I have also been hit hard by the crash and lost almost 30 % of the total portfolio weight but there are some lessons to be learnt from this which I have started following and just thought would share it here as well.
1. Never run after stock when its running off.
2. Try getting out of the stock when they are flying and don’t try to hold them for more profit.
3. Get your greed out of the stocks.
4. If you wish to get into high flying stock get the money into the bank and wait for the crash.
5. Future and Options is not for retailers and is for professional traders and so stay out of it if you cannot follow strict stop loss and profit booking.
Follow the principle of Sell when everyone buys and buy when every one sell because its suggested and followed by the best in the business. Now if you ask yourself, why stocks like RNRL, Ispat, RPL, Essar oil and Nagarjuna fertilisers have lost 50-70% of their value. The simple reason could be that they just went up at that rate. Now if you tend to get into the stock after the rise then you are at the risk of making some quick bucks if it continues to fly the second / third day running but then you can get hit the hardest because there is no reason for any stock to go up by almost 30-50 %.
Now what you should be doing for stocks which can double your money in a weeks time. Simple put the money into bank account and wait for the stock to fall more than half percent-rise in a day. Say the stock price of ‘X’ previous day close is at Rs 100 and suddenly you see a 30% price rise for the stock and its at 130. Now should you try to catch the stock at 130. The answer is no. Wait for the stock to correct at least 15% in a day. i.e. half of 30%. ‘X’ stock cannot go all out moving in one direction but when the stock starts correcting 15% then that does mean you will get the stock when its stabilizing at some price and then that will become a good support level. Ultimately it may so happen that the stock you buy would be at 150 but that 150 would be the price where stock has a good support and also have the option of getting the benefit of fast movement.
Say if you invest in the equity you would get benefit of around 25% per annum but as we become more and more greedy we tend to find ways of getting 25% per month and then we tend to be in a position from where we cannot recover the money and that is with the future and options. With cash market your invested amount cannot become zero but in future and options it can become zero and that could lead you to the out of equity and so then you need to be settling into 8-10% Fixed deposit savings.
Now the question would definitely come as to how you can get your money to zero in future and options. Say you have invested 1 lacs in future and options and you get an exposure of 4 to 5 times and then you can buy equity upto 5 lacs and so you tend to get more equity than your capacity helping you giving more money. Now if you happen to invested in stock which move almost 20% in a day where in 1 lac you can gain one lac or loose the same.