Though I have been out of touch for the last 5 years, my feeble interest in stock markets keeps me not to forget finance and capital markets completely. Whenever I listen to CNBC or NDTV or look at nay recommendation from any of my able friends, One question always bamboozle me.
How can you have a bearish outlook towards any stock or market in particular.
Let me start with an example:
Analysts say buy stock x at price 120 with target of 170. As soon as you reach 170, sell it and get out of that stock.
Why should I?? If I sell at 170, there has to be someone buying at 170..Right. So who is buying at 170 when everyone believes that now stock is expected to go down.
Similarly sometime back during so called recession, the market was at 11000 points. people say that we are still in bearish market but then why do not Sensex falls immediately to 0. Because there are people buying at 11000 points.
Now from a logical perspective. people are long on Stocks or any other asset always. We have more people owning a house right now than who are short and have sold houses. Same for any other asset you can think of.
So expectation from a large segment of people is that prices would always increase of assets. That is why they continue buying/ holding them to sell in future for their financial need. Then second person buys it and holds it as per his financial planning
So, Now can anyone answer
The purpose of stop loss and Profit booking concept if you are not a day trader.
5 comments:
i would have loved to comment but since i have lost almost a lakh in few sessions ,,hence its better not to speak...
1. Analysts are lying.
2. Somme Analysts dont know that they are lying.
3. Fundamentals change faster than Analysts can think.
4. Analysts are not God.
5. Some investors do not trust Analysts and that's why they buy even if a stock has reached it's targer price.
6. Some investors have strategic intersts in a particular stock that's y they buy.
yes... analyst do lie...rajatkbose top the list
Its a big game ....ordinary ppl have no clue of it.
Explanation for Stop Loss:
[1]on an average I believe I am right - when i go long, but I cant be sure (probability of being: wrong-when-i-the-investor-went-long = non-zero -
[2] IF i-the-investor is right about being long -> then I sing-a-song. But, if proven wrong - in an inherent non-exact-science - called market and the ticker -> I would not like to loose my shirt -> hence, i put a *stop-loss* (better to loose 10% than loose it all. and that is all.. nothing mysterious about it..me thinks..
Profit Booking : explanation for this -> me thinks -> lies in adding up these the following adage:
[a] "make hay while the sun shines"
[b] what goes up must/may come down
[c] One bird in hand is better than two birds in the bush
*i already made 40% -so i achieved my target returns -> now its time to consume -> put the money down for that dream house or buy that sports car i had been saving for or for some other consumption item.. etc etc...
regards
ajay
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