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.

4 comments:

Thondaiman May 24, 2014 at 10:03 AM  

Good post, thanks for sharing your experience. I too have large portfolio but never hold more than 10 shares. This helps me to avoid making frequent transactions and focus on select few good businesses just like a passive partner. I also do not sell shares unless there is a pressing reason like corporate governance issue, consistent lack of performance when compared to peers, or indices going above 22-23 PE. These principles have so far worked.. with Sensex PE at 18.3 and strong Modi govt, I expect significant upside in near future.. Look forward to your next post!!

Vijay,  June 8, 2014 at 2:12 AM  

Kumaran, I like your research and and the way you pick up stocks to your portfolio. You are applying what you have learnt from your education and experience to your personal portfolio. But when it comes to investing, we have to take the long term perspective. It does not mean that we have to sit on our loses expecting stock to gain in the future. But before buying a stock, I ask myself the question of why am I buying it? What are all the facts that are making me buy this stock? Is it still true? If any of the parameters that I used to buy the stock changes, then I revisit my decision and evaluate selling option. If not, I would continue to hold. In long term, the business cycle and growth cycle always expands. Well, almost always. If only I loose faith on growth, I would sell my portfolio. Else, I would continue to hold on. I am surprised that you cut short your portfolio because of the loses. Even more surprising is that you invested in one single stock for recouping loses. In my opinion that is a sin in equity investing. As you know, timing never works in stock market. I know - its easier said than done.

Thanks for sharing your experience. It definitely helps budding investors. The biggest knowledge that we can gain is from others experience.

Sashi,  June 14, 2014 at 3:11 AM  

You're Absolutely right Sir. Good to see you back !!

seth_dhanraj September 2, 2014 at 11:32 AM  

Its good to see you back.

Kinda missed your posts.

Do you invest in US equities?

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