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| Stock Trader Gazing in attempt to predict the market |
Dear Friend!
Thanks for asking the question that is constantly on the
minds of a large number of investor population, “How the stock markets will
behave in 2017?” Unfortunately the answer is not a simple yes or no but
complex and length one as that the:
- Markets are unpredictable
- Predicting tolls like the technical charts are nothing but hocus-pocus
- Making investing decisions based on market predictions could be highly dangerous
- Value investor never attempt to predict market behaviour
- Good investments can be made and money can be made during all market conditions
Great value investing gurus have repeatedly
emphasised that it is futile to predict the markets. Investment decision have
to be made based on the valuations (affordable prices) of stocks of excellent
companies under various market conditions. If shares are available at a good
discount to their intrinsic values buy them. Similarly, if scrips are
traded at very high premium to the intrinsic value of the shares you bought at a
discount, sell them.
Let us take the example of NMDC in our academic Portfolio
2K15 and analyse buy, sell or hold decisions under various
scenarios as follows:
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| Table Shows Calculation of the Intrinsic Value of NMDC Share |
As on 10th January 2017, the current market price (CMP) is
Rs.138.05 and the decision is Do not Buy but hold
as the share is not available at a discount and the CMP of Rs.138.05 is not too
high compared to the intrinsic value of Rs.113.34 as well as our average
holding cost in the portfolio of Rs.105.38.
If the CMP hypothetically was Rs.82.50 we would have bought
the scrip as it is available at a discount of 27.21%.
On the other hand if the CMP hypothetically was Rs.282.50 we would have sold
the scrip as it is trading at a huge premium of nearly 150%.
So my dear friend this is how value investors react to
market conditions rather than predicting how the stock market will
behave in the new calender year 2107.
Suggested Further Reading:
- How to Find The Fair Price of A Stock?
- How to Calculate the Intrinsic Value Shares?
- Predicting the Market Versus Reacting To It
Thank you,
With Best Regards
Anand
