Fed up with the market crashes? Part II

However, after a prolonged time when the investment does not recover and stock decays. Really we all regret. The sense of regret comes from not selling earlier. Many investors face the same situation multiple times. Yet they are not equipped to deal with it completely. 

But what stops them from exiting earlier and accepting a mistake? It is their emotional mindset we believe. Most investors have displayed emotional incapacity to deal with such situations. They are unable to digest the fear of booking losses and thereby regretting a failed investment. However, what they forget is that a further fall in stock price will eventually turn regret into disappointment. And when this happens, it results in distress sales. 

Again it should be noted that distress sale is also an outcome of emotional incompetence. Earlier there was an unwillingness to sell the stock. Now there is willingness to exit something at throw away prices. 

In this entire emotional cycle, a typical investor buys high and sells low! This is exactly opposite of what needs to be done. This trap is called endowment effect in behavioural finance. Basically it is a practice of attaching more value to what you own than what you do not. 

Unwillingness to sell when fundamentals deteriorate and the price starts falling reflects endowment effect. You sense that the current price quoted in the market is way too low than what it should fetch. Hence, you continue to hold. But once the price falls further, the endowment effect diminishes. And this results in distress sale to avoid regret. 

I have already informed to my all contacts through my mail., market worse is not over and will continue to fall due to negative sentiment continue. Today Sensex 590 points came down & NSE NSE 189 points (Today market fallen as expected).,  it really starts exerting negative influence on the economy and the stock markets. Thus, just as it happened in 2007 and 2011, uncontrollably high crude oil prices could once again lead to a stock market meltdown. 

When exactly this would happen is anybody's guess. Besides, looking into historical trends and extrapolating them is not exactly foolproof. Simply because historical price movements have a certain economic context to them that may not be the same this time around. All in all, it is extremely difficult to predict where crude oil prices could be few months from now. Thus, investors would be well advised to focus on things within their circle of competence and not stray too far outside. 

However, why investors fall prey to such traps? 

Not paying heed to fundamentals is one reason. Investors must remember that stock price reflects current sentiments. But it is earnings that drive stock prices. Further, valuations provide important signal to buy and sell. Ignoring these parameters while investing is akin to playing darts when one is blindfolded. Results could be disastrous. 

In short, investors should do well if they overcome their emotional side and focus on fundamentals and valuations while investing. This will ensure that margin of error is low and success is high. 

Sentiment News is the most important to Market. Market is like cycle pedal.  Pedal should come down from up side & similarly contra. Presently market is very volatile due to current sentiments. Will change this situation. (இதுவும் கடந்து போகும்.) So, do not panic and need not worry about the current market situation. Should learn this from Market History.

I feel, better to away from current market and wait some more days to enter the right time to invest and select the good growth stocks - bank sector (like Karnataka Bank, ICICI Bank, HDFC Bank) but better to avoid nationalized bank., (its my view only - private banks are performing better than Nationalised bank)., Consumer products stocks (like Hind lever, Britania Biscuit, Colgate), Cements Sector (like ACC) & Automotive Sector (like Tata Motors).

But patience is very more important to enter the right time and the most important to select the good growth stocks to invest to get gain with good return in the short/long term. But how can we identify the same? Very very simple. 

If you compare the previous (minimum five years histories) of the good growth stocks and how was its elation after market fallen? Then it can be very easy to identify those stocks to invest to get gain without loss in the short/long term.