Andy has left a nice comment on my previous post – Andy wants to beat the bank rate!
Actually, that is one of the very good targets to achieve. People have different targets – some like Mutual Fund mangers go after the market index they are tracking, and they attempt to beat it. Some traders try to beat the bank Fixed deposit rate (as Andy is attempting to do), some have individual targets fixed for themselves, depending upon what they want to achieve, and the rest just don’t know what to do. Unfortunately, majority of us fall in the last category – we just don’t know how much we want to achieve and in how long horizon.
In stocks trading business of selling and buying stocks, one of the things that’s always good to achieve is to have knowledge about what you want and in what time period. If we have certainty in our ambitions, then 50% of our work is done. If we don’t have any certainty in what we want to achieve, we are already half way defeated. It’s easy to see our stock price going up by 50%, but having no target in mind means we have no clue about how long should I wait for and how much return can I expect from this stock. Even if we have that in our minds, we cannot be sure when this target will be achieved.
Anyways, traders are traders. It is commonly observed that people get fascinated about the rise they see in the stocks they are holding, they keep on holding the stock for long but uncertain time – just to observe that one fine day their rising stocks have taken a U-turn and started going down. They get fascinated with their holdings, build up strong belief that the stock would once again rise and hold it. Ultimately, no one has any clue on what they want to achieve.
As stated earlier, half the problem is solved if we get out of our stock holding fantasies and affections that we develop with our holding shares. If you are a long term investor, define to yourself what long term is. If you are a short term trader, decide what short term for you is. Nobody other than you can help you!
Andy has raised a valid point and I would say it is a very good strategy for any trader to have an aim to beat the bank rate in a year. The reason – banks rates are, generally, always positive, while the return from equities or stock trading, even index based ETF may turn out to be negative. Hence, suppose in the next year the index like Nifty goes down by 20%, then your ETF investment will also go down by 20% or so. However, if you manage to keep up your trading activities and follow you goals religiously to beat the bank rate of 10%, then you will be outperforming the markets by 30%. Even fund managers fail to do so, traders aspire to do so consistently – some fail, some succeed.
On the other side, instead of going down, if the markets go up by 20% and you are still with a little more than 10% of your returns beating the bank rate, then you will fall much behind the market.
Continue to Part II of this article
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