Should You Follow the Stock Market Every Day?

No, I don’t follow the stock market every day. Of course, I do read about the market, albeit with a bit of amusement, in the newspaper headlines. Financial papers often scream “Market Crash Wipes Out $ 50 billion Investor Wealth”.

Why You Need Not Follow the Stock Market Every Day?

My guru Warren Buffett says that when you invest in stocks think that the market is not going to open for the next 50 years. As a value investor, I am trained to think that when I buy a stock it is like investing in a proprietary business. Proprietary businesses are not listed on a stock exchange. Does the proprietor have a way of knowing the value of his business every day? Does she worry about the market value of her business every moment? It is the same when investing in the shares of a company.

The day-to-day or moment-to-moment fluctuations in the price of a stock do not bother a real long-term investor. The reason for this is that a real investor does not invest in stocks merely for the gains arising out of the price fluctuations.

She is into stocks for the copious dividends good companies pay over lifetimes. She is keen about dividends because 'dividends are the investor's wages'. A company that pays dividends consistently at say 10 per cent every year pays back the investment more than three times over a period of three decades.

Of course, she is also interested in the long-term price appreciation of the stock. But she looks for it not from the day-to-day price fluctuations but on the back of the real growth of the company.

Then, Who Follow the Market Every Day?

Only day-traders follow the market every day. In fact, they follow it every moment. Why? Because they intend to make gains out of the price fluctuations.

When they buy stocks, day traders do not think they invest in a business. Speculators consider the share in a company is not ownership of a piece of the business. For the speculators, the share is a separate asset by itself. For them, it is like the stock-in-trade which is intended to be held for as short a period of time as possible and rotated as many times in the trading activity as possible. Every trade produces a small gain or loss.

This is not investing. My guru Warren Buffet says, "Just Looking at the Price is Not Investing". Day trading is pure gambling. It is highly stressful. We should learn the art of ‘Stress-Free Investing’.

I conclude by saying that I do not follow the stock market every day. I don't think shares of a company are stock-in-trade meant to be transacted. On the contrary, I a long-term investor consider a stock like a fixed asset meant to employed in the business to produce goods (dividends) also appreciate in value over a long time.

Can Investment in Corporate Bonds be made in India through Online Trading Account?

Actual Question:

Why are corporate bonds still traded OTC and not electronically?

Answer

Dear Mr.Marcos Jaramillo

A number of value investors, including myself, are keen to make bond investments in India, and always wonder whether one can invest in corporate bonds be made in India through an online trading account. In the US and other financially mature countries buying bonds online is easy and widespread. However, Indian bond market is still in a very nascent and under developed stage. There is a lot of discussion in the official and media circles about the need for the development of bond markets but progress on the ground is negligible.

It appears that online bond trading does take place in a limited way. I too have explored the possibility a few times but did not find any attractive capital appreciation opportunities, and therefore did not pursue the matter any further.

Since I do not have any direct personal experience of buying bonds electronically, I cannot say for sure whether the possibility exists, but a cursory glance at the following web pages does indicate it is possible:

1. I had seen corporate bonds being listed on the websites. Please see this link of bonds listed on BSE/ NSE. If bonds are listed on the stock exchange, I presume they are available for online trading. Here is the link: http://www.moneycontrol.com/fixed-income/bonds/listed-bonds/.
2. NSE lists bonds traded on the exchange as well as OTC Trades in two different pages, indicating that indeed it is possible to electronically trade bonds on the stock exchange. Here is the link: https://www.nseindia.com/products/content/debt/corp_bonds/cbm_reporting_homepage.htm.
3. My online trading account with Kotak Securities shows a menu option for bonds investment. Please see the screenshot below: 

Related Articles:

• Bond Definition
• What is the Relationship Between a Bond's Market Price and Its Yield to Maturity?
• What is the Better Investment Instrument Between Stock and Bond?
• How To Invest In Stocks And Bonds For Beginners - Video
• Is there a Legal Cap on Bond Rates?
• What is the Difference Between Bond and Share?

Conclusion

Markets in India for corporate bonds lack both the breadth and depth, and are still in the nascent stage of development, providing little opportunity for meaningful bonds investment. Even though I have not personally made bonds investment, more because of a lack of an attractive investment in corporate bonds, it appears that it is feasible for buying bonds electronically through the online trading account.

Thank you,

With Best Regards

Anand

How to Know When Foreign Investors Will Pullout Money from Indian Stock Markets?

Actual Question:

How can I know in advance if foreign investors are about to pull money out from Indian stock market?

There is a large chunk of money in Indian stock market, which are pushed by investors from foreign investment companies. Is there a way by which we can know if foreign investors are about to sell huge numbers of stock for any XYZ reason?

Answer:

Dear Friend!

The fundamental reason underlying your question is the concern about the potential steep fall in stock prices when foreign investors pull their money out from Indian stock markets. If you dig deeper you will discover that the question/ concern stems from other fundamental reasons, as follows:

1. Investing in stocks really not intimately knowing the companies, their business models and their true value.
2. Investing in stocks at very high valuations not knowing their intrinsic value.
3. Investing in stocks presuming that returns from stock markets accrue only from increase in stock prices and if prices fall, investments will generate losses.
4. Investing in stocks for short term, again with an intention of making a profit from price fluctuations.

However the problem is that nobody can predict reliably when they might do so.

While I may not be able to provide solace by reliably predicting when foreign investors may pullout their money from the Indian stock markets, I can surely show you a way:

1. How you can be a happy investor not worried about when foreign investors are likely to pull their money out.
2. How to invest safely and profitably in every market situation - both bull and bear markets.
3. How instead of attempting to predict the unpredictable, you can simply react to the markets.
4. And finally, how to surely make significant riches out of stock markets.

This sure and safe path is called ‘Value Investing’.

Buy a copy of the book, ‘The Intelligent Investor’ by Benjamin Graham. It is a masterpiece, Warren Buffett cherishes till date.

Read following articles that may completely change your attitude to investing:

• Miracle of Compounding
• Risk Comes from Not Knowing What You are Doing
• You Only Find Out Who is Swimming Naked When The Tide Goes Out
• Margin of Safety
• How to Calculate the Intrinsic Value Shares?

To conclude, it is not possible to reliably predict when foreign investors are likely to pull their money out, but certainly possible to overcome the underlying concerns behind the question and profit form the stock markets.

Thank you,

With Best Regards,

Anand

Why Stock Markets Have More Day Traders than Value Investors?

Actual Question:

Why does there seem to be so many more day traders than value investors in the style of Warren Buffett, etc.?

Answer:

Dear Friend!

Such a wonderful question!

I too wonder the same.

In my opinion there are three fundamental reasons for the gross aberration that there are more day traders than value investors operating in the stock market.

Greed:

Greed and fear are the most common and difficult to control human emotions. Of the two greed comes first and fear follows. When markets are rising (present situation) greed attracts more players. Most of the people enter not knowing anything about stock markets. They have simply overheard somebody saying that markets are rising and there is a killing waiting out there!

Desire for making a quick-buck:

Many people have a strong desire to make a fast-buck. They do not want a longer but surer path like value investing. This fundamental nature of human beings is further reinforced by modern technology, which strives to provide instant gratification of needs - people just don’t want to wait anymore - they want internet banking, immediate downloads, and so on. Marketers, online shops, et al, work hard to satisfy this craving for instant gratification.

Gambling Instinct:

Man seems to have been created with an inborn gambling instinct. This is not new. We have been having it since the Mahabharat times, with the Pandavas betting and losing even their beloved wife in fit of gambling rage.

Day trading provides a very convenient dignity to what is otherwise pure gambling. Families of day traders honestly believe that day traders are engaged in serious and respectable business or profession, and they spread this belief about their day trading family members among the larger family and the society at large.

Related:

• Trading/ Day Trading
• Margin Trading
• What is Short Selling?
• What is the Differences Between Fundamental and Technical Analysis?
• Why Day Traders Cannot Quit?
• Is Algorithms Based Trading Safe?
• How Warren Buffett Trades in Stocks?

Conclusion:

Finally, my dear friend, please do not think I am delivering this sermon standing tall from a high moral ground.

I had been once what I have described above, till one day I lost all my life’s savings in the fraction of a second during a market meltdown.

After this costly burning of fingers, I had abandoned the stock markets for a very, very longtime.

Fate touched me and made a value investor after a long interlude.

I too am striving my bit through my blog ‘Wealth Vidya’ to convert day traders into value investors, but cannot fail to wonder, just like you, why there are more day traders than value investors operating in the markets today!

Thank you,

With Best Regard,

Anand