Whenever a reputed company falls drastically, people tend to buy it thinking its available at attractive price.
Buying stocks that are in a downward price is the most common mistake among novice investors.
The typical scenario for this particular mistake is an inexperienced investor looking for stocks near their 52-week lows. The novice wrongly assumes that if a stock is near its low for the year then it must be "low" and therefore is an opportune position to be bought.
Often, investors convince themselves that buying a stock from the 52-week lows list is not a risky proposition because of that stock's low price relative to past earnings, book value, or some other measure of value.
But in reality, buying a downtrend stock is always risky, as you are betting against the entire market's assessment of the company's earnings trend. If a stock is making a serious decline it is because market participants know some facts about the company's future earnings potential - facts that you may not be aware of no matter how well you research the company.
Rajiv Kapoor
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