Profit out of Panic Selling :

Yesterday (2-sept-09) there was a bout of selling and buying (war between bulls and bears) and finally the Sensex settled losing 83.73 points or 0.54%, off close to 155 points from the day's high and up close to 80 points from the day's low.

Interestingly BSE clocked a turnover of Rs 5412 crore, lower than Rs 7547.38 crore on Tuesday, 1 September 2009.If this trend continues ie market going down on lower volumes we may see an upmove sooner than later.

What to do when the sensex goes down. Some times panic selling happens and great investors use this kind of rare opportunity to build wealth.

Warren Buffet, the world's smartest investor known for his investment philosophies, says "The most common cause of low prices is pessimism – sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer."


As I read this, some of Warren Buffett’s well-known investing principles come to my mind:


1. Use the market to your advantage:. Judge the company by its performance, and not by stock price. However if Mr. Market gives you an opportunity to buy the company at lower price use it to your advantage. Buying the company at lower price rewards in the long term.


2. Don’t worry about the economy. Stop discussing and debating whether the economy is poised for growth, or tilting toward a recession. Buffett dedicates no time or energy to analyzing the economy. However recession comes in you can plan and invest in companies you like as the recession gives an opportunity to buy at wonderful pricing.


3. Buy a business, not a stock. Consider first if the business is easy to understand. Then determine if it has a consistent operating history and favorable long-term prospects. What about its management? Is it rational, candid with shareholders, and able to avoid the herd mentality? Look at the financials, focusing on return on equity, not
on earnings per share. Buffett seeks out companies that generate cash in excess of their needs and companies with high profit margins, which reflect not only a strong business but a management with a tenacious spirit for controlling costs. Other financials to look at: retained earnings, estimated cash flows, and the value of a business. Once you have determined the value of a business, the next step is to look at the stock price. Buffett’s rule is to buy the business only when the stock price is at a significant discount to its value. Note that only
at this final step does Buffett look at the stock’s price.

4. Focus on few stocks: Do not plan to buy 100 companies but select a handful of companies and invest in the strong business. Webinar members know how we presented data on Zydus when it was at Rs 80+ just about 2 months back and the same stock is trading around Rs 180! So pessimism in stock quotes are great otherwise you would have to fight
for the price.

Based on this, I could only come to one conclusion. Warren Buffett and other savvy investors always position themselves to take advantage of the sale in the stock market. They are certainly analyzing financial data, looking for sound businesses whose stocks are battered by the current down market but whose businesses are sound, strong and
profitable, making them excellent candidates for strong long-term growth.

At EASY Investments we wish every investors makes sensible investment decisions. By doing so,Your Money Makes Money. Stay in touch with us for any assistance in the process.