To Buy or Not to Buy

Very often we get a good bargain and think that we are quite intelligent to get that bargain. Whereas in truth, the reason why we got the bargain could have been simply because we were lucky or just happened to be at the right place at the right time.

A friend of mine had bought Reliance Communications stocks at around Rs 480 per share sometime back and had been looking for an opportunity to average out the price.  The current market crash provided a great buy opportunity for him.  When the stock reached Rs 215, i bought a few.  My friend laughed at me and said that it will go down further.  Just as he predicted, the stock fell to Rs 209.  He put a buy trigger at Rs 205.  I advised him to buy it at Rs 209 itself as there was nothing great he was going to gain by buying a stock for 4 rupees cheaper when his idea has been to be a long term investor (a holding period of at least 2-3 years).

The stock zoomed from around 209 rupees to 263 rupees (as of 05/01/2009).  Even though he wanted to, he never got the opportunity to buy in as the stock has been on a northern journey ever since it was announced that Reliance Communications was going to offer GSM services all over India.  The chances of the stock now coming back to my friend’s expectaions are lower now.

One may say that he has lost nothing becuase he didnt buy anything.  No doubt its true, but he lost the chance of buying the stock at around 210 rupees. Had he bought the stock at Rs 210, he would have been sitting on Rs 53 profit per share within 15 days. Also, he lost the chance to average out the stock value which he had previously bought at around Rs 480.

The Lesson: Never try to time the market. If you truly believe in the stock and if you have done all your research into the fundamentals of the stock and the company, then go ahead and buy it.