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Hello Friends !!!

Wondering what short-sightedness is ?? when you receive a bad news on your quality investments and at once you sell them off at losses (because of fear of further losses) I call it a short sightedness !!! This selling drives the price to lows and lows and this is where smart Investors should come into action.

Remember almost 95% in the markets are playing for the short term. The retailers are hungry to make quick bucks out of the market, whether by Intra-day or a 20 30 day trading. Now you will say,"No I have a stock i have been holding for more than a year".Not to be offensive but those are short term trades which turned into losses and were kept on hold dreaming of recovery. If you belong to remaining 5%, you are on right track...keep it up !!!



Now a question arises, are Mutual funds too part of the 95%......Ahemmmm.....Yessss. The reason might be different Mutual Fund Managers are under pressure to deliver highest returns to the investors in minimal time. If they cannot beat their competitor's return they are replaced/kicked out or the investors will take out heir moneys and invest somewhere else. Therefore they too jump out of the stock with bad news and short term weakness.

Now this results into a double jolt to the price of the shares and their comes an opportunity for the smart investors to buy quality companies at cheap valuations as they are concerned with longer term and such fall not only make their investments less risky (as they bought them at bottom) but also offer comparatively higher returns. Do not believe it.... let's take some recent examples :

1. Multi-Commodity Exchange of India ( MCX)

 The Earnings of MCX (which is the only commodity exchange in India) as per quarterly results in      FY 2015-16 were not as per expectations, moreover the volumes too were  getting narrower on the      commodity exchange therefore moneys started flowing out of the stock  leading to levels of 767 as    under :


 Now the smart investors think differently to the situation, firstly MCX is the only commodity  exchange, therefore it exercises monopoly in its operations, Lower volumes (due to under  performance of commodity market) is short lived..i.e. people are not going to stop trading in  commodities. Therefore, they will buy when everyone is selling....see.what they got :

 It went to touch highs of 1374 with decent 2 quarters of FY2016-17...Assuming one bought at 800,  the peak was 1374......therefore, a return of around 72% in a year.

2. Cairn India
     
 Cairn India is a market leader in oil drilling and exploration sector, lowering of crude prices were  negatively affecting its margins which was being reflected in its financials in F.Y 2015-16...therefore  the moneys went out of the stock leading to price action as under :

 Now think smartly, what was the reason.??...low crude oil prices....whether it is permanent ?? .... No,  since crude being a limited resource, its prices are ought to be pushed upwards sooner or later and  same is the profitability....the company was operating at lower margins but was not on verge of  extinction, those who invested were rewarded as shown :

 The stock went at 266....suppose one invested around 130....almost a 100% return in a year.

 Similarly with the chinese economic slowdown metal stocks Hindalco,Vedanta were heavily  beaten but as the things improved they offered around 200% returns. Also, Sugar sector with  low rainfalls in past two years and therefore lower agricultural produce was a major  under  performer but this year with good rainfalls, this sector offered returns around 300-400 %.

LEARNING POINTS

  1. It is nowhere mentioned that you should buy all the stocks at 52 week lows, the idea is to buy quality companies/market leaders/financially sound companies even if there are short term negative sentiments and price falls(take them as opportunities).
  2. Whenever you see price falling as such try to answer the following : whether the company is financially sound (depends on its products/margin/financials etc.)???...... What is the reason of such heavy price falls ??? ...... Whether the reason is Micro (company specific ) or Macro (Economy/Industry specific) ???.... Such problem is for a short term or long term ?? ....If it is a short term ... do not worry and try to grab around least prices.
  3. Remember, Even Warren Buffet buys his stocks when everyone is selling and is known for his selective contrarian strategy.(look at his recent pick of Apple stocks, he has opted to buy it when everyone is selling).
Therefore next time you see a quality company falling, try to grab it at lowest possible price(you can never be exact in buying at lowest but 20 30 % around it is enough).

Thanks for reading !!!
Happy Investing !!!

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