InvestorQ : How do I ensure that as a trader I ask the right questions?
Lavanya Subramanian made post

How do I ensure that as a trader I ask the right questions?

vidhya Laxmi answered.
3 years ago

We have all heard of the proverbial herd mentality in markets. Most people tend to follow others when they find them making profits on trades. It does not matter that you do not understand anything about the stock. It also does not matter that the stock is priced at a ridiculously high P/E ratio. It also does not matter that you never made money by jumping on the bandwagon. Welcome to herds!

Back in 1999, technology was the big story. In the US Cisco was quoting at a market cap of $500 billion and in India stocks were quoting at 150 times P/E. A bunch of investors in India asked a fundamental question; if the entire world economy is slowing down, can technology being a support service, ever hope to rake in the millions? It didn’t, and those who questioned it made a fortune.

A similar situation was visible in March 2009, both in the US and in India. David Tepper, a US fund manager started accumulating banking stocks. In India banking stocks were quoting at single digit valuations. It was more an outcome of panic selling than any fundamental issue. Once again those who questioned these valuations and bought made a fortune in the market. So learn to question!