How Stock News Effect your Portfolio

 

News plays a dominant role in driving your investment. So in this article, we will help you understand how to interpret the stock news, identify which stock news is good and bad and act accordingly, while investing.  

So, by now, you got to know how to do fundamental analysis of a stock from last two posts: Annual and Quarter results.

You feel confident that now if someone asks you about a stock you can at least give a basic analysis on it.OR if someone says this stock is good or bad, now you have the power to make your own judgment about that stock.

But then you see this:

Credits: screener.in

It is Eicher Motors graph. After seeing this you scratch your head and think how can I find this stock in 2013 and enjoy almost 10x return in 5 years. And what exactly happened that made this stock to grow at this pace.

Keep your curiosity fuelled up

Let dive into what happened? So, If you remember Royal Enfield bikes started their 2nd inning around 2013 or let me admit craze of that iconic vehicle picked up during that time. And Eicher motors is the parent holding company of Royal Enfield. So this news was the trigger for that exponential growth. So the lesson we got from Eicher motors is that it takes something new to initiate substantial price improvement.

You think what other changes could initiate this sort of growth:

It could be a new product, service, management or new event, which can change the future of the company.

In our Study, We have found it always takes something new to accelerate long-term growth. 

Now the next question you would ask is how can you find news and what that news should look like:

Here you have to be cautious about the source of the news, therefore always go for trusted sources of information: Newspaper and information websites. Here are resources which we use:

Now how a good news would look like:

  • A Company has developed a product, which you think could be a household name.
  • A company has started a franchise model, for which great demand is either already there or going to pick up.
  • A Company has made a major expansion, which improves the business prospects of a company.
  • A company acquired another company, which would either increase the market share substantially or open a new stream of income for the company.

Not all the news is good. Bad news has an equal and opposite effect too. It’s better to say if you miss a good news there won’t be much of an effect, as it is good for your portfolio whether you notice it or not. But if you miss out on a negative news about a stock in your portfolio, you would lose a fortune. So always stay updated with news about stocks in your portfolio.

Let’s show you what negative news could do. This is a stock price graph of Gitanjali Gems. This could be the worst nightmare of your life if you had invested in this stock.

First, we will talk about what happened in the stock. The stock company was involved in a fraud with a big state-run bank.

Credits: LiveMint

This led to the criminal cases against key personnel in the firm. Therefore firm’s future was left in jeopardy. As a result, stock reflected the same development.

Credits: NDTV PROFIT

Now we will discuss a few samples of bad news to beware of :

  • The company made a major investment in a product, and it is losing money in it for a long time.
  • A company lost a key person from its management who is responsible for business growth in the company.
  • A company is involved in some fraudulent practices.

Now you think what if stocks in your portfolio are unfortunately getting into these bad news. What should be the appropriate action in that case?

Now, if we talk about news in perspective of stocks. We certainly have to discuss a paradox to test your rational mind when it comes to investment. We will present you a question. If you have these three stock graphs to choose from, which one will you choose to invest in.

 

 

 

Is your choice is stock 2 or 3. If yes, then you are with the majority. As the majority doesn’t choose to buy stocks making new highs. Rather choose stock 2 or 3. Why? Whether you are a new or experienced investor your emotions kick in while investing. So you feel comfortable buying stock which is substantially down from its peak whereas uncomfortable to invest in stock making a new high. But if you want to succeed in investing you have to stay away from sticking to your emotions with your investment.

Our findings were if you find a stock making new highs first time during a bull market together with a big increase in volume signals an opportunity worth checking into. A good investor would be out long before it appears on the new low list.

So the next question is when to buy a stock?

The stock you have selected should be close to or be making a new high after price correction and consolidation(base building). And you must avoid a stock once it has extended more than 5% or 10% from the base.

So now you want to know what is the base? Check the stock 3 figure.

 

Conclusion:

Search for the companies that have new product or service, new management, or changes in conditions in their industry. And companies whose stocks are emerging from price consolidation and are close to new highs in price are the best bets to buy in.

 

Experience of 8 years in stock investment. I learned everything by making a lot of mistakes and losing a good amount of money, I am here to make sure you don’t lose on either: Hope or Money.

Leave a Reply