Exit Strategy

Isn't it the most difficult decision? You invested in some stock which is giving you great profits now, so should you book your profits and exit? You invested in some stock which is giving you big loss now, so should you book your loss and exit? You invested in some stock which is going nowhere, so should you exit and invest somewhere else?
Well fortunately the answer is quiet easy. "No" for all the three cases.

The answer to your exit strategy lies in your entry strategy. Why did you invest in a particular stock? Maybe because the management is top quality, or the products are superior, or the brand value is great or the market share is monopolistic, or the company policies are shareholder friendly, or the dividend payout is high or the future plans are game changing for the company. If you know why you invested in a particular stock then you should stick to your investments as long as the reason for your investment holds true and is not violated in any way.

Fundamental violations for possible exit
For example management change putting someone stupid in charge of the company or brand destruction beyond repair due to some unfortunate event for example case of food poisoning after consuming something from a food company or a report exposing unhygienic manufacturing practices leading to loss of trust or data manipulation in a research company or bad customer support leading to customer loss in a service company, or reputation damage due to fraud charges on company officials or loss of market monopoly due to competition from new entrants, or product failure or unfavorable macro environment like severe drought condition for agri-sector stocks or restrictive government policies for power sector stocks and so on.

Noise vs actionable events
Stock market is a dynamic place and stock prices keep fluctuating due to daily market conditions, news flows and pure trading activity. That is all noise. If you are a long term value investor then there is no reason for you to monitor this noise and increase your blood pressure. All you need to monitor is that the fundamental reason why you invested in a particular stock, is it still valid or has been violated.

Simple Profitable Exit Strategy
If the fundamental reason for your investment is still valid, you need to stay invested irrespective of whether the stock price has gone up or down or nowhere. If the basic reason why you invested in the stock has been violated, then there is no reason to stay invested in the stock irrespective of whether you are making profit or loss or nothing in it. simple. Buy carelessly if your conviction holds, sell mercilessly if it does not.

Show the right exit to the unlucky ones
Keep this one simple thing in mind and I promise you next time a person comes to you lamenting that he sold the stock and it went up or he bought a stock and it went down and his luck & life is miserable, you will smile to yourself knowing that you have left these worries far far behind. Don't forget to show your miserable friend the right exit though!

becoming fearless

Many things that stock market teaches us is useful in life in general and one of them is becoming fearless.

My moment of victory over fear
As a kid, like any other I was afraid of the dark and ghosts. I still have memories of a huge brick wall from an old warehouse that was covered with creeper plants and it used to scare the hell out of me in dark, especially on windy days with the swinging creepers. It was right on my way to the entrance of my building from the community gate and hence unavoidable. I used to just close my eyes and run as fast as possible to get past that f****** wall and it was a constant source of tension in my life.
Then one day one of my friends invited me for a horror movie outing Child's Play (1988) I feared the worse but as kids you are also insanely curious about these things. I remember from the very first scene of the movie where a convict escaping from police transfers his soul into a doll, I was so fascinated by the whole thing that I became a lifelong fan of horror movies and have enjoyed almost every movie in the horror category that was ever made .. till date I have a childish fascination with horror movies and my fear of anything has just vanished :)

 So you see sometimes getting past your fears can lead to great things in life.

What do you fear in stock markets?
The most dominant fear in stock market is losing money. While I believe we should not be too attached to money in general, having phobias like these will never let us be successful in stock market. We tend to take irrational decisions to avoid losing money like not committing large sums of money even if we have found a great investment idea. If an investment idea is great and has a reasonable chance of giving Rs 20 return for Rs 100 invested, it will surely give you Rs 20,000 return for Rs 100,000 invested but fear comes in the way of allowing us to commit a large amount to our conviction and we end up losing the opportunity that is rare or we make a meager profit out of something that could have given us a spectacular return. So all the hard work in identifying a great investment idea is practically wasted.
Well I faced it first hand in 2008 when Satyam scandal hit the stock markets. I was heavily invested in Satyam because the stock was available dirt cheap and there was constant assurance from the management and political circles that nothing is wrong with the company. But finally Raju confessed with his famous quote on riding the tiger and not knowing how to get off it. Well he got off but left my neck in the grip of the bloody tiger. I lost a great deal, I lost my money, I lost some money entrusted to me by some relatives and I lost some money borrowed on loan. I spent next two years of my life just paying of these debts using every rupee of my monthly salary and obviously developed an acute fear of committing large sums of money to anything be it real estate or investments or equity.
I don't remember well what exactly brought me back to the stock market but I think it was the shame and insult of loss that I suffered during that time. My only hope of redemption was to get it back from the same place I lost it all. I am happy to say that I deal with large amounts of money today with an ice-cold attitude, without fear and it is today one of my greatest strengths in stock market. I have recently bought an apartment for myself in Bangalore too committing to one of my largest investments and it makes me very happy.

What do you fear in life?
Well a life without fear is a free life. It gives you a different kind of happiness and pride about yourself. If you fear anything in life, you will always be restricted and you will never realize your full potential. Risks are constant in life, they will never go away. It is upto us and only upto us to learn how to tackle and win over it. Don't go down frozen with fear, give it a try, give it a fight. If you fear unwanted attention and physical harm get physically strong, practice combat till you are confident of winning your battles. If you are afraid of exams and interviews just prepare and go for the toughest one's till you have conquered one. If you are afraid of work spend as much time as possible in your workplace, do your things slowly but win over the faster one's by spending more time on it. If you are afraid of your boss, just catch him and keep talking to him until he starts running in the opposite direction from you. If you are afraid of traveling alone then book a ticket to a far off place and just get out. I guess you get the point. Face your fears head on and you will be amazed at yourself!

Happy fearless life to all of you !

expect the unexpected

You are hearing some positive news about a company from everywhere, the products look good, the marketing looks good, the management guidance looks good, the analyst review looks good and as a result you conclude that the company will post good financial results and hence it makes sense to buy truckloads before the results are declared. Then comes the result day when your prediction will come true and your investment will give you great gains. The news is out and the company has indeed declared great results, you are the new oracle of stock markets after all you predicted the future that this company is going to post good results this time. Time to look at the stock price and book hefty profits on your trade. And just as you open the quote page the first three words that come out can only be expressed in abbreviation here, WTF?

What went wrong?
You forgot that the product, marketing, management guidance, analyst review was available to everyone in the stock market and everyone had concluded just like you that the results are going to be good. The smart one's just went a step ahead and concluded that lot of investors will buy into the stock at premium valuations in anticipation of good results and they prepared themselves in advance to profit from your readiness to pay a premium that is greater than fair value even after taking into account the expected great results. So what really went wrong are quiet a few things. You didn't do your math, you got the news right but not the numbers, you got carried away by the market frenzy. You committed the cardinal crime of thinking that you are the only smart person in stock market.
Every stock no matter how good becomes expensive beyond a certain value. Although let me warn you that the reverse is not true, some stocks no matter how cheap may not be a good investment because they are simply bad stocks and their value is zero which cannot be traded.

The method of discounting
Well the official term in the stock market for such an incident is called "discounting" The result was expected to be good and it was already discounted in the stock price so when the results were declared as expected, the market was not impressed and hence the sell off. If the results were better than expected, it could have run up more. If it was as expected it might fall a bit due to profit booking and if it was below expectations it could have taken a severe hit.

Moral of the story
In stock markets don't expect the expected but expect the unexpected .. always !

Amazing correlations

These beautiful correlations and inverse correlations will amaze you and give you a feeling that making money in stock market is a child's game. Have no doubt in your mind, most of the time it might actually be !

Archies and the festive December 
Because of December being festive & gifting season, checkout in the graph below, how Archies used to spike up every December every year for several years except for 2008 which was a global recession period and obviously luxury spending & gifting was out of the picture due to many people losing their jobs and keeping the year end celebrations muted. Later on this became too obvious and the pattern became more and more deceptive sometimes falling in December and spiking in February for valentines and later on even that became slightly unreliable but only after being consistent 6-7 years !

Nestle Vs Britannia
Nestle Maggi was banned after FSSAI found high amounts of lead and MSG in the noodles (yet to be proven). Nestle had to stop maggi production due to these allegations which immediately created excess supply of dough and completely pulled down the demand for it leading to 10% correction in price of dough which in turn benefited bread, biscuit & pizza makers like britannia and dominoz (who also use dough as raw material) causing their share prices to surge. In the graph given below checkout how initially both Nestle and Britannia are highly correlated (both being in similar consumption sector) but towards the end of may both stocks start moving in completely opposite direction with Nestle crashing down due to maggi ban and britannia outperforming at an accelerated pace both due to less competition and cheaper raw material for biscuits due to ban on maggi.

Gold Vs SSE Comp
During the Jun-July'2015 crash of the Chinese stock market, investors started selling gold even at 5 year lows to add to the margin requirements in their equity positions, leading to the steep fall in the gold price. Below is a graph of SSE Composite Vs GOLD ETF. Checkout the crossover between GOLD ETF plunging and SSE Comp rising pointed by the arrow. The inverse correlation validates the theory of money moving out of Gold ETF's and being invested into equity in the Chinese market.

Crude Oil Vs Asian Paints
Crude Oil derivative is a major raw material used for paint manufacturing. As shown in the graph below, Asian paints kept rising in a beautiful inverse correlation as crude kept dropping due to recession in EU nations (Greece debt default) and after nuclear deal with Iran leading to fears of oversupply in the crude market. Other factors for crude drop included alternate fuel sources like shale gas and the politics of suppression of crude producing nations like Russia besides cutting the income of the terrorist group ISIS which was selling crude obtained by capturing crude stations in Iraq & Syria to fund their terror operations.

info-money circle

If I have to describe how the market works in a single image, I use the one given below, I call it the info-money circle. Let's take a close look at it and all that it represents 

Demystifying the info-money circle

Market is made of participants who belong to different circles like the promoters, insiders, friends of insiders, big investors, operators, brokers & traders, institutional investors, analysts & reporters, savvy & experienced investors, common investors, dreamers & fools

Information is the main price driver, this keeps originating at the core of this concentric circles and flows outside. Ideally information should reach all participants at the same time in a perfect market but that is a myth. People in circles closest to the origin of the information or the core of the concentric circles receive the information first and it gets dispersed to the outer circles through the stock exchange and people inside the inner circles

Information is often manipulated as it flows outside to increase the odds against the participants in the outer circle and many fall victim to it unless off-course you are smart enough to distinguish between genuine and manipulated information

Money flows from the outer circles, from participants who receive the information last and act last --> to --> the inner circles, to the participants who receive the information earlier and act earlier

There are lot of participants in the large outer circles and very few in the small inner circles

Large number of participants in the outer circle keep losing money and all that money goes to the few participants in the inner circles and hence the participants in the inner circle are able to gain multi-fold. For each winner there are hundreds of losers in the market circles. 

The core participants in the inner circles are strong hand participants and they stay in the market for really long periods of time whereas the participants in the outer circle are weak hands and they keep changing, come, loose money and go and mostly come again 

Few smart investors in the outer circle also make money because they understand the information well and are able to put it in context with time and price and ride the larger trends compared to immediate triggers. These guys slowly make it to the inner circle using their growing influence based on their financial gains and are able to compound their victories

Few fools in the inner circle loose money because they misuse and exploit their insider information, eventually get caught in the wrong side of the law and are thrown to the outer circle

You have a good chance to make money as long as you are smart enough and not in the outermost circle

During boom cycles outer circles keep growing, during bust cycles outer circles are decimated. Inner circle remains fairly constant. Sometimes if the bust cycle is too long then the participants in the inner circles also compete against each other and get decimated between themselves 

The concentric circles also represent the trap of the market, easy to enter difficult to exit and the resistance that is inherent in the market between the inner and the outer circles. Remember though it is easier to get out of the market from the outer circles, not so easy once you are deep inside it.

So should I enter the info-money matrix?

Well this is one of the only very few places in the world where you can make it really big starting with nothing, in pure money terms. Just keep in mind that you have to find yourself a way to the inner circles and not stay in the outer one's. Also remember getting there will not be easy, you will face lot of resistance from the powerful and wealthy inner circles and the more you get in, the more difficult it will be to get out. So which pill are you going to take? red one or the blue one?

pursuit of happiness

It is just a matter of chance that one of the greatest movie ever made in hollywood turned out to be about a struggling stock broker and that gives me a chance to discuss this topic in my investment diaries :)

Happiness
So what is your idea of happiness? Do you want to be Jordan Belfort of the "Wolf of Wall Street" or do you want to be Christopher Gardner of the "Pursuit of Happiness"? If you have not seen these movies, I would highly recommend them to you.

The pursuit
To pursue something, we need to first understand what we are pursuing. So if we want to pursue happiness then we need to understand what makes us happy. It will be something unique and different for every individual. But how to figure out what makes us truly happy. You may say that you are already quiet happy in your life, but still I would like you to give it a deep thought.

My definition of happiness? 
Happiness is a state of mind that is in perfect equilibrium. You can achieve equilibrium only if your mind is completely free. There are no forces pulling your mind in any direction. No thought about what happened in the past and no uncertainty about what will happen next, no pending business, no uncertainty, just a free mind. You can experience absolute freedom and happiness while doing something only if you have achieved complete mastery and perfection in doing that thing. There is nothing unknown to you. You are all knowledgeable about it and you can do it infinitely for infinity. Think about it, you only pause or struggle or give up on something when you hit a hurdle, an unknown and you don't know how to proceed further. You need to either clear the hurdle or change the course, which makes you unhappy. But once you have achieved mastery in doing something, to the extent that you will never hit a hurdle or an unknown, and if you love what you have mastered you can do it infinitely and forever without any pause, without any concept of time (how long?) or matter (how much?) in it. You are just there, happily doing that something and it is going to be there forever. It is like a beautiful painting, timeless and perfect.
This is why chocolate cannot be something that makes you "truly" happy. You can enjoy only a limited amount of it. It can bring you only limited and temporary happiness, restricted in both time and matter.

The Equilibrium
So how can you achieve the equilibrium point? simple two step process :) Find what is most dear to you, your dream and just dedicate yourself to perfection in it until you have complete clarity, a state of enlightenment about it. So effectively pursuit of happiness is about achieving perfection in what is most dear to you, your dream. Think Usain Bolt the sprinter, Steve Jobs the technologist, Michael Jackson the king of pop, M F Hussain the painter, Aamir Khan the actor, James Cameron the film maker, Warren Buffet the wealth creator, Edison the scientist. They lead a life dedicated to the pursuit of excellence in their field of choice, in their dream. Not everyone achieves 100% perfection but they sure do keep getting closer to it throughout their life,
99%
99.9%
99.99%
99.999%
99.9999%
99.99999%  ...
They have already achieved what no one has ever done and still they can keep doing it forever and that according to me is our pursuit of happiness. A common life, a Jordan Belfort life, is hardly worth it. He tried to do lot of things, he tried to enjoy everything but he never achieved perfection in anything. He never achieved enlightenment and ended up in total mess. Neither rich, nor popular, nor happy nor satisfied.

So let me ask you again, what is your idea of happiness? Jordan Belfort of the "Wolf of Wall Street" or Christopher Gardner of the "Pursuit of Happiness"?

penny stocks

Penny Stocks
Never invest in penny stocks, not even as speculative bets. Not even small amounts of money. It is your moral responsibility besides being a high risk for your hard earned money and I will explain exactly that in this blog. Penny stocks are active especially during euphoric bull markets and they tend to suck in lot of unaware novice investors, so now is a good time to become aware of it.

Promoter Investor Operator
Most penny stocks are paper companies and are trading for pennies because the market already knows about its worthlessness. Unfortunately there are three participants who keep the penny trading alive. One side you have the promoters who list these junk companies to raise money from the market and their only intention is to pump and dump these stocks in the market as many times as possible before it meets its ultimate fate of getting suspended or wound up. On the other side are novice investors with "One night millionaire" dreams. These investors start with small amounts of money in the stock market and hence their only chance to make it big is to invest in companies that are trading for pennies and have the potential to give multi-fold returns. All they need is a convincing story and this is where the third player comes into picture and they are called the operators. They create these "dream come true" stories about the penny stocks they are operating and provide it to you for free through multiple channels like blogs (not this one :)), emails, message boards, etc.
Obviously you have little money to invest and hence you value free advice and since you have heard the hidden gem stories about these stocks from multiple sources, you are thoroughly convinced about it by now. So there you go, let's invest a small amount and see how it goes. Well the operators are playing a larger game than you are and they want more money from you, hence they keep feeding you with fancier stories about the latest developments in the counter and also jack up the stock using money provided by promoters and other parties with vested interests to show you that their recommendation is actually working. Look the price is going up and I just told you the story behind it, what more proof do you want?

Overnight Millionaire Calculations 
Now you are a bit more comfortable with your penny investment and you start doing the calculations. I bought a thousand for Re 1 and if it goes up ten times as the operator told me, I will get ten thousand, but that's not enough. If I invest ten thousand I will get one lakh and that is also hardly life changing. If I invest a hundred thousand I will get a million and then I can buy my dream home. So lets go aggressive on this one. Well my friend, have you seen a fly stuck in a spider net? yes, that's you and it's gonna sting like hell before you come to terms with it. It's easy to put money in penny stocks but not that easy to take it out. The price movement in these stocks are completely controlled by the operators and they know how to keep you from getting out.

What is SEBI doing?
Ideally SEBI should identify these companies and suspend them from trading. They do, from time to time but its not that easy for them because they have to do it following the legal course which requires undeniable proof which takes several years of tracking. Lot of penny promoters and operators are quiet influential and that makes things even more complex. Anyways it's our money so it is a good idea not to be dependent on others for protecting it.

How to identify penny stocks?
Easy, stocks trading for penny valuations are penny stocks :) few paisa to few rupees. These stocks usually have negligible promoter holding, from 0 to less than 30% . They do lot of announcements always including the latest buzzwords like renewable energy, e-commerce, real estate. The announcements will never have tangible numbers, it will be mostly be forward looking like planning to make a big foray in the e-retail domain. There is frequent change in the name of the company, frequent switch from one business type to another which are totally unrelated, frequent change in auditors of the company, frequent resignation by the company CFO and change in board of directors, frequent corporate actions like merger/de-merger of unrelated entities, capital reduction, etc. The only motivation behind these is to keep the company name is news and attract as many novice investors as possible. They have fancy websites but not professional looking, you will spot the difference very easily. You will see lot of stock gurus feeding you continuously about these stocks on various forums. Their results and balance sheet will be either very consistent or all over the place without any justification. Just like fake websites, fabricated accounts are easy to identify. Their stocks will be ill-liquid  and trade erratic, mostly moving in upper and lower circuits which is a clear signal of pump and dump. Frankly speaking it is very obvious and easy to spot them, it is just our greed that blinds our vision.

What should I do?
What if I can outsmart the operators? I invest some money and let the operators pump it up. Now that I know how to identify penny stocks and how they work, I can dump it before the operators do so. I can make a killing, isn't it? Even if you could do so, don't. It's blood money. By trading penny stocks, you are encouraging such companies to exist. Simply ignore these companies and they will die a slow death. You would have proudly contributed to their elimination from the stock exchange by ignoring them and not giving them the life source of speculative money. By doing so you are protecting your fellow novice investors from falling in the trap of these operators and making the stock exchange a safe and clean place. So make it a thumb rule, not to invest in penny stocks and be a penny slayer in the stock market. It's a great thing to be heroic at what you do, isn't it?

Any other advantages?
By eliminating the penny companies from your tracking list you would be making a better use of your time focusing on legitimate business and increasing your chances of finding Stock-A multi-fold times, ultimately increasing your chances of success in investment by a great deal and that in itself should be motivating enough for you to ignore penny stocks. If it is not, then clearly something is going wrong. At-least remember the "Dilwale Dulhaniya Le Jayenge" dialogue  ..
"Agar tum galat raaste par chaloge ... toh ho sakta hai shuruvat mein tumhe bahut kamyabi mile, bahut khushiya mile ... magar anth mein tumhari haar hogi ... aur agar sahi raaste par chaloge ... toh bhale hi shuruvat mein tumhe kadam kadam par thokarein mile, musibaton ka samna karna pade, pareshani ho ... magar anth mein hamesha jeet hogi"

See our movies teach us a lot of good things and what a great hit this movie was. We want to be like that, don't we?

Timing And Pricing The Market

Time and Price
Two very common questions for anyone dealing with the stock market
When to enter and when to exit the stock market?
What price to buy and what price to sell?

In this article I will try to explain why both the above questions are irrelevant and why they don't deserve your time and thought. Besides holding you back from making intelligent investment decisions these questions are unnecessary distraction from your actual work in stock market and that is finding gems to invest in.

Stock Market and Numbers
In general people try to analyze numeric targets for both time and price however stock markets don't work that way. Stock market is more qualitative in nature than quantitative. I can understand that this will be hard to believe when all you see on stock market is a screen full of numbers. But those are not meaningless random numbers, they are just numerical representation for all that is going on in stock market. What is going on in stock market? Well lots of things, but before we go to that let's get the random numbers and chart patterns out of the way.

Do you mean to say numbers have no significance?
Well that depends on what is your trading style. Numbers are micro trends and usually used by algorithmic and automated trading experts who execute trades at microsecond frequency and mostly earn from trading volumes. We don't fall in that category, we aspire to be value investors and for us second by second stock price numbers do not have any significance. For us what is significant is the quality and health of the underlying business and its future prospects. Trading on numbers on the other hand is more like scavenging on micro variations in the stock price which works for big institutions and hedge funds but we will never be able to compete with them and we don't need to. It is a dog eats dog world out there. Our world of value investing is a beautiful one.

What about stock charts and chart patterns?
It is a scam and I know that this is a bold statement but trust me it is a scam. You will see lots of books and articles on different chart patterns and how people make money by identifying chart patterns and extrapolating future direction from it and then trading based on it, but nobody writes about how many chart patterns fail every moment in different stocks as the prices come ticking in. If you were to write about failing chart patterns then you could write a new encyclopedia for every ten pages of successful chart patterns. Also chart followers have tried their best to fool everyone by coming up with tons of chart pattern so that any random graph will fit at-least one of those. This is how they can manipulate your thinking to make you believe that stocks follow chart patterns, by hiding the many failures and showing you only the few successful ones again and again. Unfortunately this game has gone on for so long and has so many followers now that some of the well known popular chart patterns do work because of manipulatively trained crowd psychology that are continuously trying to identify these and trade it in a coherent manner based on the common understanding of the chart pattern. But trust me, you don't want to be a chart zombie in stock market. If you go down this path, most likely you will end up with net zero gain over a long period of time and large number of trades, and you will spend your life pursuing the art of identifying patterns out of randomness and will always be dissatisfied with yourself and your success. It is the elixir of youth or immortality that does not exists.

Let's do some fun exercise

Below is a NIFTY chart with part of it wiped out, try to predict what happened between 11:00 to 13:30. Full chart given at the end of the article.

So charts are completely useless?
No, depends on how you use them. They are best used as current and past trend indicators instead of future trend predictors. Don't look at the chart to figure out what is going to happen in the future, look at it to understand what has happened in the past. What has already happened is the absolute truth and charts provide the best snapshot for it. What will happen in future, the charts definitely have no knowledge of that. You would be making a better use of your time having a conversation with the charts about what it knows rather than doing random talk about what it doesn't. I do talk to charts regularly and they often tell me that they are pretty unhappy about people constantly asking them about future they don't know, nobody talks to them about what they know very well :)

So what is going on in the Stock Market?
Now coming back to the original question, what is going on in the stock markets? I told you earlier that lots of things happen in the stock market continuously. These are news and events. Starting from when a company is listed on the stock exchange there are continuous news flows about these entities in the stock market. Latest happenings, business updates, quarterly results, rewards & recognition, order wins, research & development, shareholder meet, general meet, analyst meet, future plans, new discoveries, fund raising, dividends, corporate actions, company policies and plans, ranking, rating and reviews, shareholder approvals for different changes to the existing structure and a lot more. Like I said a whole lot of things, cannot list them all here. Similarly there can be negative news flows also like regulatory action, client loss, business setback, impact due to fire incident, natural disaster, market conditions, competition and loss in market share, product failure, fraud detection, stock manipulation and again a lot more. There could be turn around events like business restructuring, loan agreements, new management, new promoters, merger and acquisitions, de-mergers and divestment, monetization of assets, again lots of things. These are price impacting events for a stock and this is where you should spend your time on. This is what will give answers to your questions regarding when to buy or sell and what price to enter or exit.

When to buy and sell?
So a perfect time to buy a stock is when there are no bad news or events about a particular stock in present, hopefully none in past too or at-least all the bad news in the past have been properly responded to and brought to a proper closure. Even better if there are lot of good news anticipated in the future with specific milestones both in terms of deliverable and time.
A perfect time to sell is when there is a negative fundamental change in the stock and the very reason for which you decided to invest in the stock has been violated due to this new development like failure in business, regulatory and governance issues, loss of brand name, etc.
Once you have invested your hard earned money into any particular stock, you need to follow it up like a bloodhound, you need to read voraciously about it and keep yourself updated with all the latest developments in the counter. Stock market is a very fluid and dynamic place where things change very fast. If you are slow to follow it, you will be left behind and nobody cares here for people who are left behind. It is a momentum place and you have to keep up.
Note that just keeping up-to-date is not enough, you need to develop the skills to analyze news and events and you have to be smart enough to differentiate between temporary and fundamental changes. Will cover this some other time.

Trade off between short and long term
One may argue that the stock price keeps changing all the time irrespective of the news flow.
Well that is just noise, short term trends that won't even matter in a longer time frame and is not worth focusing on too much. Remember the trade-off article I wrote sometime back. Always look for trade-offs that will give you maximum benefit. Focusing on short term noise will give you sleepless nights, while focusing on long term fundamentals will give you insights, wealth and stability.

What price to buy and sell?
This is tricky but the best way to optimize it is weighted SIP. Don't go for regular robotic unsupervised SIP, go for proactively managed SIP. Once you have decided on a stock and everything looks good just SIP into it and add it to your portfolio at whatever price it is available currently and then track it closely. If the reason you bought it for strengthens, your goals are being met and you are getting timely confirmation signals, keep on adding to the SIP. If you have doubts, slow down or pause it. If the company fails to deliver what it promised or there is a bad event that you could not envision earlier, consider exiting or reducing your holding in the stock again at whatever price is currently available in the market.
Note that I am not saying that we need not worry about the price at all which is contrary to the principle of value investing and margin of safety. However good investment opportunities with high margin of safety is a very rare opportunity in the market and a complex topic, will cover this some other time. To start with you can just believe that the collective intelligence of the market has assigned the current trading price to a stock as a fair value and that is reasonable enough to invest into as on today. This fair value will keep shifting as more and more news flow and events happen and you have to use SIP with optimized weights based on your analysis of the news and events to maximize your gains from your investments.

Your commitment to the stock market
SIP is your best bet in the market to start with until you have enough experience and clarity in dealing with the stocks. Market is predictable only at a given point of time but future events can twist it in any direction so you have to be prepared on either side at any point of time. This is where the element of hardwork comes into market. Most people think they buy a stock and hit a jackpot and they are done. No, market requires continuous monitoring, continuous strategizing, continuous adjustments. It is a lot of work commitment and time commitment and will engage and challenge you intellectually almost to the fullest, as you juggle with the knowns and unknowns and make fine tuned decisions. Each of  your decision will be punished or rewarded and you have to fine tune it further as appropriate. So it is a very involved process and requires lot of experience.

Stock market and luck
Many people think that people who make money in the market are lucky and people who don't are unlucky. Many believe that the market conspires against them when the lose money. No, Respect the market. market  is superior to you. it is the collective intelligence of millions of active participant from around the world who collectively know a lot more than you do as an individual, you are just one of them. Insignificant as an individual but important as a part of the whole, learn to respect that. Always aspire to learn from the market rather than trying to teach it or manipulate it. Market is your mother when she says something you just listen to it. You don't judge it as right or wrong, just accept it and learn from it. That's the only way to prosper here, else you perish. Hard and harsh facts put in simple words for you but learnt the harshest possible way by me. Hopefully you don't go down the same path. The sooner you get it the faster you are on track to success in the stock market.

Summary
Stop chasing numbers and chart patterns, learn how the fabric of the market works, focus on the qualitative aspect of it. It is amazing and beautiful, it is full of insights and wonder. It will help you understand the world and life in general with greater clarity. It is the collective intelligence of some of the best minds in the world. Come and explore the world through the lens of the stock market. It has all the answers you are looking for if you ask the right questions :) Good luck!

Fun Chart:
BTW the complete NIFTY chart is given below, check how your prediction worked? I hope you realize by now that it could have been anything :)

Finding Stock-A

Once in a lifetime opportunity

I have this one stock that I will discuss in this article which I believe is one of the best investment opportunities that comes rarely in the stock market. It is a small listed player in the e-commerce space that has recently started operations in the niche market of smart phone accessories just like flipkart started with books. A micro cap that has the potential to become the next flipkart. Looking at the valuations of currently established and mature e-comm players like flipkart and the kind of scope a country like India with a population of one billion plus consumers offers, this particular stock has the potential to grow multi-fold within a short period of time. By multi-fold I mean atleast few hundred times from current value. Do you want to know the name of this stock?

Did you fall for it? if yes :(, please read this blog again. If not, congratulations! Stock picking is serious business, don't look for tips. It's no fun even if you make money on tips. Besides remember the goal is to create long lasting wealth and not to make pocket money by betting on one time tips.

Find your own Stock-A

Stock picking is a life changing event. It is like finding a diamond in a coal mine. On one of those rare occasions you will find your very own "The One" neo stock, that will be a rock star in your portfolio and I can guarantee you that it will never come from a tip. It will come from your own hard work and will make you proud, it will make you rich. Remember the feeling when you got your first medal at a sports event or when you won a scholarship in a competitive exam after lot of preparation or when you got your college degree after four years of rigorous hard work staying away from home? That is the kind of feeling you will get when you have found your Stock-A. Don't settle for anything less. This is going to be your master pick, A Taj Mahal in monuments, a Mona Lisa in paintings, a David in sculptures. For some like Rakesh Jhunjhunwala it is not that rare an event, probably that is why he called his investment holding company as rare enterprise where he ironically holds many of those rare gems in huge quantities.

Is it really that big a deal?

You think that's over exaggerated and stock picking is not really that big a deal? It is. Remember excellent investment picks never expire, it is a lifetime relationship. You buy them and keep them forever, it is a perpetual investment and it will keep making you richer and proud of yourself year after year, every single day, perpetually. Once you have found your Stock-A and you have invested well into it, you are done for this life as far as money is concerned. You can use the rest of your time for things you like travelling, spending time with family, sports and adventure, social impact, whatever is your thing. You will not have to worry about money again. You have built for yourself a perpetual source of income that will never be over. More on this in my blog on retirement planning here.
It will give you complete freedom from all your money worries and help you make wiser trade-offs in life like health and happiness. More on money worries and trade-off here. Now is it not a great deal? So let's quickly take a look at few stock picks.

Rapid Fire Round

Is Infosys a good buy? it is a good buy but it is not great. Everyone knows Infosys it was discovered decades ago, now it is a mature business and will give you steady returns
Is Reliance Industries a good buy? depends. It's a complex business oil, telecomm, retail. It is too complex to track & understand for me. Besides there are regulatory issues. It is like an elephant that eats a lot, takes lot of time but moves slowly.
Is Airtel a good stock to buy? No, TRAI regulations (any regulated sector is not good) some stupid operations in Africa, I have no clue what is going on at Airtel Africa, high competition. All you need to disrupt the the telecom market is a Mukesh Ambani dream offer as a follow up to Dhirubhai Ambani dream offer, high operation cost with crazy spectrum valuations, asset heavy business model, etc
Is SunTv a good buy?  No, it is more politics than business.
But SunTv is very cheap, great bargain? Still no, focus on the business first, price later.

*Note all of the above are good stocks in general but none of them is a great stock (Stock-A)

Enough of rapid fire, let's do one slow & detailed analysis

Then what is a good buy ? Let's take one example. Say Asian Paints.
"I think" Asian Paints is one example of a truly great business. The business is simple, they make paints. It is a market leader with over 60% share in the entire paint industry. It competes well both in premium as well as mass segments. It has an unmatched retail network with deep market penetration. You will always see a paint shop selling Asian Paints almost everywhere.
The demand is going to be huge with the the recently launched "Housing for all" scheme and Asian Paints is gearing up for it with new capacity additions in Chennai. It is in the free market space, government does not decide the price of paints. The demand will be persistent, the "Housing for all" dream is expected to be completed only by the year 2020. Actually it will take much longer. Besides in a country like India, there is a tradition of re-painting the house every Diwali so repeat demand is high for paints.
It is a household name. Everyone knows Asian Paints just like everyone knows Britannia biscuits or Lux soap, so marketing costs will remain low. It uses oil & oil derivatives as a raw material, the price for which is fortunately in a down cycle, so manufacturing costs are expected to be low.
It is run by high quality management with proven track record, clean image and has shareholder friendly policies.
It has few competitors Nerolac, Berger but they are no match for Asian Paints. It is a domestic story and in many ways recession proof from what is going on in the rest of the world.
There are no controversies in Asian Paints, no politics, no corruption, no fighting within the company, no consumer complaints, no pending cases or litigation, no stock manipulation, no economic offense or tax frauds.
It is one of the best brands, it is one of the best employers, it is a fairly responsible corporate entity, it has good quality products, it is able to keep up with changing times and technology.
It is just a plain simple paint company, selling paints the demand for which is going to be there forever and it is geared up to meet that demand forever. Simple and beautiful business model. It is a fairy tale dream stock.

Any disadvantages? 

Well it is fairly discovered, fairly priced and a mature business. So it will offer steady growth in your portfolio. It may not offer spectacular growth. But note that it is still a far better story than Infosys discussed above based on future growth prospects and other aspects like competition, revenue dependence on international markets, forex risks, macro factors, etc

Now here is your challenge

Find a stock like Asian Paints that meets all the above selection criteria and even exceeds it if possible, but is not yet discovered and as well known as Asian Paints. It could be a mystery as deep as the Da-Vinci code but that is where the fun is. Isn't it? If you find one, secretly message it to me also :)

DISCLAIMER: This is not a recommendation to buy Asian Paints or sell any other stock discussed above. It is just an illustrative example for showing the thought process behind picking great stocks for investment. 
Stock picking is an extensive subject and I will have to write a book to cover all the details. That is not the goal of this article. This article is just meant to give you a starting point, the journey ahead is far greater than intergalactic distances.

Happy discovery for the gem in your portfolio!