Saturday, 8 March, my friend receives a message on his cell-phone-“SEBI hearing to go against Anil Ambani. Expect big news within 72 hrs. It will be a black Monday as far as the stock market is concerned and expect heavy duty correction in Reliance Comm., Capital and Energy shares.”
There are many rumors which are hovering around in the market at present. But this one takes the cake.
To my surprise, my friend reacted to this message in a rather weird manner. He had planned his trading strategies in accordance with this message. The end result proved to be catastrophic as he ended up making a loss to the tune of Rs.10000! That too in a single day. Justifying the golden rule- Retail Investors should never enter an extremely bearish or an extremely bullish market.
Why am I sharing this information with you? Because, even when many people warn retail investors against shorting any shares in a bearish market, they react to messages like my friend did, and end up making huge losses. (Shorting is exactly opposite to intra-day trading wherein you sell the share at the start of trade and then buy it back at a lower price. The difference in the amount between the two values is the profit or loss made by the investor.)
Shorting is probably the only way to earn money in a bearish market, especially when our stock market is in a mode of free-fall. But, it is extremely risky as you cannot holdback your positions as opposed to intraday trading. So, at the end of the day either you make a huge profit through your transactions or you end up making huge losses.
Moral of the story is-Don’t react to any clues from your stockbroker. This is the time to wait and watch, because of major instability in the global markets. In case your hands are itching heavily for investments, then invest in fundamentally strong stocks like L&T, BHEL which will give you good returns in the long run (time span of two years). Stay away from the real estate and banking sector for some time as certain policies are strongly against them.
There is nothing attractive that this market can offer as market pundits are predicting a slump till September. So better to wait and watch, instead of falling prey to insane rumors from your broker.