In August’07 I have completed my first year in stock market investment. Not that this is my first experience with the market. I had invested (rather wasted) some good money during my college years around 1993-94. At those time I never used to study much in details, partly because of lack of availability of information and I had to rely on few magazines and my broker, both the sources were equally unreliable , and untrustworthy sometime.

When I look back and check my portfolio of those time, most of companies (most of names you probably haven’t heard of, unless you have also burnt your fingers like mine) I had invested are wound up , un-listed and few of them trading at anything between Rs. 1 to 10. An exception was Oriental Bank of Commerce which gave me reasonable (absolute return of 100% – annual return about 14%) return when I sold in 2003 after holding it for seven years.

However, when I started studying the market last year, I had plethora of information sources, and some wisdom gained through the years. After some understanding(!?) I adopted delivery based investment method. Initially I had chosen percentage based return method. I wanted my investment to give me 20% annual return. Suppose I purchase shares of A company at the rate of Rs.100 and the price reached at 105 within one month, then absolute return is 5% and annual return is 60% , so I would sell the scrip.

But soon I found some disadvantages to such method. Firstly , I had to pay brokerage at about .75 % + Security Tax + Demat Charges + Transaction Charges on buying and selling and additionally I had to pay 10% short term capital gain on the profit. So in the end I ruefully I found that the broker and the government were earning as much (more in case of loss) I was earning whether I make profit or loss.

Secondly, when I had sold some of scripts with some good returns on short term basis and soon I found that prices were boomed with the market thereafter and I regretted for that. Check the table below for the scripts I sold within 1-3 months of purchase:

Script Purchase Sell price Current
DENA BANK 23-00 32-00 56-00
JINDAL STAINLESS 99-00 106-00 164-00
VOLTAS 92-00 100-00 136-00
GE SHIPPING 200-00 240-00 316-00
RELIANCE ENERGY 477-00 587-00 779-00
ASHAPURA MINECHEM 200-00 232-00 392-00

Thirdly, to make short term transactions I had to spend more time concentrating on the market and price movement which was not possible every time.

Lastly , and more importantly even if I could overcome above shortcomings I often found it difficult to find another suitable script to invest from the amount received from the last sale. One can expect to good over all profit if the short term profits are re-invested regularly.

So I have decided to be a long term investor as I was able to fulfill most prerequisite of a long term investor. I have age factor in my favor, some decent savings, regular income and the favorable Indian economy with long term growth story. Now, I mostly select the scripts from the long term investment perspective of 3-5 years and with readiness to hold it for longer period if necessary.

In one year I have seen and two crashes of Feb’07 and August’07 and enjoyed them as they allowed some good purchases. Stock market is unpredictable as it should be and nobody can claim to predict. Many analysts still do predict, as the part of their job, and helpfully they say “from here the market either can go up or down” ,quite commendable!!

So on the serious note whatever I will be writing about stock markets and scripts , please do not take me seriously. I have learnt one thing that in stock markets ,like life, one has to gain expereinces by making the mistakes of one’s own.

I will write about the stocks and mutual funds I have picked up.

Thanks Nita for the encouragement.

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