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Thursday 9 December 2010

Profit from Mr. Market

Recently, Mr. Market seems to be in a bad mood. He is coming and offering ridiculous prices for some good mid cap and small cap companies. The reason he is angry is that some brokers allegedly were trying to rig prices for some companies without or without the management's approval.

The initial reaction for most people when they see Mr. Market behaving like this is to take the price offered and run for cover with their hard-earned money. It is understandable as stock prices for some of the "named" companies have fallen by 40-50% in the last few days. Now, as retail investors we need to understand what is happening around us and why we have invested in the first place. If our time horizon is for the long term (I don't know why it should be otherwise for investing in equities), then these mood swings of Mr.Market is a fantastic opportunity to pick up good, solid businesses in the mid cap and small cap space. Question is can they go lower? Sure they can. But neither you nor I have the faintest idea what will happen tomorrow. So, instead of wasting precious time and effort in trying to predict tomorrow, it is better to be focused on the stock price. If you think you are seeing value in a business, then go ahead and start buying. And follow my golden rule. NEVER BUY OR SELL IN ONE GO. Always stagger your buying or selling.

Happy Investing.

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