Avoid Stop Loss



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Rishi Kashyap
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Avoid Stop Loss


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Before I tell you why I do not use stop loss let me tell you one thing about me.
I am a vegetarian.
My family is a pure vegetarian.

For pure vegetarian any meal which has even 0.1 % of meat or flesh, is treated as non vegetarian.
Pure vegetarian never mix non vegetarian with vegetarian food.

Why am I telling you this ?  Below transcript with my cousin brother, let's call him AG, will make it more clear. In fact it is AG who encouraged me to create this Share market tutorial.  
AG : Till which price do you average out when share price falls.
ME : If it is good undervalued stock, there is no lower limit.
AG : You must be joking, you should use STOP LOSS else you would get broke soon. Did you average on YES BANK
ME : I told you good undervalued stock ! Yes Bank was not good company. Better learn how to value stocks !
      Also I do not know how to value financial institutions, it is beyond my circle of competency.
AG : But YES BANK was a turn around company.
ME : Success on turn around rarely happen, if you are betting on turn around, you are speculating not investing.
AG : Why not use stop loss ?
ME : With undervalued good stock if the price falls, it becomes more undervalued. Why will I want to sell it ?
      I do not mix Fundamental Analysis with Technical analysis (Plz read Stock trading vs Stock investing).
      Stop Loss is a Stock Trader tool not an Investor tool !
AG : How many times you burned doing this ?
ME : In long term, only once with Nandan Denim, but the lesson which it taught me, improved my Stock market probability of earning.
Shares name mentioned in case studies are for educational purpose only and not to be taken as recommendations. Case study stocks may have been good investment at that moment of time which may have changed at the time of reading.
 
Please learn share market basics & how to value stocks before investing or consult a good Investment advisor.
Rishi kashyap is not a certified Financial advisor, please contact your Investment advisor if you do not know investing
avoid stop loss
When I do invest, I don't care if the stock price goes from $10 to $2, but I do care if the VALUE went from $10 to $2.Mr Warren Buffett

CASE STUDY

Share of companyBUYINGSOLDRETURN
NANDAN DENIM LimitedPrice : 66 (22-Nov-2018)
Price : 58 (25-Jan-2019)
Price : 40 (17-Jun-2019)
Price : 33.9 (18-Jul-2019)
Price : 33 (13-Nov-2019)-33 %
CAGR return : -33 %
GHCL LimitedPrice : 197 (27-Jan-2020)
Price : 167 (02-Mar-2020)
Price : 116 (12-Mar-2020)
Price : 87 (13-Mar-2020)
Price (14-Jul-2022) : 639374 %
CAGR return : 94 %

In this chapter we will learn about one more financial ratio which improved my Stock market probability of earning perhaps to 45-50%.

I found undervalued stock, Nandan Denim, using Financial ratio filters. It is in textile industry and was doing well from 2014 to 2017. Its professionally flashy, annual reports boasted of high growth. The company was good, management seemed promising. I invested.

I started investing in this since Nov 2018 as above. As Share price fell, I kept accumulating with a hope that company is getting more under valued. There was something which the share market investors knew and I did not.
I learned it after burning !

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In Share market people have lost more money by holding to bad companies than by buying them ! Once I knew my mistake, I admitted it, learned from it, improved and BOOKED LOSS !
While I never use Stop loss, I BOOK LOSS (sell in loss and do not hold),  if I find later, that I bought BAD Company or company stopped performing (Plz read Small Cap vs Mid Cap vs Large Cap Stocks) !

I know I cannot be 100% accurate and understanding this limitation is important in Stock Investment !

I applied the same knowledge and kept averaging many shares specially during COVID Share market crash, one of them was GHCL Limited as above.

Our Stock Portfolio and Stock Watch list helps you in tracking the Share result calendars, important corporate actions and corporate announcements so that you do not miss important events.

With this new learning, let us modify our
Thumb Rules for Stock Investment
  1. Default mode is DO NOT INVEST
  2. Verify Financial statement source of Information. Best is to do financial statement analysis personally.
  3. If you do not understand the financial statement, safely switch to default mode, DO NOT INVEST. Period !
  4. Check Financial ratios for fundamental analysis, if not sure, switch to default mode, DO NOT INVEST.
  5. Cannot value a stock, switch to default mode,  DO NOT INVEST.
  6. Cannot determine probability of earning, NO Margin of Safety, outside your Circle of competency, DO NOT INVEST.
  7. Keep track of Shares result Calendar and Corporate announcements in your Stock Portfolio or Stock Watch list.
    Modify MY NOTES as Valuation changes !

In our next chapter we will see how high dividend stocks and dividend upcoming can additionally improve our success in investing, but before that let us see read how Stock Traders follow Stock Investors

STOCK INVESTMENT VALUE INVESTING FINANCIAL RATIOS FUNDAMENTAL ANALYSIS FINANCIAL PLANNING

Rishi Kashyap | | EDIT


tags  FINANCIAL PLANNING FINANCIAL RATIOS FUNDAMENTAL ANALYSIS STOCK INVESTMENT VALUE INVESTING

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