My reply to comments | Stocks and Commodities

July 24, 2016
Time: 11 am

First comment this week:

Good Morning Sir,
Pl share your views on this
"Nifty is close to PE of 24. Which is similar to 9100 we saw back in 2015 when Nifty PE was 24.Remember the drop from 9100 to 7000."
Thanks in advance


My Reply:

1. Nifty has shot up from 6800 to 8600, a whopping 1600 points in less than 4 months.
2. Along the way many people have gone short and they are hoping markets will come down so that they can make profit or at least they can reduce their loss.
3. But some times, markets do not oblige them.
4. There are two indicators, lead indicators and lag indicators.
5. Markets will worry more about lead indicators than lag indicators.
6. In simple language, what happened in the last few months is not important, what is going to happen in the next few months is more important.
7. Right now valuations may be high but good monsoon, 7th pay commission payout, reforms initiatives, GST all may help companies to make better profit in the next few months and hence the valuation may be cheaper in the next few months.
8. By this expectation, markets may go up.
9. I always say "When the people are optimistic, they will be ready to pay the price of a diamond to a pebble and when they are pessimistic, they will not be ready to pay the price of a pebble to a diamond"
10. Compare the valuation of Real estate prices in India between now and 10 year before.
11. Valuations are too high now, yet the market goes on. It is the change of mindset of the people who are willing to pay higher price.
12. Logically speaking Nifty PE should be trading below 7 then only only should invest.
13. Why? Nifty PE is the average number of years to double your money on an average if you invest in a basket of shares forming the Nifty, when money doubles in a bank FD in 7 years without any risk, why should somebody take a risk to invest in stock market to double his money in more than 7 years?
14. Is there any time when Nifty PE came below 7?
15. So stock markets do not work with logic, it works with sentiments.
16. In the last 10 months, Nifty fell 20% then shot up 20%.
17. Is their anything in the economy or corporate results that fell 20% and shot up 20%?
18. So even when you go for shopping, if you had bonus and have lot of money, if your child likes a doll, you may pay a higher price.
19. When your company is in trouble, reduces your salary, the same doll you will buy only when there is a discount or promotional price, you will think many times to buy at MRP.
20. So the difference here is not the doll, your financial position.
21. What you say may be acceptable to a long term investors but I am a short term trader who plays in options.
22. I have sold Nifty 8400 Put and 8300 Put and 8200 Put heavily this month.
23. Even if markets fall below 8400 after this Thursday, I have nothing to worry.
24. Due to Good Monsoon, 7th Pay Commission Payout, Reforms initiatives, GST, corporate results, positive global cues, huge FII buying, right now markets are bullish.
25. So enjoy the ride, when things change, we will see at that point of time.
26. As a trader, it is time to be long.
27. I am long in Nifty at 7800 and long in Bank Nifty at 17000.
28. I am planning to exit Nifty above 9000 and Bank Nifty above 20000.
29. Until then I will keep selling Call options to hedge my positions.
30. Hope this clarifies your query.

RAJ P23 July 2016 at 11:40

Sir,
Please give your views on choosing share market as a full time job???....
If one can choose share market as a full time job? In both investing and trading??What are the pros and cons??

My Reply:

1. Now that IT is not shining many people are thinking of taking stock market as full time job.
2. I have been receiving many queries regarding this.
3. First negatives.
4. If you are employed somewhere and come to stock market, this is a change in your field.
5. In case if you fail and go back to the same field again, there may not be acceptability.
6. But that is not the case in many other countries.
7. If you really want to make your living out of stock market, you need a considerable amount of capital.
8. Many people want to come to stock market with 2 to 4 lakh rupees and think they can make a living out of stock market.
9. In my opinion, you need at least Rs 25 Lakh capital in order to make a living out of stock market.
10. You need to develop lot of skills to manage your money, the best way to make money is option buying/selling.
11. It is difficult to make money every month in Cash market.
12. Cash market is only for long term investors.
13. There are some positives also.
14. You do not work under anyone.
15. You are independent.
16. You can trade fro any part of the world as long as you have a computer (or laptop) with an internet connection.
17. Your physical presence is not required like your job.
18. If you trade in option with reasonable amount of skills, you can actually double your money in one year.
19. Keep one third for your expenses, take one third out and keep in fixed instruments to take care of future losses, if any, reinvest the remaining one third so that you corpus grows.
20. When your money grows, you can actually reduce the risk and still can make decent return.
21. Do you know that you can make 2% return per month by selling December expiry 7000 Put and 10000 Call.
22. What is the risk in this strategy? Do you think markets will fall below 7000 or rise above 10000 by December 2016?
23. The probability is very very low.
24. In you are interested in taking stock market as full time job with good amount of capital, you may email me at ashwin95@gmail.com, I can guide you.
25. More than 95% of the people lose money in trading just because they are too greedy or blindly follow technicals.
26. I have not seen a single person in my 25 years of experience who has made money by following technicals.