Don’t Buy Just Because Someone is Buying

Once again I am back with very funny but meaningful story I recently heard at my work place. It’s always fortunate to be surrounded with so much of wisdom. This story was narrated by one of our elderly client who read this story in his early days and narrated this story to us on hearing someone saying that so and so stock is being bought by some influential big investor, so we should buy that….. contradicting to that he narrated this story, thus giving us the unforgettable lesson on how we should learn to apply our own mind and not to be fettered by the saying of others, develop your own thought process.

It was Autumn!

Woods in winter

And the Red Indians asked their newly elected chief if the winter was going to be cold or mild. Since the new Red Indian chief was from the modern school of thoughts, he was never been taught the old secrets and so he couldn’t tell what the weather was going to be. Nevertheless, to be on the safer side, he replied to his tribe that the winter was indeed going to be cold and that the members of the village should collect wood to be prepared. But also being a practical leader, he went to the phone booth, called the National Weather Service and asked ”Is the coming winter going to be cold? 

It looks like this winter is going to be quite cold indeed,‘ the meteorologist at weather service responded. So the Chief went back to his people and told his tribe men to collect even more wood.

A week later, he called the National Weather Service again. ‘Is it going to be a very cold winter?

Yes,‘ the man at National Weather Service again replied, ‘It’s definitely going to be a very cold winter.‘ The Chief again went back to his people and ordered them to collect every scrap of wood they could find.

Two weeks later, he called the National Weather Service again. ‘Are you absolutely sure that the winter is going to be very cold?

Absolutely,‘ The man replied. ‘It’s going to be one of the coldest winters ever.

How can you be so sure?‘ the Chief asked. The weatherman replied, ‘The Red Indians are collecting woods like crazy.

This is how stock markets works. Those who trust on rumours or stock call tips and see evidence of their correctness in the stock prices moving up or down may be caught in the same game. Many a times while the choice of stocks may be right, but the timing of purchase goes wrong. Thus, investors end up buying stocks after the prices have moved up sharply and they get tired or depressed as the stock refuses to climb in the short term or declines. Eventually they end up exiting the counter just as the valuation starts moving up again. And left regretted.
So friends just don’t buy because someone is buying – Hear them out why they bought that particular stock – understand their rational behind it – Apply your mind – can u understand the business – Do your set of homework – ask questions if u don’t understand any aspects – then go for it – DON’T JUST INTIMATE PEOPLE, Develop your own thought process !!!

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Disclaimer: The views presented in the article is the author’s own conception.

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Bhavikk Shah is a humble witty brain who works at a capital market firm. An autodidact, he emphasises on "Knowing is not Enough, you must Apply it". He is regularly sought for his fundamental perspective by the investors community. You can gain more insights on stocks and finance on his blog

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