Ideally speaking, a rational investor should aim to park risk capital in quality stocks that are growth-oriented or can generate cash flows in the form of dividends. There are various parameters and definitions of what a ‘quality stock’ is. Most intelligent and disciplined investors do manage to identify quality stocks and invest in them for the long term to generate decent returns. However, a majority of investors struggle to identify quality stocks in the first place and many of them do end up holding poor quality stocks in the portfolio. Some retail investors in pursuit of high returns end up buying volatile stocks that may not be high in quality.
Often enough, investors may have noticed that several high volatility stocks feature on the Additional Surveillance Mechanism (ASM) list. Once the stock features on the ASM list, it is seen that an investor gets a little nervous and may take a decision that could prove to be unprofitable. Talking about such an experience, Amol Lad, a retail investor, says, “I bought CG Power at ₹12 per share, and to my surprise, the stock doubled within one month to trade at ₹24 per share. One day I just wanted to check the stock price on the bourses and I realised the stock was featuring on the ASM list.”
This story is from the October 12, 2020 edition of Dalal Street Investment Journal.
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This story is from the October 12, 2020 edition of Dalal Street Investment Journal.
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