How to Use Common Sense in the Stock Market to Avoid Unnecessary Losses
- Rohit Musale, CFA
- 6 days ago
- 2 min read
This is a daily timeframe chart of Shringar House of Mangalsutra.
The stock has collapsed almost 18% in less than 2 weeks.
Also, the stock had collapsed almost 18% in less than 3 weeks in January too.
Why am I highlighting this particular stock ?
Its a stock that I have deliberately chosen to stay away from, inspite of the base formation on the daily & weekly charts.
Its not a market leader.
It has a market cap of less than INR 3,000 Crore.
It belongs to the retail / wholesale jewellery space.
In this space, the combined market cap of top 2 companies is more than INR 4 lac crores.
In comparison to that, this company does not even exist, in my view.
Why am I writing about this company ?
To highlight the fact that sometimes, its just not about:
- charts
- strategy
- base counts
- timeframes
- technicals
- fundamentals
Sometimes, it is just about common sense.
Why get involved with companies that clearly do not show any market leadership ?
Its just not worth the risk.
Another example:
Look at Ather Energy.
They make electric scooters.
Chart looks lovely.
Nice base formation.
But wait.....
Have you even glanced at the annual EPS table ?
I have attached it here.
8 consecutive years of reported negative EPS numbers.
There are a lot of profitable companies in India.
Why would you even think of buying a loss making company ? (Even if you are just a trader)
I am not saying, "don't buy these companies."
I am asking, "Is it worth the risk?"
Do you have the ability and willingness to take that risk ?
If yes, then great. You know how to manage risk.
If no, then I do not have a prayer for you.
Ather has a market cap of around INR 26,000 crores.
It belongs to Auto Manufacturers space.
Look at the top 3 companies in that space.
They combined have a market cap of INR 10 lac crore.
So clearly, there is no leadership in Ather.
Even if I look at the narrow electric scooter space within Auto Manufacturers, it still does not justify the risk.
Because of negative EPS numbers.
Use your common sense.
Stay away from trouble.
Regards,
Rohit Musale, CFA
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