POSTED BY January 19, 2011 10:27 pm COMMENTS (5)ON
My friend has a question to me which i thought will be best answered by forum guys.
He has direct equity investment of 50K and currently the whole portfolio is trading in 3K loss. He needs around 40K in 4 months from now.I told him about uncertainity of stock market in short term and the possible trouble. But he says he can risk the money may be upto another 5K loss which mean a total loss of 8K after 4 months. But he thinks Nifty would be in 6000 levels in 4 months which might wipe his loss.
Is he right? ie nifty can be around 6000 in 4-5 months? or is there a possibility for it to goto 5200 level in which case he might be loosing another 5K. Whats your opinion on it?
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5 replies on this article “Now or after 5 months”
My previous post seems to have got lost in cyberspace, hence reposting.
This person, like lakhs of others, has entered the market without adequate understanding. That usually means hoping too much for “return” without worrying too much about “risk”. The two, risk and return, as Warren Buffett says, are joined at the hips but most investors see either one or the other. And the shorter the term, the higher is the risk.
The right advice to this person would be to decide how much he does not need for the next 10 years and put that money to work. Hopefully he will do well.
Flip it. Ask him, what if nifty goes to 6200 in next month (say due to budget rally). Will he book profits at that amount or will he play for the next level.
I think I am correct in saying “play” here. If you want to speculate in stock markets with Important money in short term, you are playing.
Play with money only which you can “afford” to lose!
He may have a well diversified portfolio. He may have invested in fundamentally good companies with good growth prospects. But if you have a time-limit, it is best to set aside the important money.
Technically, Nifty has broken all important levels in weekly chart last week. This week can be flat as generally happens after breakout. But next week can be real red nifty. Seems, he has invested in Nifty futures in 1 lot. I suggest him to book his loss and exit from it. Think Rs.3000 as a fees of lesson he has learned.
Hope it will help you.
No he is not invested in Nifty Futures. He has around 15 stocks like andhra bank,tvs,jhs etc and most of it is in red which consitutes 3K as of now and he just told me he has booked loss of 3K already two weeks back for some other stocks which he was holding. But believes these stocks will do well in 4-5 months.
I only see juniour ETF and niftybee ETF in his stock list which is also in red zone…i dont know what to explain to him
The problem here is not nifty , Its useless to predict the levels in just 4 months , 6000 or 5200 , anything is possible . All I can see here is that he is not confortable in taking that loss , If he gets 5k more loss , he will surely feel bad and think “I should have sold it at 3k loss only !” .
If he really needs 40k in 4 months , I dont see any reason for him to leave this money in stocks at all . In the worst case I would suggest him to take his 40k out and put in Saving account or just put in some liquid funds which would earn him small pocket money . And leave 7k in stocks . This is my sugggestion .
In the best case , ask him to take it out .. if he has no long term horizon , no reason for him to put money in stock markets .