What Buy Low Sell High should mean?

Buying stocks, good mutual funds, managed portfolio PMS during times of correction and beat market (This type of buy low can give good returns over the long term), Although I don't completely agree with this.

What most retail investors end up doing?

Buying beaten down stocks that are falling and appear to be at a discount, At least that's what retail investors think

Let's look at some live examples of how retail ends up holding low quality stocks just because they appear to be at a "discount" because of the out of context use of "Buy Low Sell High" quotes by academics, influencers and even "experts"

Future Retail

Future Retail fell from highs of 600+ to 4 Rupees

You might feel - oh Kishore Biyani (promoter) must have lost so much money in this

Think again

This is the shareholding of Future Retail

Retail investors owned 76% of Big Bazaar till 31 March. In a few days the Dec data will be updated and I can guarantee (save this and we will revisit this soon) that more shares have been dumped on to Retail

Why? Because buy at low price seems to be discounted?

Sintex Industries 

Sintex Industries was recently written off and all shareholders lost all of their money

Who do you think lost?

Let's check it out

 95% owned by Retail Investors

These were just a few examples.

There are 100+ instances of this phenomenon where retail investors hold 80-90-95% of stocks that have fallen 90% or more, You can read my other blog to know about all other stocks 

Future Consumer - 85% retail

Future Enterprises - 83% retail

(The whole Future Group, the whole Reliance ADAG group, Sintex group, lots of NBFCs that fell in 2008 and never went back up and more)

And this phenomenon is enabled not just by the ignorance of retail investors but also by the "incompetence and lack of ethics" of the equity research industry

I know I won't get a job in equity research after this :p

Retail Investors tend to rely a lot on equity research reports that are put out by brokers and investment banks. And here's how these guys perform

 These are the recommendations of Future Retail,  All buy till Feb 2020

Worst part is that these reports would give an illogical target but no stoploss (look at the 14th Feb report which gave a buy call with a target of 377 when the price was 375.20

Because there is no stoploss in these reports, people who buy based on these reports tend to keep holding losers as they fall to zero

And what does the equity research firm do? On majority occasions they would just stop reporting on the share as it falls down on its way to zero 

An example from the west

Enron Share Price, Jan 2000-Dec 2002

Enron Cone of the top stocks in the USA) went to zero in 2002

While it was on its way to zero (down 60%), this is what GS said about it

Read each line properly. The stock went to zero within 2 months of this report

So what is the solution to this?

The greatest stock traders (from 189os till date) haven't made their fortune by buying low and selling high

They have made money by "Buying High and Selling Higher", Which I always Prefer

E.g. even the stocks that went to zero had offered significant profit opportunities by following some basic rules of risk management

"Rules to follow"

• Buy stocks when they are in an uptrend (trends can be different in different timeframes. Know your timeframe). Also stay in sync with the market trend.

• Accept that you will be wrong nearly half the times, cut losses short. Accepting small losses is the key to avoiding big losses

• When you are right, try not to take profits too soon, let the trend run its course

Save this :p it might change your life

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