Below is the verbatim transcript of Roongta's interview with CNBC-TV18.
Q: For investors looking to take some money off the table given the current equity momentum, what would your advice be? Do you redeem funds when they are making profit or cut losses? How do you look at profit taking and trading in mutual funds?
A: If one look at the behaviour pattern of investors, one will see that in all aspects it is generally the opposite of what should be done. For example all retail investors will enter the equity markets after the bull run when the markets have rallied and would possibly sell when the markets are at virtually the lowest for the last 52 weeks.
After having made an investment the behaviour is still the same. Let us take an example of a person who has invested about a year ago in two stocks; ITC and Wyeth . After one year ITC was at about Rs 225, Wyeth was at Rs 918. After one year ITC has gone up by about Rs 100 and Wyeth has gone down by about Rs 100. Now if the same investor had required money, which stock is he likely to sell? Most of the investors would definitely look at selling ITC because it is in profit and hold on to Wyeth because it is below the cost.
Generally this behaviour that we notice in the behaviour of finance as a subject, we see that one land up having accumulated stocks, which are possibly not performing well and one has sold something, which has the potential to do better in future. This is the exact thought and the practice that we need to educate investors to change. If there is a possibility of a stock going up further one would need to hold on to that and sell something, which is not performing well. In this practice in a way what one is doing, if one does the other way round is if one cut the possibilities of earning profits instead of cutting losses.
If one look at the mutual fund investments, if there is a redemption requirement, one should definitely look at the funds which are not performing well rather than look at funds, which are already doing good. This is generally what an investor should keep in mind that first look to cut losses and not profits. It is a very strong statement I am making, one should look to cut losses and not profits so then one will be able to take better investment decisions.
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