I will write something today on how stocks moves.How small investors get baffaled by the movement of the stocks.I already gave the example of Kaleidoscope how it was just 40 paisa and how it went on to touch 40 rupees.
Well, this is just not one example .There are scores of eaxmples where small investor will sell it and then stock gives huge return.
We already saw what happened in Sujana Towers.
Let me recall a stock called Ashahi Safety Glass Ltd.I am talking of this stock between 1996-1998 something.Not exactly I can remember the years but it was round about those years.It was then 10 paid up and with a very tiny eq of just 1.50 cr or 3 cr.
It was a MNC and giving excellent return with earnings matching up.I remember it was quoting around 300 at that time and market was in bearish mode after the Harshad Mehta Scam.
Then it started moving up and up and it touched something around 800-900 and then the Bonus was declared. It was a liberal Bonus of 1:1.It went on to touch 1200 even when market was down.
It got XB and become 600.Well, as it was bearish period, it even went more down and down ,to again Rs 300, as those who had 100 shares get 100 free and become 200 and as the bonus was declared and become XB , investor thought that it is time to sell and book profit.
So small investors sold it and after seeing going down and down they sold the whole holding and took out all money as it was a bearish phase and it was already XB and that was a natural thinking and decision.But here the decision went wrong.
The very next year again Ashahi Safety again declared another Bonus 1:1.Wow! and again the stock went to 1200.So now those who held up those 200 shares became 400.so the original 100 shares became 400.
Another case is of Motherson Sumi.After it was splitted with 1 paidup it was around 120 and suddenly the stock went to as low as 30 something.I think that was around in 2004-2005.There was no reason to go down for the stock but it went down and then again it started its upward movement in 6-8 months and crossed 100 again.
Well, even now Motherson Sumi after making a low of 40 is making new highs in this bear market.It is 230 and 1 paidup.Means Rs 2300 on 10 paidup giving an P/E of 25.
Let me mention Rico Auto here when I write on Motherson Sumi.I gave the call on Rico Auto with detail analysis and Rico Auto which was making loss has turnaround and also delcared Dividend.
Rico Auto can become another Motherson Sumi.It can and it may not.
Now let me talk about how stock moves and how to understand it.
We have heard from many analyst that distribution is taking place.What is that?
When a stock goes down or say when stock is down on a perticular day the Vol is up then the average Vol daily and that remains for few days or weeks.That is distrubution.It simply says that HNI's or DII's or FII's are selling stocks and is going down.
If a stock goes down on thin Vol then we can say that it is going down just to panic the small investor to sell their holding and get out of it so that those (Operator)who wants to buy can buy it cheap.
Take the case of Sabero Organics.
On 26 th Mar 2011 it made a low of 36 and now in 2 months it is Rs 124......what is that....it was delibaretly bitten down to buy it low and when the news of takeover came at Rs 160, it is already above 100.
These are all gimmicks played by players and as I have written in past, no stock can move without the Vol gets dried up.
So, if one is holding a stock and it is going down and down and still the Vol is small one can still hold it instead of selling it and getting out from it as with low Vol it is not distribution taking place but actually panicking the investors.Ofcousre what the fundamental is looking is important.If the Co is still doing good and stock is going down on low Vol then no need to panic.
Same happens when a stock goes up.If the stock goes up with Vol then buying is coming for the stock.Like say, average Vol for a perticular stock is 1000 shares and it went up by 10-15% on a Vol of 10,000 or 15,000 shares then it means someone is buying and if that happens 2 -3 times in a week or fortnight then it means that some one is buying it.
There are innumerable examples where small investors have been fooled.They sold it in panic or getting frustarated and then the stock moved.