Here is a link to the first part wherein I have tried to lay the base for behaviours and the habits that may make/ break investment success.
Back to our example – the intrepid investor and his acquisition of 100 shares of a company ABC at 500/- each on 1st April. And the subsequent fall of 20% to 420/- each on the 2nd of May.
Let’s add a bit of some background here. 10 years ago the price of share of ABC was 39/-. In these interim years, it went to upper circuit of 10% -15 times and to lower circuit – 21 times. For 92% of the time in its history, the quoted price was below its all-time highs reached till then. Also, interestingly in the past 10 years, the price had surged 50% in a year once, but fallen 50% twice.
And because of the simple mechanism of the pluses being slightly more than minuses continuously over ten years, the price had gone to a new lifetime high of 600 about an year ago.
In the broad scheme of things, the revenue had become 20x and the profits had become 9x of that of 10 years ago. The share price had somewhat clung on to this reality and had risen. Sometimes gradually, sometimes madly, and then had corrected itself. Sometimes gradually, sometimes madly.
For the rational mind, there is nothing really special about the price of 500/-. This was just the price it was being quoted on April 1. BUT I bought it and became invested and somehow the price of 500/- became anchored as a value for ABC – there were some emotions attached to this price-point here.
The one thing constant about share prices is that they change. Constantly change.
So now on the second of May, when the price reads 420/-, one sure fact is that the price of ABC has changed. Another fact which is almost sure is that 500/- has become special in mind, for the idiotic yet simple reason that I bought ABC at 500/- on April 1. I am somehow doomed to longingly gaze at ABC through the lens of 500/- per share.
Investing should be boring, but the share price of ABC has suddenly brought in excitement in my life. What is to be done now?