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Monday, October 26, 2009

Which Theroy you follow for investment - Random walk or Beating the market

many of us think that we know the pulse of market where it will lead to and simply relating the things with each other watching new channels (financial)and then concluding like if crude oil goes up then market will move upward etc thinking about global economy and the various factors like employment rates,political powers,then again company repo,government actions etc.

I think there are not a limit to these factors which can move the market or a stock.Then are the people who are working hard in calculating the profits losses amking financial expectations about companies and doing all the business after stock market are fools.

WELL there was a theory stated by Eugene Fama in 1960 which simply stats that it is impossible to beat the market because prices already incorporate and reflect all relevant information. This is also a highly controversial and often disputed theory. Supporters of this model believe it is pointless to search for undervalued stocks or try to predict trends in the market through fundamental analysis or technical analysis.

Now according to the efficient market hypothesis theory you are playing a game instead of a intelligent buying or selling activity.If markets are efficient and current, it means that prices always reflect all information, so there's no way you'll ever be able to buy a stock at a bargain price.

But how some fund investors and mutual fund managers are able to outperform in markets

Well i think they have some really good information about the companies which are not available to public at large the calculations which we do after analysing the company financial results are different from what they analyse.

My conclusion

Go for limited and better diversification

Read about latest news and upcoming factors for a company in which you are going to invest like competitors,future growth probable,companies merger and aquisitions,government policies,

Better to invest in small proportions like for example you buy today 100 shares of Rashtriya chemicals at 69 then look for another patch and then again pick the lot.Same in selling.But this might result in more (brokerage etc)charges 

Don't try to run against market

Go for stop loss everyday

Technical analysis for intra day ..

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