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Busted: Four conventional investment myths

Last updated on: July 25, 2014 11:22 IST

Busted: Four conventional investment myths

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P V Subramanyam

These have been around for such a long time that people now believe they are true :-)

1. Buy low and sell high

Such a simple statement to make, and impossible to implement in real life! Buy cheap and sell dear. People would like to think this is easy to do, but remember whether a share is high or low is something you know only in retrospect. For example, if you buy a stock today at say Rs 2400. Six months later if the price goes up to Rs 3000 and you sell it, you would be right.

However if you buy it today at Rs 2400 and 6 months later if it slips to Rs 2100, you would be wrong.

So while it is a nice maxim, easy to espouse, buy low and sell high is mostly achieved when you are dreaming.

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Photographs: Reuters
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2. No risk, no reward (a.k.a higher the risk, higher the reward)

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One of the worst statements that has been espoused by generations of finance professionals / professors.

Look at the big runs accumulated by Rahul Dravid, SM Gavaskar, S R Tendulkar! These were accumulated by KNOWING where is the off stump.

Look at the big wealth generated by Buffett, Soros, Templeton! These have been done by HEDGING the risk, not by blindly punting in the market.

In retrospect THEY TOOK LESS RISK, that is why they are alive to see the power of compounding! :-)

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Photographs: Dominic Xavier/Rediff.com

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3. Buy! Land prices can never come down

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After all God does not make them anymore.

But people's taste changes, usage laws change, people migrate to a different place... In effect, real estate prices can change and vary from place to place!

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Photographs: Reuters
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4. Be greedy when others are scared, and be scared when others are greedy

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A very good, brilliant saying, no doubt. Again difficult to implement.

When the index was at 6000, there was a programme on one of the Television channels. The three speakers were Comrade A Raja of CPI, Shankar Sharma of First Global, and Rakesh Jhunjhunwala of RARE Enterprises.

Jhunjhunwala said people should not keep their money in savings bank account but put it in the share market.

A Raja was of course on a spiel about how Americans are here to corrupt (Oh completely as an aside did we hear any Comrade complain about Russia in Georgia?) us, etc.

Shankar Sharma told Rakesh 'Aha, now that the market has reached 6000, you want the common man to lose money?' and put Jhunjhunwala on the defensive.

However what happened to the market after that is well known! So to be fearful when others are greedy and greedy when others are fearful is nice to say, difficult to implement.

As life goes on we will break some more myths. :-)


Photographs: Uttam Ghosh/Rediff.com

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