Market Losses – A Big Bugaboo

Posted By : Kishore B.S

Most of us regard stock market as some spooky place. No one wants to step inside, out of fear. Probably they think if they invest there, they have to kiss their money goodbye. Probably yes, but what keeps you so much afraid is the lack of confidence in your investments. So why not make a good strategy before you put up dough.

Ring a bell, once you invest in stock market, consider yourself at war. If you want to survive
then let go of your fear and stick to the game plan. You could not just consider attacking tactics, but have to use defensive as well. I remember a quote from book “The Art of War,” that goes like this,” You can be sure of succeeding in your attacks if you only attack places which are undefended. You can ensure the safety of your defense if you only hold positions that cannot be attacked.”

In order to follow this tactic in a warzone like Stock Market, you have an ultimate weapon
termed as Value Investing, orchestrated by Benjamin Graham. So if you are scared that bugaboo of market losses will bite you in your way ahead in investment market, then be a
Value Investor. Choose the sensible person inside you over the idiotic self and fish for the
stocks that you believe are undervalued by the market deriving the figures from financial
statements, annual reports, databases and other sources. Then all what is left to tag yourself as a value investor is buy them at their deflated price. This is what Warren Buffett, considered to be the most successful investor, has been doing from a long time.

This value investing stems other concept of margin of safety. Margin of safety shields you
against downtick in the market. Margin of safety lets you invest providing enough room for
errors from your part and market relapse as well. Simple strategies like buying low PE (Price Earning) ratio stocks , low Price to Book ratio stocks, are also fruitful.

Talking about of the tactic, being a sportsman myself, I can relate it to football. In a game the mindset of a manager is what makes a difference between a winner and loser. You can only score goals, when you attack where the opponent has left areas undefended and remember only scoring goals does not make you a winner, ultimately the game favors the team which defends well. Identically, listening to the market specialists ( manager’s mindset), keeping margin of safety (defense- the winning strategy), value investing (standing on your ground till the end of game) and avoiding day trading ( avoiding yellow or red card by committing fouls), are few on the lookout factors, if you want to guard yourself against the losses.

So in order to give your portfolio a good flavor of the margin of safety, do not forget the key ingredients as per Graham : evaluate the company’s true worth and settle when the current price is low enough than its intrinsic value. Then you will be close enough to make some money,  money – “..which is not everything, but ranks right up there with oxygen,” as quoted by Rita Davenport.

 

Cheers!!

-Navdeep Singh

(Student, IIM- Rohtak)

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