Henceforth, if any of your stocks is the envy of the world one moment and falls from grace the next, you can jolly well say you were 'Vakrangeed.' There aren't many stocks that can wipe out investor wealth to the tune of more than 20,000 crores in a few trading days flat and still not be done yet.
To be honest, the SEBI order alone cannot be the reason for the stock's collapse. There is seldom one cockroach in the kitchen. I won't be surprised if few more are found crawling around in the days to come.
In fact, I will have to give it to Tanushree and other colleagues for suspecting their presence in their investigation of the company. Which is why, despite the heady growth in its profits, they chose to give it a miss.
My Profit Velocity subscribers weren't so lucky though. Yes, that's right. We had given a buy on the stock some time back.
And it all looked hunky dory for a while. The stock was a star performer, up more than 100% in a few months flat and playing a big role in the service earning 20% in 10 months. However, with the bottom falling out of the stock, the overall performance has also taken a hit.
To say that I am utterly disappointed with this recommendation would mean giving in to the 'outcome bias'.
It is wrong to judge the quality of your decision making based on just one outcome, especially in a field like investing.
What's needed is a thorough examination of the process underlying the recommendations and how a large number of outcomes panned out.
Vakrangee was recommended in Profit Velocity, a momentum based service, as it was in a strong uptrend - our number one requirement for a stock to be considered for recommendation. It is a high risk, high reward bet and to be honest, we do expect a few stocks to go the Vakrangee way.
However, once you understand the reason why it is being bought, and have enough safeguards in place so that a few stocks don't wipe out the entire portfolio, you shouldn't fret too much about errors like Vakrangee.
There are investors who, given a choice between a certain 15% returns per year and an 80% chance of earning 25% would always want to choose the former. Mind you, logically, it is the second option that makes more sense as it still gives an expected value of 20% (80% of 25%).
There's a 20% chance that the investment may go to zero but over a large number of stocks, it could be well worth the risk taken.
Happy Investing,
Source:Smart Contrarian
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