Indian Investor

Should you book your profits quickly or hold for larger gains

Nayan Mehta — Sat, 15 Aug 2009 07:10:45 +0000

From time to time you see some or large profit in certain scrips you are holding. Your start wondering whether to book profit or hold on to the scrip. If you book profit, the scrip may run up, if you hold, the scrip may erode gains till date. What to do ?

There are two schools of thought – one which says you should take profits quickly and the other one which says that only the big profits in certain investments would really make you rich. We all get confused. Which one should be our philosophy.

I have realised that one line quotes and phrases from successful personalities are misleading many a times insofar as their application to our life is concerned. I have also realised that two different answers to the same question can be right and work for us at different points of time so long as the same are coherent with the our overall philosophy and based on circumstantial factors affecting the question.

So what is the overall philosophy in financial markets ? Simple … Making money for yourself. Does it really matter you should sell early or hold on for a long time ? No, it should not.

Now, how do you decide whether you should book profits or hold on to your scrip. The answer is pretty simple. But for that you have to know basic technical analysis. Is the scrip trending up or is it in trading zone or it is trending down ?

A scrip which is trending up should generally be held till the trend breaks. But this should apply generally if you have entered when the scrip was consolidating or when the upward trend had just started. How would you know that ? I will deal with that separately in my later blogs.

In case you have entered a scrip when the same had risen significantly, then you are better off taking profit when the scrip has completed its next upmove or has shown significant gains in short time. Holding for further gains (a sign of greed) can be lead to financial loss, many a times.

Howsoever right you think you are, you could still be wrong !

Nayan Mehta — Fri, 14 Aug 2009 02:56:45 +0000

What does the title mean ? It means that you take so many decisions from time to time on daily basis with respect to investments and so many other things. Many times you form judgements and opinions about persons and things on the some basis. Most of the time when you take a decision, form judgement or internal opinion, you think you have got sufficient information or as much information as much is required to take the decision and again most of the times, you are convinced that the decision taken by you would lead to the desired results.

What happens then ? The decision you made or the judgement or opinion formed, proves you wrong. It is in front of you. You can’t refute. You start thinking that your decision, judgement or opinion was based on objective and rational thinking. You can go into a denial mode and continue to insist to yourself and others that what is happening is just an aberration and is actually not happening. OR. You may start thinking how could you have gone wrong ? This happens with all of us all the time. This is because all our thoughts, views, judgements and opinions are filtered in our mind through preset ones or preset rules based on our understanding and learnings from past experiences.

So what should you do, especially in financial markets ? Keep an open mind. AND. If you think you are thinking markets are acting crazy, watch the market behaviour but minimize your transactions and stick to what you understand. Market symbolizes mass psychology. If your thinking is against the mass thinking especially with respect to any financial position taken by you, your financial health can get seriously affected, unless you are always open to the possibility and awareness and alternative gameplan (which I call Plan B) in case you are proved wrong though you know how right you are.

NIfty Outlook for Friday, Aug 14

Nayan Mehta — Fri, 14 Aug 2009 02:55:24 +0000

Contrary to my expectation, the Nifty rallied above 4563 and closed at a much higher level of 4605 supported by FII buying. Though I had expected a sharp recovery to happen, I had expected after a little more of correction. And this is the reason why I had mentioned about the view to be taken in case market crosses above 4563.

The market would now try to scale above 4700 with conviction. Though I do not think that it would be able to maintain this velocity shown in last two sessions. In case Nifty is able to scale above 4700 in next few sessions, the Nifty’s next target would be 4900-5000. You need to be sure what you are buying in this market. The market is purely liquidity driven and most investments would now be a momentum play.

Ranbaxy [Rs. 289.45] … looks promising

Nayan Mehta — Thu, 13 Aug 2009 03:32:40 +0000

Ranbaxy has taken support of 65dma which again coincides with the upward trendline with increased volumes. If you are looking for a 20% gain over a year, I think this scrip definitely has the potential to provide that gain from this level.

Provogue [Rs. 59.60] … Momentum gains !!!

Nayan Mehta — Thu, 13 Aug 2009 03:24:44 +0000

Provogue is not a scrip which I would consider as a strong fundamental scrip. However, it stuck at upper circuit yesterday and the chart pattern looks promising for good gains if you can enter today even at say Rs. 60-61. Again 65dma support with strong trendline support.

Learn Financial Pain Management

Nayan Mehta — Thu, 13 Aug 2009 03:20:38 +0000

Have you ever felt disgusted seeing your portfolio ? Have you again felt totally depressed while seeing it and have you wondered how come you landed yourself into such a pathetic portfolio where all scrips or most of them are showing negative returns ? Have you ignored markets for a few weeks / months on the pretext of (a) not being well, (b) lot of office work, (c) family pressures, etc. when your portfolio has started showing negative returns ? You are not alone.

Firstly, just think about it. You would have entered the scrip at a high point, when the scrip would have become a momentum play based on tips, advise or your own study or intution. A scrip which is a momentum play can simply give away agains before even you can decide whether it is a pullback from recent high or correction. Again it deceives and goes up again and you think it is back on track. Before you realise, it is down again and you simply get frustrated with the moment in that scrip. You want to look at that scrip after some time when the picture is clear and when it is clear, you realise even booking the loss may not make sense and a short term investment becomes a long term investment and hope.

Solution ? Face the truth. Don’t look away from your portfolio. See what is the potential of those scrips now and whether you need to switch to more promising scrips and sectors which are market favourites when you are examining your portfolio. (Remember the rule : Winners win consistently …).

You took a bet which you may have thought was a calculated one and in which you would earn some money. You may or may not have had a target for the scrip and obviously you did not decide before hand as to what is the maximum portfolio loss you are willing to take on the scrip. And … you see a loss in market as a loss of judgement on your part (howsoever inept or irrational it may have been) and your ego refuses to believe you could have gone wrong in this one. You had to win this. Now how to save face for yourself in your own eyes. Hold till the price comes back … 1 year, 2 year … whatever and then you would be able to justify to yourself that you recovered the principle fully plus something (if any). But at what cost. You have stopped taking care of your portfolio because the pain of seeing it is too much. You have lost good opportunities just because you did not call it a day and squared off your position when you should have.

Please note. Everything fresh is good. Old is good only if it is performing. So your portfolio should always have something which is either fresh (and with a promise to perform based on rational expectations or study) or it is performing.

Market Outlook for Thursday, August 13

Nayan Mehta — Wed, 12 Aug 2009 17:52:59 +0000

As expected, Nifty fell today (Wed, Aug 12). It fell more than 110 points intraday but recovered most of it to close at 4457 (only 14 points down than yesterday). Inspite of such sharp reversal intraday, today’s high was lower than 5dma. Ideally, the market should open up tomorrow and try to reach 4563. I do not see market going above that level tomorrow or in immediate future. I am still not convinced of the trend as I think the market has not sufficiently corrected itself post a confirmed double top.

However, I would like to add a caveat that in case the market closes above 4563 then it can mean start of a V-shaped reversal upwards.

Market Outlook for Wednesday, Aug 12

Nayan Mehta — Tue, 11 Aug 2009 16:57:10 +0000

Nifty has closed 34 points above its previous close today, (Tues Aug 11). However, the high was lower than 5dma and the low was lower than yesterdays low. Though we get an impression that it may be able to get support around 50dma or 65dma, it is still early to say that with conviction. I expect the market to open tomorrow with a down gap and may not be able to go above 4510 tomorrow. I feel the Nifty should fall further by at least 100-130 points. Depending on the pattern which charts make while falling, it would be easy to take a call on further trend.

Though I do not think this will happen tomorrow, a high above 4563 can definitely mean that the market may actually change trend.

Have a Financial Target

Nayan Mehta — Tue, 11 Aug 2009 16:52:45 +0000

Do you have a financial target ? Have you ever thought by when you would like to achieve it ? If you are like most of us, you have not. You actually may not have even thought about it. So if you don’t have a financial target and do not have timeplan to achieve it, would you accomplish it ? Of course, you would. However, you wouldn’t know when you achieved it. You wouldn’t even know whether you could have done it faster had you paid attention to your target.

Markets do not work for you nor for me. Then how come can you or I be sure that such targets can be achieved ? Let me answer that question a little differently. If you go back to your own past you would notice that you have achieved quite a few targets and goals though very few things were working or supposed to be working in your favour.

So ? Just figure out what you have which you can call as your financial worth now. It can be equity, bonds, fixed deposits, bank balance, etc. whatever is encashable easily. Increase the figure by say 10% – 20% depending on your risk profile. Figure out your normal savings per month over next 12 months. Add current financial worth, incremental 10%-20% and normal savings over next 12 months. The amount so determined can be your financial target to achieve after 1 year from now. One more thing … keep a daily written log of your expenses. Believe me, this should help you in one way or the other. gure out what you have which you can call as your financial worth now. It can be equity, bonds, fixed deposits, bank balance, etc. whatever is encashable easily. Increase the figure by say 10% – 20% depending on your risk profile. Figure out your normal savings per month over next 12 months. Add current financial worth, incremental 10%-20% and normal savings over next 12 months. The amount so determined can be your financial target to achieve after 1 year from now. One more thing … keep a daily written log of your expenses.

Believe me, this should help you in one way or the other.

Nifty

Nayan Mehta — Sat, 08 Aug 2009 00:44:07 +0000

Even though the US markets ended on a positive note on Friday, I am not very optimistic about Indian Markets on Monday. I think a higher open on Monday, if it happens and any further upmove during the day should be used to exit from profitable positions for re-enter at lower levels intra-day or in next 2-3 days. However, if Nifty shows a high higher than 4592 on Monday (which is highly unlikely), then it may mean a scenario reversal for a strong positive upmove commencing Monday.