What is to be done when NIFTY and Sensex are up but your stocks are going negative ? :
My favorite theme.
I have stated on many occasions that one should not be taken in by the euphoria of NIFTY or SENSEX moving up. You hear so much noise on TV when NIFTY moves up by 100–200 points over a day or two as if the something earth shattering has happened. Have a look at your own balance sheet and see where you stand. That is the only thing that counts.
I have already written an answer in my Quora Blog which is relevant here:
I would add my two cents keeping the current market situation in view:
This is NIFTY move over last 6 months:
We see that it is down from its peak level achieved in January 2018, but it is still higher than where it was 6 months ago. It had gone below 10000 in March but has recovered almost 700 points from that low.
Good as far as the Index goes.
Here is one of the leading Automobile Sector Stock— Tata Motors.
Does not present a pretty picture. It is down from Rs. 450–460 levels to below Rs. 300.
Another one from Telecom Sector—- Idea Cellular :
In September 2017, it traded at around Rs. 87. Moved down to Rs. 75 in the same month. Gathered momentum in October and went above Rs. 110. It was as if Telecom Industry has hit some jackpot and Idea is the biggest beneficiary of the windfall. Nothing of the sort. Markets are irrational most of the time and we are looking for logic and reason. And failing.
It is where the IDEA stock is today:
At almost half the value where it was 6 months.
Why?
NO IDEA, like their famous ad line.
We keep hearing of UDAN scheme and increase in the number of people flying now as compared to earlier times. Fine but does it help the stock price of Airline Companies.
Here is Jet Airways:
In January 2018, it made a 52 week high of Rs. 883.45. Now it is just around Rs. 400. Market goes up and Jet Airways flies below the radar. NIFTY would do nothing for you if you own this stock.
Metals Sector was flavor of the season few months ago. Metal stocks just kept on moving up. The party ended recently.
Here is VEDANTA, a prominent Metal Stock:
These are stocks which are part of NIFTY or are otherwise large cap stocks ( Idea and Jet Airways).
I had written an answer on April 11 about VAKRANGEE stock price.
It had fallen to Rs. 154 from a high of Rs. 515 when that answer was written.
Now it is around Rs. 40.
All this decline has happened in last 5 months.
Not good at all. I personally know few people who own a big quantity of this stock bought at Rs. 250–300 levels. They are one unhappy lot presently and do not know what to do.
We have seen that NIFTY being up can be of absolutely no value to us.
What is to be done ? :
Review your portfolio from time to time.
Stay with what is doing well and get out from what is not performing. We never know in time what is wrong with a particular stock like shareholders of VAKRANGEE never found out.
Look at the strength and weakness every month and if your stock shows sign of weakness it is time to move away from it. You can always buy it once again when it shows some strength.
Stay with the large caps. Do not venture into small caps.
Cut out the noise from the business channels. Look at your portfolio and take prudent decisions.
In fact there is not much one can do when your stocks are not performing but the above few steps will cut the losses before they become too hot to handle.
Note : This article was written on Quora.com on June 04, 2018 when NIFTY was 10628. NIFTY is now at 11557 with a gain of more than 900 points but these stocks are still not doing well. IDEA, JETAIRWAYS and TATAMOTORS have all moved much lower.
Comments
sailendra August 25, 2018 at 2:27 pm
Sir, how many months in a year there could be Aug-18 like situation ( based on your past experience)….just want to guess probability of winning for a naked option buyer..
ReplyShrikant August 25, 2018 at 8:32 pm
The probability is high in volatile markets, when stocks make big sustained moves in a direction. Otherwise, when the markets calm down, the lack of volatility kills the option buyers, with time decay eating all the invested premium.
ReplyI think for the past few months markets have been very volatile, with upto 30-40% fall in some small and mid caps. As and when they reduce their volatility, most of the option buyers can face potentially long string of months with a lot of destruction in premiums paid.
While I have absolutely loved the way Mr. Pramod picks stocks for taking trades, always going long on the good companies and short on the worst companies, I think reduction in volatility for a few months can be disastrous for anyone just starting out. You can go insolvent while the market remains silent and irrational.