Few lessons that we can learn from the ongoing Polycab saga.
Few Lessons to be learned from the recent saga of IT Raid on a company.
On the onset let me clarify that we do not have absolute clarity of what has transpired so far and what will transpire between IT department and Polycab. We are not blaming the management nor saying tha it is innocent. We are just trying to summarize if we can and take home some lessons from what happened and implement them in our journey. Some points that come to my mind are as under:
1) We have seen such things happen to major companies in past. 9 out of 10 cases the company is able to give proper explanation to authorities and case gets resolves amicably or through law and the company continues to thrive. only in few cases such action destroys a company but important thing for us is to never over expose your portfolio to one particular stock. One mistake is enough to destroy your capital and hard work. You might have earned a lot of money from other stocks but over exposure to one particular stock can wipe out the entire profit. Age old saying of not keeping all your eggs in one basket always helps.
2) Always keep a track of what the company in which you have invested is doing. If it is growing too fast compared to peers what is it that the management is doing right. If is a laggard what is it that is keeping the company that way and hampering the performance. There are lot of competitors of Polycab why was it growing faster than Bajaj Electricals or KEI or Havells could have been our question. Again I am not indicating that all companies will/should move at the same pace but do question yourself and analyze if something extraordinary is happening in either direction.
3) Technically when 50 days EMA (Mother Line is Broken) the investor could have or should have booked profit/loss in such cases or at least decrease their exposure. If 200 EMA (Father line is broken) further reduction in exposure should have been/could have been done.
Usually a lot of people use a closing below 21SMA for booking profit. In this particular case the stock fell so rapidly that there was probably no chance to sell at 21SMA so exit could have been taken at 50 EMA. If the dust settles and you feel the management is coming out clean wait for the stock to give a proper closing plus follow up candle above 50 or 200 EMA to take reentry. Also Volume should be looked at when such breakout happens.
4) Do not trust any management or influencer or analyst blindly (Including us). Do your own research before investing in any share. In my upcoming book The Happy Candles Way I am going to explain in depth how Techno-Funda investing is done but the book is yet to be released. This particular share may or may not bounce back that is not the point. The point of discussion in this particular article is not what is going to happen to POLYCAB, point of discussion is how to protect a) your Profit and b) your capital.
Disclaimer:
Investment in stocks and mutual funds is subject to market risks, please consult your investment advisor before taking financial decisions. The data provided above is for the purpose of analysis and is purely educational in nature. The names of the stocks given in the above article and chart of the company is only for analysis. Purpose of this article is educational. Please do not consider this as a recommendation of any sorts.
On the onset let me clarify that we do not have absolute clarity of what has transpired so far and what will transpire between IT department and Polycab. We are not blaming the management nor saying tha it is innocent. We are just trying to summarize if we can and take home some lessons from what happened and implement them in our journey. Some points that come to my mind are as under:
1) We have seen such things happen to major companies in past. 9 out of 10 cases the company is able to give proper explanation to authorities and case gets resolves amicably or through law and the company continues to thrive. only in few cases such action destroys a company but important thing for us is to never over expose your portfolio to one particular stock. One mistake is enough to destroy your capital and hard work. You might have earned a lot of money from other stocks but over exposure to one particular stock can wipe out the entire profit. Age old saying of not keeping all your eggs in one basket always helps.
2) Always keep a track of what the company in which you have invested is doing. If it is growing too fast compared to peers what is it that the management is doing right. If is a laggard what is it that is keeping the company that way and hampering the performance. There are lot of competitors of Polycab why was it growing faster than Bajaj Electricals or KEI or Havells could have been our question. Again I am not indicating that all companies will/should move at the same pace but do question yourself and analyze if something extraordinary is happening in either direction.
3) Technically when 50 days EMA (Mother Line is Broken) the investor could have or should have booked profit/loss in such cases or at least decrease their exposure. If 200 EMA (Father line is broken) further reduction in exposure should have been/could have been done.
Usually a lot of people use a closing below 21SMA for booking profit. In this particular case the stock fell so rapidly that there was probably no chance to sell at 21SMA so exit could have been taken at 50 EMA. If the dust settles and you feel the management is coming out clean wait for the stock to give a proper closing plus follow up candle above 50 or 200 EMA to take reentry. Also Volume should be looked at when such breakout happens.
4) Do not trust any management or influencer or analyst blindly (Including us). Do your own research before investing in any share. In my upcoming book The Happy Candles Way I am going to explain in depth how Techno-Funda investing is done but the book is yet to be released. This particular share may or may not bounce back that is not the point. The point of discussion in this particular article is not what is going to happen to POLYCAB, point of discussion is how to protect a) your Profit and b) your capital.
Disclaimer:
Investment in stocks and mutual funds is subject to market risks, please consult your investment advisor before taking financial decisions. The data provided above is for the purpose of analysis and is purely educational in nature. The names of the stocks given in the above article and chart of the company is only for analysis. Purpose of this article is educational. Please do not consider this as a recommendation of any sorts.
Happy Candles Investment