Monday, April 28, 2014

Loss Recovery Strategy

It has been a long time since I have written anything about stocks. Not that I have lost my interest in stocks but its just that I wanted to experiment something on my own in the market and tell you guys something useful. This article is about how I recouped the losses I made in the market. As I have mentioned in one of my previous articles, I did make some money during 2009 - 2010 but sold early.

The money was sitting idle in the trading account which kind of forced me to commit the biggest mistake. When I started buying stocks again in late 2010 and 2011, stock prices had gone up significantly by then and I could not resist sitting in the sidelines. I invested about 27 lakhs in more than 20 stocks and trouble started from there. Several stocks that I bought came down heavily and I lost about 7 lakhs within a year. Market started moving in the sideways and it frustrated me so much so that I sold all the stocks booking 7 lakhs worth of losses. The problem with having too many stocks in your portfolio is, if few stocks go up significantly, other bad stocks in the portfolio bring it down neutralizing all the gains. Hence I sold everything and took 12 Lakh rupees out of the trading account. Now I needed to find a way to recoup the 7 Lakh losses that I made using 8 Lakh that was still in my trading account.

Strategy

I realized buying portfolio of stocks would not get me anywhere and I wanted to find a single stock that would double in a reasonable amount of time. I was searching for many and found few of them. The list included Alembic Pharmaceuticals (Rs.63 at that time), Hexaware Technologies (Rs.88 then), Arvind Limited (Rs.70 then), Indiabulls (Rs.120 then) and UPL Limited (Rs.115 then). I did buy Alembic but sold it for some reason. If I continued to have that, I could have made a killing as Alembic trades above Rs.300 now. I finally ended up buying 7,000 UPL Stocks @ Rs.115 per share as I thought, I would not get burned. UPL Limited was reasonably valued and I wanted to bet all the 8 Lakhs on that stock and it worked like a charm even though I had to remain invested in that stocks for several quarters.

 



UPL Limited tested my patience moving in the sideways for a long time, but I had no choice. Then the management announced buy back program @ Rs.220 per stock. The stock moved closer to the price I expected but expecting more, I failed to sell then. It came down again to Rs.183 and was there in that range for a month.

Last week UPL Came up with Q4 2013 results with good set of numbers. Expecting good results, the stock moved up and in the moment of madness or whatever you call it, I sold it for Rs.220 on last Friday (April 25th) just minutes before the results. So I made sure I recovered all the 7 Lakhs I lost. But the heart breaking thing happened just the next trading day which was Yesterday (April 28th). Since the result was good, the stock gained 20% (Moved from Rs.230 to Rs.276) Yesterday which means I could have benefited additional 4 Lakhs, had I waited for an additional day. But that's how life goes in stock market and no matter how much you regret, nothing is going to happen.

In the last couple of years, I have learned a lot in stock market, made losses, recovered it, bought stocks in huge numbers etc. which I think will help me in future when the right opportunity comes. The important lesson is to identify few good stocks and invest. Even if I go for diversification to minimize risk, I would not go beyond 10 stocks.

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This is a blog about stock market investments, investment strategies, and related topics. Any statement made in this blog is merely an expression of concerned authors opinion, and in no case should it be interpreted as an investment advice to buy stocks, sell stocks, or for that matter advice for any other issues be it money related or not. By using this blog you agree to (i) not take any investment decision, or any other important decisions based on any information, opinion, suggestion or experience mentioned or presented in this blog (ii) verify any information mentioned here, independently from your own reliable sources (for e.g. a registered investment advisor) and thereby check for possible inaccuracies. This blog is to create investment wisdom among general population and the authors are not responsible for
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