Buying and holding a stock is one of the fundamental rules of investing in order to get the benefits of compounding but the current market scenario is so uncertain that it has put this concept under a question mark.
Market veteran and ace investor Basant Maheshwari believes there is a big debate now whether 'buy and hold' has lost relevance and is a thing of the past.
In his first newsletter from his ‘Kay Lagta Hai’ series, which will now be exclusive for his PMS and Smallcase members, Maheshwari said that the big debate now is whether 'buy and hold' is a thing of the past since many investors are fed with the same set of news and information, they all run to buy and sell at the same time which causes irregular market movements full of chaos and confusion.
"Under such a scenario, the incremental seller or the incremental buyer will set the price. And the person setting the price could be the one with the most inferior intelligence," said Maheshwari.
"When the inferior intelligence guy sells, he compels large institutions to set their algorithm in motion. Computers take over from humans and the big guys follow to take advantage of temporary price breaks. That's the stock market for you. The newfound volatility with 20% drawdowns at least once a year is here to stay," said Maheshwari.
Maheshwari underscored the chaotic nature of the current market when the market swings between gains and losses and the basic rules of investing such as holding the stock and believing in the power of compounding are pushed behind.
He added that a person who causes a top by getting in last is also the same person who makes a bottom by getting out last and in between, the holders look for reasons. They call up friends and watch business channels, follow Twitter feeds and other social media platforms. But most of the time, no one has clues about what has happened.
Maheshwari has cofounded Basant Maheshwari Wealth Advisers LLP along with Shalu Mehra which offers portfolio management and Investment advisory services.
Disclaimer: This article is based on a newsletter by Basant Maheshwari which is available on public platforms. The views and recommendations made above are those of the analyst and not of MintGenie.