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How to do SIP (Systematic Investment) in Stocks?

“History is written by the winners” -Napoleon Bonaparte I won’t be writing about the SIP which is already covered in the public doma...

Saturday, October 3, 2009

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Stocks vs. Gains: How Much can You Expect to Gain from the Stock Market?

stocks vs. gains in 2007 on NSE : Gaussian Plot
This is going to blow your mind out. Even if you are well versed in news about stock market related activities or a stock trader, still it will amaze you. It will give a glimpse of what stock market trading can hold for an individual investor. The above picture should speak better than words.

It is a Gaussian statistical curve, isn’t it? You might have known about this curve already. But did you ever stop to think that this curve, which can be found in so many things in nature, can also be found in the stock market? Now I am showing just that.

I thought that if I were to plot a curve showing the number of stocks on one axis and the number of times those stocks appreciated in a given time duration on the other it is likely to be a Gaussian. I had set out to get this data and plot, thanks to nseindia.com which has generously and easily made it available.

I myself was astounded to not only find this to be true but that the picture can show more things that are otherwise hidden. It took me considerable effort for 1.5 hours to clean out lot of mess in the data (some stocks changed names during the year).

The above chart shown is for the year 2007. It plots the no. of stocks for a given appreciation of the share price, all within the same year. We should note that this data is for stocks on NSE (about a 1000 stocks) but it can still hold good for BSE as well (which has 2500 stocks) and even for NYSE and so on.

We can make interesting conclusions from this picture. But let me show a glimpse of the actual data that even mentions the name of the stocks on the National Stock Exchange.

stocks vs. gains in 2007 on NSE : List of stocks
The highest gain a stock made in 2007 on NSE was 17 times gain in other words 1600% in 12 months time by JINDALSWHL. The next stocks made gains in descending order as 14, 12, 11, 9, 8, 7, 6, 5, 4, 3, 2, 1, and down into losses. The most number of stocks made a gain of around 2 times that is 100%, in sync with the general market index called SENSEX and NIFTY.

The colored stock RNRL is the one I had found and betted during the last quarter of the year. Though it gained by 700% from 22 to 180, I could capture its move from 93 to 237 during a quarter of year’s time. Nevertheless that was good as I had bet as much as I could with my courage.

All these stocks at the extreme right can be found using one market statistic. The first one is simply known by JSW holdings and did not go out of my notice. I had always seen it in the list of stocks making 52-week highs. I started tracking this market statistic since April 2007. I couldn’t enter into this stock because I couldn’t believe its trend, as the price was too high. (Now the price is adjusted after splits).

You can look at this chart again and again and take print out to get motivated for trading stocks. Do whatever you want to do with it. I leave all the conclusions on the table. And I don’t fear any sort of loss in revealing the truth. But let me tell you one important thing: "this is only a glimpse of the peak of the powerful bull market" that Indian markets have ever seen since inception. This shows what the stock market can hold even for individual traders that can trade with right principles consistently and persistently.

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