Friday, February 22, 2008

How come companies with no fundamentals rise more than 1000% but sometimes those with strong fundamentals underperform?

I have been getting a lot of feedback via e-mail. Many of you have suggested I share with you stocks, I am investing in. Personally I don't like giving just stock 'tips', instead I like sharing ideas that will help you select companies on your own.

Since this blog is very new, I haven't really shared any strategy to pick up value picks as yet. It shall be done in the near future inshallah. However one question several retail investors who have been investing for long ask me is "How come companies with no fundamentals rise more than 1000% but sometimes those with strong fundamentals underperform?"

The last such question was asked by Bharath via e-mail. (I do read most e-mails and take them into consideration, however I am able to reply directly more easily to comments left on our blog.) It is always nice to see regular people investing and wanting to learn.

The reason companies with absolutely no fundamentals tend to rise, is usually because of punter or manipulators. Whenever a lot of money is pumped into anything, the price will rise. Not necessarily it is good or has strong fundamentals. It could also mean that lots of people are not acting rationally and just running behind hype.

For instance in 2000 lot of IT stocks went to dizzy heights, even though they had no fundamentals. Similarly many times quality stocks with good fundamentals are available at very low price because people have ignored them and are not putting money into them.

Stock markets are imperfect and also depend on human psychology. We as humans are not rational. In order to create wealth we need to detect companies which have been ignored by others in the short term and invest in them.

Within the longer run companies with strong fundamentals always shine. Investors like Rakesh Jhunjhunwala invested n public sector banks while others were running behind IT in 2000. For a short period of time we might look stupid, because our company is under-performing other stocks which are purely running on liquidity, but in the end we have taken much less risk and have the capacity to create more wealth.

Happy safe wealth creation!


Have You Spoken Your Heart Out And Shared With Us:
Who Is A Happionaire According To You?

9 comments:

anamika said...

I am 28 years old and am working with The Times Group. I always had this question in the back of my head, as I am new to the world of investing.
You are superb and your blog is of great help. I am glad you started it.

Also there are many blogs and sites which give tips, but very few which are there to help us learn.

I'm a Happionaire for life from now on!

SONJOY said...

Happionaire is a state of mind according to me, which comes from having an appropriate attitude towards ever changing conditions surrounding you.

Specially in the field of investing it becomes all the more important to be a Happionaire because otherwise you will always be carried away by the volatility of the market and this will keep you away from becoming a millionaire.

So in my opinion it is more important to become a Happionaire first.

suraj said...

I agree with you Sonjoy. Investing is all about controlling emotions and the best investors are those who can control their emotions.

This is a nice blog Yogesh. I'm looking forward to more interaction with you and reading your book.

prak said...

Dear Sir,

Stan-Chart Mid & small cap fund is good or not?

Regards,
Prakash

Anonymous said...

i know this is not the appropriate forum to be saying this but i saw ur picture on moneycontrol and boy oh boy do u look smashing! never thought someone who writes about investing could look so good :p
anyway, keep up the good work! looking forward to reading/seeing more of u.

Yogesh Chabria- The Happionaire said...

I really liked what you said Sonjoy and thanks Anamika, Suraj.

Prakash, I wouldn't be able to help you out with that query. But I'm sure you will be able to figure things out on your own once you do some research and study.

For 'anonymous' - Investing, finance and money are very interesting and can be tons of fun- not just because certain people looking smashing. It is just that most people tend to associate investing with things which are complicated and boring.

Invest The Happionaire Way, which is going to be available at a bookstore near you soon, is surely going to help many people understand how interesting and simple investing really is.

seema said...

i must confess that i was just brwsing through for some help with my mutual fund investments and what made me visit your blog was your picture and i fully agree with anonymous.

there is something very magnetic about you and i am really waiting to buy your book. i really want to know how you started investing at such a young age and how to start investing in stocks.

Bharath said...

Hi Yogesh,

Thanks for answering my question inspite of your busy schedule. I got the key, we should not yap around seeing a non funda stock go up and should stay calm and invest in stocks with strong Fundamentals to aim for healthier returns. I ll do that from now on.

Thanks!
Bharath.

nageswarabandaru said...

Your articles are good. I will regularly follow your articles.