BITE THE BULLET
Or, why we should take a loss and move on.
In trading there is a maxim that says “The first loss is the best loss”. I didn’t think the day would come when this maxim would start become applicable to investments too. But that is what happened today. Well, you learn something new everyday in the market!
On Monday 25 Feb, we saw something exceptional happen. A stock like Core Education fell an astounding 70% in a single session! This was of course accompanied by a score of other stocks declining variously between a 5 and 20%. This really makes you wonder whether the fundamentals shown by companies like these (and who knows how many more?) are really of any value. Core, for example, has declared net profits of 111, 225 and 323 cr as net profit for the last three years. This sets up an EPS of 56,103 and 143 for the past three years on equity of 22 cr. Now, which normal investor would not get impressed with those kind of numbers. After all, this is what most investors look at. They don’t have any access to managements but go by published information.
What value of these numbers to someone who has been pretty sanguine about his holding in this stock, content that it is steady around 300 levels. And then, wham! It is down to 100 in a single session. The back is broken in such cases. Not that Core is a stranger to such moves. This is the third such occasion when the stock has dropped at such stomach-churning rates. The other stocks are not too different from Core. Most of them report great numbers and have been holding steady or rising over time. But try telling that to someone who was holding it as of yesterday evening!
Pledged share unloading is said to be one of the reasons behind this decline. This has happened several occasions in recent times. This issue of pledged shares has become a menace to investors these days. No company is safe it seems, from the devastating hit that such sales create on the price trends of the stocks. Just look at the fate of Glodyne or Parekh Alum or Bilpower etc. They have all been totally unable to get up even a bit ever since the death blow was effected. It is quite probable that the same fate may befall some of the names that set off into declines today.
The best way to deal with these stocks is to simply abandon. At market rates. Don’t bother with any pullback. Don’t rationalize or justify holding it. Don’t procrastinate the decision to exit in toto from these stocks. OK, some of them may not wilt as badly. But can you really afford to take the chance? On the first day of selling, Glodyne dropped to 220. Today it is 17. That about tells the story for those who delayed selling!
Market and life is too big to mourn these kinds of mischiefs. They are a part and parcel of the game. If we got caught in them, somewhere along the way, our audit process was not good enough. The fault is our own. Accept. Take the loss. And move on.