Juggling with Stocks — My initial learnings from Stock Market

There are certain things you can learn by reading. And then there is stock market. Unless you get your hands dirty, it is all a la la land.

It all started one fine day with a stock called DHFL.

Don’t worry, I am not going to complicate this piece with technical stock market gyaan. We will talk in normal human language.

So, I was busy working when suddenly there was a chaos. “Dude, what’s happening with DHFL?”

I quickly opened Kite. So this Kite is not for flying, well it sometimes does(and crashes too) but this is for investing in shares. And someone recommended me to open an account here because it is this really cool app that does not look like a trading terminal from alien space.

I had started stock investing in August and I had till that day bought some random three to four stock of Tata Motors, two stocks of Berger Paint, two stocks of Ashok Leyland, one stock of Infosys, and maybe one or two more.

These are laughable quantities to invest in honestly but neither did I have money, nor the heart to invest in “risky” market.

Also, my purpose was to get a feel of investing in stocks. To understand how my heart behaved in the crazy jungle.

And so when DHFL started falling, I looked around curiously. The price graph that flashed on TV was falling like a stack of cards. Everyone started saying, “short it man”, “dude, I got 500”, “I got 400”, then someone said, “I want to be the one who pick the lowest”.

Oh, so that’s the game!

I luckily had some Rs 800 in balance on Kite and I started anticipating what will be the lowest price. Meanwhile, people around were making 10K, 15K profit!

I was confused, how do you make profit when the stock is only falling? But the crazy was too much to pause and understand.

I finally bought 2 stocks at Rs 350. The stock had fallen from 620 to below 350 in matter of minutes!

It then fell further over next few months and is now at 167. But it was not until I decided to read basics of stock market that I realised the mystery behind that profit making.

So, in normal life, you can only sell what you own. But in stock market, you can first decide to sell something for 600 and then buy it when the price is 350.

So in a way, when you get the delivery of your purchase at 350, the buyer is bound to buy it at 600. And you make profit!

Ouch! So all that while I was thinking people are trying to buy at the lowest, they were doing that but they had already sold at higher value. That’s how they were making profit!

I meanwhile still hold those two stocks. I hold them like my battle scars!

Ok, honestly, I did feel stupid but then I got a story to tell!

And this is just one day, few minutes. I have since been investing little by little and have learned a lot on my way.

You have to know what you are doing

Either don’t do it yourself but if you are, know what you are doing.

The idea is this. Invest in shares of five companies only but read about them. See if you understand what they do. Why are you buying those? And then stay updated on their news. When you buy a stock, you become partner in that company.

Will you invest in a company you know nothing about?

You will.

That’s the lure of the jungle. But try not to.

Your greed is more dangerous than the market

You buy a stock at 100. It rises to 150. But you want more. Then it falls to 50. Now you want at least your 100 back! So you wait for it to go back to 100. It may, it may not.

You greed will not let you do anything. You will stay put. You will almost freeze.

The task is to have a strategy and stick to it. To train your mind to take action when required. To not freeze.

If you are investing for a long term, there is no reason to be bothered by these fluctuations. Strategy, and not greed, should be a reason to stay put.

Booking losses is also a strategy

So when a 100 becomes 150, and if you happen to unfreeze and sell, you book profit of Rs 50. Now you will have to pay tax on this profit because it is considered as earning (income).

Or, you can look at some other stock you hold that has fallen by Rs 40–50, sell it and book a loss of say Rs 40.

Now you pay tax on Rs 10 only. (50 profit — 40 loss = 10 income)

But I lost the stock! What if I wanted to hold it till my money was recovered?

Well, buy it again. You get it at lower price and since your expectation is that it will anyway go up and recover, it’s a win-win!

Lookout for market “corrections” or “crashes”

When my investment started falling, it was panic. -5%, -8%, -10%.

So like I said, I was not invested in lakhs. Therefore, my losses were also not in lakhs. But that doesn’t matter. I was losing money everyday.

Then when it went beyond -12%, and almost every stock went downwards, the anticipation and excitement started again.

It went down to -20% and I bought the shares.

Idea is simple. Had I wanted to exit, I would have cut my losses at -8% or -10% and exited.

But if the plan is to stay invested , might as well buy some at the lowest so that you make some money when the price recovers.

Cutting losses is SO important

It is like life and relationships. There are certain things you know can improve, can be worked on and you stay invested in a relationship. And then you face certain things that you realise are never going to improve.

If it does not majorly affect your life, you adjust. But if it does, its only prudent to cut your losses and move on.

Sometimes stock prices fall for no rhyme or reason. And they may take years to recover. Sometimes there is a solid reason too.

When a falling stock is a major portion of your portfolio, you cut your losses and exit. If at all you still want that stock, give it some time, see if it improves. You can always buy it again no?

Discipline and restraint are virtues in stock market

Nowadays the portfolio is all green, profits everywhere. Had I not seen the fall, I would have thought this is the right time to invest all my money.

I still feel the urge. Greed is a naughty sin.

I have learned restraint. I limit myself to buying maximum Rs 5000 worth of stocks every months. That’s what I can afford and that’s what I stick with.

Next is discipline. Discipline of investing every month. It is better to buy systematically than to buy in one shot. For one, it will average out your cost price and more importantly, it lets you sleep at night.

I am yet to practice discipline though. Last month I did not buy any.

It was a farm, not a jungle

I learned what I am doing is chilling in a farmland. The jungle is far more dense and complicated.

Investing in stocks may be the most accessible form of direct stock market participation we can do. There are more complex instruments and concepts that require deeper involvement and tools.

Direct stock investments are the tip of the iceberg, and a huge iceberg at that!

How I liked my Juggle

I am glad I invested just before the correction and got to experience how my heart and mind reacts.

And, looking back, I was lucky I had no money to invest initially. Else I would have lost it all and be shit scared for rest of my life.

The best way to start, if at all you want to do it , is to put yourself in the middle of the circus.

And then give yourself a free hand with a limited money that you are ready to lose.

Because in all probability, you will.

I knew nothing when I started. The experience taught me to not rush and learn fundamentals and develop the mindset if I intend to invest further.

Now, you read this and you think, “okay, now I know somethings about stock market”.

Trust me you don’t.

It is like love and heartbreak and marriage and kids! Unless you experience it, you have absolutely no idea of the beast that it is!

As for those two DHFL shares, they are staying with me forever.

Originally published at She Talk Cents.