As investors, we try to beat the market. But the big question is can we win?
I (and you) can consider stock market as a game... a game between me and Mr. Market. In this game, market is powerful, experienced, knowledgeable (mostly) and has tons of money while I am inexperienced, have little knowledge and have only 'thode se paise'. So how I can win? Lets see how and when case by case.
Case I. Market knows, I don't know
Welcome to the world, my child!!!
For a starter, most of the situations fall under this category.... outside one's circle of competence. Market knows the business (has its own analysts, investors) and correctly values it. I have no idea. So can I win? No, I can't. The best strategy in this situation is to not lose! Just get some experience and expand one's circle of competence over time.
Case II. Market knows, I know
Child is growing!!!
Well there are cases when I can clearly say that I can make money in this. But then market also knows this and hence won't allow me to get huge returns in this case. Let me clarify with an example. I read this announcement. Delisting... Minimum support price Rs 178.5... Market price on that day was Rs 160. So clearly there was negligible downside risk. So, I know this. Time to act. But, hey, wait a minute. Even market knows this. So, not much money, boss. Result- Upper circuit in the stock for 3 consecutive days and price of Rs200 is on the cards now.
Case III. No one knows
Welcome to the world of UU!!!
There are cases when no one knows due to uncertainties involved. Sold the business.. no one knows what ll company do with cash; did some M&A deal... now what..synergy or realization of stupidity?; building huge and huge assets... will (and when) the revenues come? I can win in this situation with margin of safety and diversification (and decent luck).
Case IV. I know more than the market
Welcome to my world, Mr Market!!!
Here is your chance to win. Load it up, sit back and relax. Though it is easier said than done. But a few opportunities in this category over a lifetime ll make anyone super rich.
I (and you) can consider stock market as a game... a game between me and Mr. Market. In this game, market is powerful, experienced, knowledgeable (mostly) and has tons of money while I am inexperienced, have little knowledge and have only 'thode se paise'. So how I can win? Lets see how and when case by case.
Case I. Market knows, I don't know
Welcome to the world, my child!!!
For a starter, most of the situations fall under this category.... outside one's circle of competence. Market knows the business (has its own analysts, investors) and correctly values it. I have no idea. So can I win? No, I can't. The best strategy in this situation is to not lose! Just get some experience and expand one's circle of competence over time.
Case II. Market knows, I know
Child is growing!!!
Well there are cases when I can clearly say that I can make money in this. But then market also knows this and hence won't allow me to get huge returns in this case. Let me clarify with an example. I read this announcement. Delisting... Minimum support price Rs 178.5... Market price on that day was Rs 160. So clearly there was negligible downside risk. So, I know this. Time to act. But, hey, wait a minute. Even market knows this. So, not much money, boss. Result- Upper circuit in the stock for 3 consecutive days and price of Rs200 is on the cards now.
Case III. No one knows
Welcome to the world of UU!!!
There are cases when no one knows due to uncertainties involved. Sold the business.. no one knows what ll company do with cash; did some M&A deal... now what..synergy or realization of stupidity?; building huge and huge assets... will (and when) the revenues come? I can win in this situation with margin of safety and diversification (and decent luck).
Case IV. I know more than the market
Welcome to my world, Mr Market!!!
Here is your chance to win. Load it up, sit back and relax. Though it is easier said than done. But a few opportunities in this category over a lifetime ll make anyone super rich.
