Tuesday, July 1, 2008

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Ending the Half-Year with Bloodshed

Our markets have swung in and out from Jan1 to Jun 30 with Sensex falling violently from 20.3k to 13.4k shedding a whopping 34% (~6.9k) in just half-a-year. What a BLOODY HELL!! What those people who bought at the January Heights and didn’t sell till now must be thinking?

It is only part of the story. The real bloodshed must be seen from the midcaps as many Indian bulls and retail investors love these fast paced stocks. For example, RNRL closed at 182 on Jan 1. It reached the peak closing of 244.3 on Jan 8, the day I sold all of my RNRL holdings with the largest ever killings I made to date in a single stock. Presently the stock is at 64.65 losing 73.5% from the peak closing point and 64.5% from the Jan 1 close. And this was one stock that was recommended by a magazine to be the stock every investor must own for the long term. Sure enough it was a hot stock that made fireworks during Diwali. I participated to see 100% profit to my amazement in just 10 days. I had known people who held it and saw the stock depreciate like a candle melts as it burns. This is the real hell of a loss to take from a single stock if any unfortunate person has taken a position and didn’t yet get rid of it. In my knowledge, I had known one person on moneycontrol board who bought around 210 as it was falling from 244. In February when the stock was at about 150, I advised this guy to get rid of his stock as it can fall further violently much in the same way it went up. He told it was too much loss to take at that time and he didn’t like the idea. Then I told him if he doesn’t take this loss, will he take a 50% or 75% loss (which was statistically possible at that time, I don’t predict)? Now his loss (I surely think he holds the stock) is at 69.2%. Enough to ruin a 225% profit made in long term. I never traded it afterwards to avoid erosion of my liking ness with the stock.

Another actively traded stock is IFCI. It swung from 96 to 37.2 shedding 61%. It was one of my most preferred stock to trade for short term. This time around it bled me by 20%. Diversification reduced my losses though. Today as I was planning to sell, I was looking at it at 39.2. Then before I put the order I checked the price to put proper limit. It immediately drifted down to 38.95 and then in a few seconds down to 38 and 37.7. I lost all hope and gave it up at 37.65. Luckily I got out as it closed near to this price. These are the two stocks either to make a fortune in 2007 or to ruin one in 2008 if focused intensely.

Gmrinfra plunged from 250 to 80.3. RPL from 220 to 170. JPhydro from 137 to 43.5. JPassociates from 426 to 144. Eleconengg from 324 to 92.5. Ansal properties from 425 to 69.5. I bought it at 430 and sold it at 390 after losing hope and giving up. This is another hell of a loss. It would have meant a destruction of 512% of profits made or a depreciation by 84%. Many stocks were battered badly.

Now the tough part is for those investors who took to mutual funds at the height of this boom in January or even in February. Many tax saving funds which are locked for 3 years period, have shed more than the indices. We can easily say that they must have lost by 30-40%. My advice is to consider the loss as a real loss when the money comes out after three years and treat it as a new capital. Then decide if you can trade better or put it to fund managers or use for your needs. I will pull out whatever is left as I know that I can trade better than fund managers. There is no ego here, but a fact. I will not bother to save taxes. That time could possibly be the start of next bull market. But still in my case, that means continuous profits better than mutual funds.

Seeing these, one might think the worst might be over and it is better to start buying. But the worst has just begun and we are still far from the end. A long term bear market can correct the indices by as much as 80%. We just had only 36% for Sensex. A 4.2k for Sensex might decisively end the bear market. But that is very far now though nearer than earlier. I still consider this target for Sensex as a long term not short term target due to the facts that are presently pulling down the markets. The possibilities of reversal of trend in the long term seem unreasonable though wish-able.

In the interim there might be an intermediate bull market with gains of 20-30% for the indices alone. Using caution and discipline can ensure one can make good use of this period. But we shouldn’t get fooled by this temporary period.

All this happened when the Dow Jones of US which is the center of present financial crisis had fallen from 13k to 11.4k. It has more to shed. When the epicenter loses more anybody should guess how the hell breaks lose repeatedly in our markets!

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