Investment during Recession times.

I have read an  interesting article 30 minutes to Wealth NDTV profit the context written in the article will be applicable for the average middle class investors. Actually it is the reality and experience of the middle class. The temptation to buy at this low levels as every one prone to have the same set of mind mentioned in the article.(Today's sensex had crossed below 10000 mark.)

The Big Question this week: when the first wave of this financial tsunami hits home and the first 1000 middle class homes lose their jobs it's serious enough to ask, is the world headed towards a recession?

Have you been shopping at the “End of Season Sale” in the stock markets?

A bumper sale has been on for the past three to four  months on the BSE and NSE. Many of my good friends fished out their shopping bags some time ago, seeing frontline stocks go cheaper by 25-40 per cent. What happened? Well the sale has got even better ! Now these stocks are 60-90 per cent cheaper from their all time highs.  Now they can shop some more.

Oops, am I rubbing salt on many a open wounds. But does anyone out there really expect sympathy if they treat investing in stocks no better than shopping at a sale?

My friends, you bought those shares only because you thought you were getting them CHEAP. Not because you saw strength in the businesses or liked the fundamentals of the company. In fact you did no research at all.

And now you’re burying your head like an ostrich defending your action – “Hey, equity is for the long term and I will make money sooner or later in these stocks.” Sooner or later? Is that how you build wealth? You’re still not willing to examine what you’ve bought? How expensive you have bought these businesses and what the future holds for them in the changed economic scenario? You’re NOT willing to cut your losses and switch to sound investments.

Loss aversion – this is the single biggest mental block in the minds of retail investors who dabble in stocks.

I may sound all knowledgeable and wise today, but honestly, it’s taken two meltdowns in the Indian stock markets and big losses for me to get rid of the  same block.

In the early nineties, as a novice and  a  very small investor I lost all the money my husband and I had carefully saved for his MBA, only because I bought stocks on tips and then refused to book losses, knowing jolly well that I was sitting on duds.  I repeated it again in the year 2000. Bought when everyone was buying…on recommendations from well meaning brokers, friends, anyone and everyone. And lost most of it.

“Yes it should be true for middle class investors and people who have invested in stocks have same kind of feeling .But if you ask for a opinion with some of the leading stock brokers they would say If you need to earn wealth  you should invest or be in stock market. Today’s reality is after feeling the brunt every one has to listen to the old style of keeping the saving either in FD or Bank account or investment in Gold (irrespective of the fluctuations in the commodity prices).”

Burnt badly twice, I  now  follow two simple rules:

(1) I don’t invest in businesses I don’t understand.

(2) I  sell,  even at a loss if I see a Company’s prospect changing from positive to negative. This time I sold my entire stock  portfolio three months ago. I saw external factors changing and no positive triggers for the stock markets for the next year or so. My home loan on the other hand was getting expensive. So I sold and repaid my home loan. It was a weighed out and calculated  bet. And it paid off. 

“Inspite of the fact that we have an opportunity to see these practical truths we are much hesitant to accept the truth and we are burying our heads like Ostrich as mentioned .”

So have I got it right, finally? I don’t know. But I do know for sure. I will not go shopping for stocks in a sale.

Investing is a serious business. I work hard to earn and save. I will not gamble. And neither should you my friends. The sale could be on for some time, tempting you.....

“But the sad thing is that it may not acceptable for an average middle class investor have a feeler that again I will make an attempt and I will win.”.