Main bhi khareed leta hoon!

When we realise everyone is buying

Time - 10-15 Min

There's a new movie of Salman Khan on the block, and without proper research and interest, people started buying the tickets.

Which takes it's revenue to 10 Cr in the 1st week. Looking at this phenomenon, people start expecting that this movie has to be good and they also went to watch it taking the revenue to 20 Cr.

Looking at this, the people who actually don't watch movie thought that there must be something great in it and they also went to see it, and the revenue increased to 30 Cr. 

However, the movie was not that good! But as no was thinking about the story or the reviews - all they were interested in was that other people including their neighbour have watched it that it must be good & I need to see it & till the time the people realized that it wasn't such a great movie, the filmmakers had already made money out of it.

This is what breaking headlines does to our stock Market

Recently, one new entrant came to the Telecom space with making the calls completely free & while everyone was a bit nervous about this offer, the last week when it announced that it will be starting to charge revenue there was a frenzy and people started accumulating the stock. In fact, in a single day, it rises around 11%, a number equivalent to the M-Cap of Idea stock. 

I won't comment on the performance of the company though my whole point is 'You need to stop at some point and take stock of what you are buying'.

As Warren says Stock Market has two rules - 1st 'Never lose your money' and 2nd' Don't forget the rule no 1'  and another powerful quote of his is 'Be fearful when others are greedy and be greedy when others are fearful.'

In so many instances, we end up buying product and stocks just because other people in the market are recommending it or others are buying it, without knowing that you are actually becoming a part of a frenzy. In most of the frenzy is that people who buy in the last leg, end up buying the product at a high price and end up losing most of their money.

One good way to judge this is the P/E and P/BV i.e. Price to Equity and Price to book value and if you compare it with the other players in the same sector. Most of the times you are able to judge whether the product has gone overboard if the average P/E of the Market is 11 and your company is at a P/E of 18-19. So either the company is doing some great work(in that case buy either more of stocks or think why other people are not able to identify this stock) or you have just paid too much for the stock.

So, be fearful when others are greedy and Never lose your money.

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