Here are some reasons why people buy shares:

1. I visited the company and the office and the factory look fantastic: falling for the visual appeal of the factory and office is nothing new. Have seen bankers, auditors, fixed deposit holders….all falling for that trick. At least 10-20 people have given this as a reason.

2. I met their Manager: The manager of ‘XYZ’ bank has taken my property on rent and they are looking for more space in my town. After all if they are setting up so many branches they must be doing well, so I think you should also buy this bank shares.

3. My friend made a lot of money in that share: Amazing how just the word changes – father, mother, friend, son, daughter…..somebody known made money so I think I will make money. Only if life were so simple!

4. My father knows the secretary to the Chairman of the company and the Chairman is buying: Absolutely stupid reason!!! Owners rarely know at what price their share is a good buy or a good sell. They get carried away. The owner’s buying is normally a very poor signal in small and medium companies. They lose a lot of money trying to time the market 🙂

So if you are in the market for money making, think before you buy. And let me tell you why a ‘time-pass’ investor is more likely to lose than to earn when he decides to hear people whom he does not know; and does not know whether to trust.

For those who do not know or those who do not remember, I was in the equity market for a very long period of time. Here are the reasons why ordinary mortals cannot make much money in the equity markets. Fairly obviously there are no real names…

I was talking about 2 shares in my portfolio in which I had made some money in the past, but recently there has been no action. Let us call them shares A and B.

He said A is currently not in my radar, but will call Mr. S who tracks it and is an operator. Mr. S said have called at the right time, within the next 20 days this share will go up about 50%. Then Mr. S and gang will go to the world and say ‘now it will go up 100%’. It now becomes believable – if it has gone up from 2 to 3, why cannot the scrip go to 6? Then when the buying starts, we will start exiting. So just ask your friend to hold on……

What about scrip B? He said..hmm…we all hold about a million shares. Let us have some patience, current year working is good and the company will pay decent dividends. At that time we will take the price up by 25% …and then let us sell it to……

Oh I said…

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  1. Hi Sabra , I am becoming a fan of yours , looks like i start my internet browsing with your blog as a first page
    this is really hit on the top of nail

    with internet visibility It needs a few fancy names on discussion forums , one will start saying good things about a company , other will support it with multiple strong believable reasoning , any opponents will be mocked , people will start buying , than pump & dump 🙂

    with so many discussions out there people give reason to buy a stock (which had gone in last 1 year 5 times up) no future visibility to track there , its complete pump & dump
    some will be really good , but it is like searching a needle in a haystack ,

    shut the noise , shut the internet , read reports ,invest with looking bottom ,not top -well these are graham way of doing invest not multibegger 🙂 way ( look the spelling -quick rich way 🙂 ,

  2. Subra,

    Will point #4 not considered insider trading?
    AFAIK, Companies do buy their own shares, but that could be because of other reasons…ESOP dilution etc etc…

  3. Just buying by a company is not insider trading. If i am confident about my company I will buy my share. However if I buy when I am about to announce something big and then prices go up, and I sell, that is INSIDER TRADING.

    However if a company chairman keeps buying every week – say 300 shares – that is NOT insider trading

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