The 52 Week Formula !!

If you are even remotely related to the stock market then I am pretty sure that this article is

for you. The biggest and the most common question that a common investor faces is what to buy and when to buy ? Most of the peoples advises come from the advisory services on Television and the next most approachable is someone working as a broker or someone working in the banking sector. Since most of the people think them as the direct link between the markets and the common investors. They are the most trusted of the lot, and we just pick our phones we call them and ask them for the tips. However this article is surely not a holy grail for success but again it can surely help you to avoid and filter some of the irrelevant information that comes pouring in.

The Stocks Put on Sale !! Throughout our lives we have become habituated of buying things cheap and buying at a discount. We race into buying things which are put on sale and we often end up buying things we don’t even need. We end up following this same mentality even in the stock markets. We go ahead and start to look for stocks that are selling cheap or rather sale the stocks which have fallen a lot and then we invest in them and start to expect it to rise and give us multi-bagger returns. What we often fail to comprehend that the stocks that have fallen has somewhere lost value and is no more the darling of stock market. It’s no more in great demand and we need to avoid such stocks. “Stock Market is a place where things that go high end up going higher, The things that go low end up going lower”

How We are programmed to Do so !!

We are surrounded by Media through and through and our thought process for the things we don’t know develop from the information that is poured through these media, be it social media or tele-media. They keep on bombarding us with phrases like

“Mouthwatering Valuations” , “Stocks on Sale” , “Top 50 stocks which have corrected and are available cheap”and Many such phrases which force us to think that actually these stocks are available at a discount and since we love to buy things which are put on sale we go in and put in our hard earned money into these stocks and wait for our fortunes to turn. The stocks go down further and we add in a few more of it giving ourselves an illusion that we have got a better deal. All this only to watch our money devaluate further and lastly we quit market to never return and blaming that probably this is not the right place to be for us and it’s the game of big people.

The phrases which should be propagated but are not.

“It Took me 10 years to realize that we need to buy stocks at 52 week and another 10

years to implement”

Follow the Rat Race !!

Yes you heard that right. Stock market is the only place where we need to follow the rat

race. Probably stock market is the only place where following the herd and is the most rewarding. If the stock has fallen a lot then for sure a Huge number of people have dumped it and made an entry somewhere else. Same is the case if some stock has risen considerably and reached its 52 Week High then a large chunk of people have clung to the stock and surely there is something about the stock that we do not know. Now what the news is something we must be least bothered about, rather we must be sure that something of great value is surely building up in the stock which we as a common investor are not aware about. What we just need to do is to look for such securities/opportunities and make a choice amongst them.

Think of this in an analogy. We as human beings are travelers since long, and we love to travel. We just hate to stay at one place and hence we are always on move. Suppose we are moving from one place to another irrespective of the destination. We see trains full of people. Suddenly we see lots of people have started getting off a train. That’s the point which should give us a realization that something for sure is wrong with the train and that’s the reason people have started to ditch the train. Either the train might have some technical snag or might be the train has a reversed direction. No point in getting on such a train. At the same time we see trains that are full with people and slowly gathering speed. Be assured that this would be the train which looks fairly strong and good enough to take it to our next destination.

Why 52 week High and Why not 52 week low ?

By now you might be having a fair idea as why we need to invest in stocks which are at 52 week high and not 52 week low. Try to figure this out. The stock reaches a high during their movement and then comes to 52 Week low. There are many buyers who bought the stock during the high period which would result in a huge supply of the security at higher prices. There are people stuck there and who are ready to get out at the first opportunity to get even which would mean that until and unless the stock is seriously under high demand it’s not going anywhere on the upside. Better to go into stocks which are at 52 week high which has absorbed the previous supply completely. As Mark Minervini Quotes

“A stock going to a new high is typically a bullish event because the market has eliminated the supply of all previous buyers who had a loss and were waiting to get out at even”

The stocks when are at 52 week or lifetime high there is virtually nobody who is making a loss in the stock and it’s a common psychology that we don’t sell stocks that are not giving us a loss. When the supply falls the demand picks up and in turn raises the price.

Check the above chart which is of Reliance Industries :

Few things to note in the chart:

1.  Price was Not making a new high since December 2009 to January 2017.

2.  Suddenly the price made a new high and crossed the previous high of 570 in February 2017 and after that it went onto more than double itself in a space of 2 years flat.

Most of the people who would have bought the stock earlier than 2009 or near 2015- 16 their supply would have been eliminated by the start of the year 2017 and after that virtually nobody was making a loss and hence the supply fell down completely. What happened fundamentally is altogether a different story. But it was clear by 2017 that something big is happening in the Company and it did happen

Conclusion :

Securities as an asset class still beats any other asset class in terms of returns. So investing

in good quality stocks is the best way to create long term wealth. Now it comes onto you check how do you select such stocks. For a common investor the 52 Week High Formula is the safest bet to be in the markets for long. Concluding with an excerpt from a book Reminiscences of a stock Operator by Jesse Livermore.

“Let us say that a new stock has been listed in the last two or three years and its high was 20, or any other figure, and that such a price was made two or three years ago. If something favorable happens in connection with the company, and the stock starts upward, usually it is a safe play to buy the minute it touches a brand new high”

_____________

Kumar Abhijeet

#stockmarket #stockmarketterms #beginnerstockmarket #indianstockmarkets #nifty #nifty50 #sensex #banknifyt