on some business his assistant would now buy
on behalf of the man. 
In the absence of the man, the assistant told the villagers "Look at
all these monkeys in the big cage that the man has collected. I will
sell them to you at 35 and when the man comes back you can sell it to
him for 50."
 
The villagers queued up with all their saving to buy the monkeys.
 
Rest is the history, neither in future that man came, nor his
assistant, left alone were only the monkeys??.
 
Though prima facie, the story makes us laugh, just going further, it
teaches some of the golden lessons of stock investing-
 
1.Do not follow herd mentality while investing in the stocks
2.Do not invest in a  stock, till you do your due-diligence
3.Do not believe in the rumour, confirm the authenticity related to
rumour before you think it is a news
4.Know your appetite, calculate  your risk-reward ratio before you
take exposer in stock 
5.Study the asset-class before you jump to invest in it.
6.Do not invest in stock whose business you don't understand, draw a
circle only around the businesses that you understands.
7.Take risks where the chances of the total loss are low and gains
are substantial.
8.Have willingness to say `no' wait until a good stock comes by, look
for bargain stocks.
9.As long as the stock is attractive and at reasonable price be bold
to buy, once it takes over your comfort zone, ready to sell-off.
 
Remember to book the losses is your fate, but to book the profit is
your intelligence.
 
 
 
Regards & Happy Investing,
Dipesh Sohani,
Research Analyst-Institutional Equities,
The Stock Exchange-Mumbai.

 
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