volatile times

The stock market is being, and has been viewed akin to gambling. There are those who like to take risks: short term traders, traders in the F&O segment et al looking for a killing when they presume they can predict the trend. What they forget is to keep their personal downsides in control, or hell will break lose.

The stock market is a gamble to those who are lured by the growing numbers (the indexes, not the corporate results). Technical analysts tend to outperform the fundamentalists (if one would like to call them). But going by the tenet of Warren Buffet, looking for long term investments that have intrinsic value (and not value derived from the crazy bull run) gives the foundation to the stock.

It hardly makes sense to buy when the stock is on a peak, just as it is beyond commonsense to buy a depreciable item when it is expensive. But we humans, steered by greed and fear (both of which are vices as per the bible) lose all our common sense when it comes to making money.

I know there would be people around me who would say "I knew that, so I don't like to dabble in the stock market". Stock market is not necessarily bad; ideally it should reflect the performance of the companies. When it does not (remember the rising price earning multiples), the disaster is about to happen.

The largest IPO in the history of corporate India saw just too many takers; for they were driven not be logic or fundamentals (there isn't much to speak of), but by the fact that others are buying, so listing gains are as sure as the long term India economy. But they forget that when too many people are looking in the same direction, it can spell trouble. Yesterday, I came across a nice article that compared the unjustified valuation of Reliance Power with its competitors: NTPC and Tata Power. Its there in my previous entry.

In conclusion, I would say that invest in companies are out of favor in the market (contrarian approach), but have strong fundamentals. Trust the performance of the company, not the scrip.