“I had bought 2 XYZ shares @Rs. 100 each. The stock has doubled since then. Today I sold 1 share for Rs. 200 and recovered my full cost of purchase. Remaining 1 share is now Free-of-Cost.”
You may see posts like these in investment forums.
My thoughts:
If you a 100 rupee note, its irrelevant whether you found it lying on the road, won it in a lottery or earned it with hard labor. Its still Rs. 100 that belongs to you. It can buy you same things irrespective of where it came from. So, attaching different emotions to the money – being frivolous when you did not earn it and cautious when you did – is irrational.
That “Free-of-Cost” share that you have is worth Rs. 200 at this time. That is your money. You could have converted it into cash today. But you choose to keep it invested in share. That is your “cost”! How that share came to you is irrelevant. Whether you inherited it from a rich uncle, whether your father-in-law gifted it or whether you bought it cheaper earlier is not relevant. What is relevant is – right now it is your money in form of share rather than cash. It is no different from you having bought this share from fresh hard earned money.
Therefore, it is better to look at a share in terms of its present price and dissociate it from its buy price. It will save us – fundamentally irrational human beings - from making bad decisions.
P.S: Flip case of this is equally irrational i.e. not selling poor quality shares in which you are making losses and waiting to recover original cost. Cost at which you bought is not relevant. How much its worth today is the real money (“cost”) you have in there.
I would like to differ a bit over here. If you carefully look at the Phrase = "Free of Cost", it means you did not pay anything to get that share/unit/stuff. If you keep it re-invested and do not liquidate the profit, it goes on to become an asset with no cost associated to it. Rest of the theory that you describe holds true that you need to carefully juggle your portfolio with no emotions attached to its contents.
ReplyDeleteTarkeshwar:
ReplyDeleteA Good stock worth investing is Gujarat Ambhuja Exports.
1. Promoters had done a stock buyback at 35 per share in 2007-2008 CMP: 19.50
2. Company has a maize processing division which produces value added maize products such as sorbitol,Dextrose,glucose used in pharma and food industry (2nd largest capacity in india)
3. Promoters have bought from open market shares worth 1,98,256 shares from jan 2009 to june 2009.
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Interesting shareholding figures to look at..
Individual shareholders holding nominal share capital up to Rs 1 lacs -Small shareholders (Sept 2009): 56,110 individuals(shares held: 32,890,623) 23.77%
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Individual shareholders holding nominal share capital up to Rs 1 lacs -Small shareholders (Dec 2009):55,552 individuals (shares held: 32,661,400) 23.61%
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People with money have transferred 2,29,223 shares from small holders to large holders during this period Sept to Dec 2009
here is my blog article on GAEL
http://whatsup-indianstockideas.blogspot.com/2009/12/best-value-buy.html
=happy investing