A marquee investor's commentary alone should not be the reason for anyone to buy a stock. If we look at what happened to Sinclairs Hotels Ltd., Inditrade Capital Ltd., or Lux Industries Ltd. this week and analyse the buying behaviour, the list is likely to include a bunch of retail investors who, probably, have no idea of what these companies do. If there was a Twitter sentiment index on these stocks, it would be at its peak because of the names of the buyers.
Make no mistake - the fund house or the individuals who have bought these stocks are quality names, with a brilliant track record of creating wealth for themselves and/or their investors. The question is, is blindly following a marquee name the right way to invest? My verdict - No!
There have been numerous instances of these investors selling off the stock in a few weeks/months of buying - and rightfully so. The stock market is a wild beast, with lots of uncertainties, and lots of unknowns. What prompts an investor to change his or her investment decision is forever an unknown. I know many great investors who have told me both off and on the record about their desire to hold a particular company for a few years at least, only to sell the stock within the next one month. The reasons may be different - some mistakes by the management of the company, some need for immediate funds that the investor may have, a change in industry or market dynamics, or maybe a better investment opportunity. They get trolled on social media for not sticking to their comments on television.
The real culprits, however, are not the investors who sold the stock but the people who invested the company believing that the said investor is supposed to stick to his timelines. That is just not possible.
The only antidote to this disease of buying because someone else bought – hardcore research. Spend time studying a company and then go out and buy the stock – and if you can't spend that time because you run a retail store or are a musician or work in one of the many technology companies, seek out a financial advisor and invest in mutual funds or any such instruments. You will realise that your investments are a lot more secure that way.
Shameless plug – for more information on how to invest in mutual funds, watch 'The Mutual Fund Show', every Wednesday, 12.30 pm, on BloombergQuint's Facebook page.
Niraj Shah is Markets Editor at BloombergQuint.
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