Rakesh Jhunjhunwala investment tips

Rakesh Jhunjhunwala is a famous Indian trader who is often referred as “Indian Warren Buffett”. He believed in the “India story” made a good fortune from it. He is not only a trader but also a successful investor. He spotted opportunities in good companies like Praj Industries, Pantaloon Retail, Titan, CRISIL, Lupin and Punj Lloyd.etc when no one was interested in them. Rakesh Jhunjhunwala (RJ) stated investing career in 1983 and used to put in 15-16 working hours in his early days. His company name is “Rare Enterprises”. He was ranked at 1,062 in the Forbes Billionaire list. Like Warren Buffett, he was fond of stocks from his childhood days. He was nicknamed as “Young Tiger” in the early 90’s (Harshad Mehta days).

Profession: Chartered Accountant.

Passion: Stock Markets.

Biggest award: One of India's best five investors by Business India magazine in 1998.

Investment motto: Buy right and hold tight.

His wealth: Around Rs 5,000 crore. He started his investing career with Rs 5,000.

His assets: Passion and confidence.

Success secrets:

1. He rarely invests in index stocks. He is an expert in picking value stocks when no one is noticed them. He invested in stocks like BEML and other PSU Stocks when everyone looked at technology stocks in early 2000.

2. Confine your portfolio to 15-20 stocks. Invest for long term to get good returns.

3. Stay away from cyclical stocks.

4. To get exceptional returns, you need to take risks.

5. He generally stays away from commodity stocks and index stocks. But he recently bought some steel stocks.

6. Like Jack Welch of GE, he believes in extensive reading and learning.

Famous quotes:

1. Markets are like women -- always commanding, mysterious, unpredictable and volatile.

2. Anticipate trend and benefit from it. Traders should go against human nature.

3. Don’t insult the great man (Warren Buffett) by comparing me to him.

4. Successful investors are opportunistic and optimistic ones.

5. Growth comes out of chaos.

6. Market is above individuals. The market is rational. An individual can never be smarter than the market

7. Maximise profits and minimise losses.

8. Invest in a business not a company.

9. Emotional investment is a sure way to make loss in stock markets.

10. I don’t advice anybody. I don’t manage anybody’s money.

15 Stock investment tips from Rakesh Jhunjhunwala:

1. Always go against tide. Buy when others are selling and sell when others are buying.

2. If you believe in the growth prospects of a company, invest in the stock and give it sufficient time.

3. Be an optimist. Pessimistic investors always lose money in stock markets.

4. Greedy investors will never make money in stock markets. Book profits after reaching your target price.

5. Never put your hard earned money without proper research. Never invest according to “Stock tips”.

6. You have to lose many a battle to win the war. This Winston Churchill quote is always quoted by Jhunjhunwala. Balance fear and greed.

7. Never react and change your investment decisions according to daily business news. Panic selling is a bad habit.

8. Hastily taken decisions always result in heavy losses. Take your own time before putting money in any stock.

9. Invest in companies which have strong management and competitive advantage. 10. Stock markets are always right. Never time the markets.

11. Opportunities will come and go. Are you prepared to grab them?

12. Never invest at unreasonable valuations. Never run for companies which are in limelight.

13. Passionate investors always make money in stock markets. You will never fail in any work if you do it with passion.

14. Means are important. Read and analyse the available information with an open mind and look for opportunities.

15. Prepare for losses. Losses are part and parcel of stock market investor life. Learn from mistakes. Learn to take a loss. Disciplined passionate investors like Rakesh Jhunjhunwala are always inspirational figures for young investors. One can make a good fortune in stock markets if you follow his investment ideas and principles.

Rakesh Jhunjhunwala Investment Philosophy

Although he claims to put only a minuscule of his networth on the table for trading activity, he has often leveraged his own capital and managed to make a fortune from his calls, more often than not. His stock picking strategy is influenced by the lessons from Mr George Soros's trading strategies and Dr Marc Faber's analysis of economic history. He endorses the thumb rule of 'trend is my best friend'.

He is the poster boy of the Indian bull run but admits to have been a bear in the Harshad Mehta days and believes that a person in the market should be like a chamelion. He calls the markets as temples of capitalism and belives that they are the ultimate arbitrators.

Mr Jhunjhunwala is a canny stock picker for long term investment and reputed for his eye on macroeconomics. Much like Mr Warren Buffet, he buys into the business model of a company and for judging the longevity and growth potential, he gives top priority to 'competitive ability', 'scalability' and 'management quality' of the enterprise. The 'entrepreneur', according to Mr Jhunjhunwala is what makes an invaluable difference to his expected investment returns. According to Mr Jhunjhunwala, believing in the vision and the beliefs of the entrepreneur and validating the risks that may not be perceived by the entrepreneur are the key success factors for an investor.

Mr Jhunjhunwala has managed to identify numerous multi-baggers in the past decade, notable being Praj Industries, Crisil, Titan, Nagarjuna and PSUs like BEML and Bharat Electronics, among others. The typical traits to look for while identifying potential multi-baggers, according to Mr Jhunjhunwala are - low institutional holding, under-researched and general pessimism about the stock.

A good time to Sell a stock, according to Mr Jhunjhunwala is not based on any 'price' targets, but when the 'earnings' expectations have peaked or the business model has peaked or the valuations appear ridiculously unreasonable.

Trading is against human nature: Rakesh Jhunjhunwala

'Trading is against human nature,' says Rakesh Jhunjhunwala, while talking about his investment approach in the stock markets. He says:

All risk taking is associated with two human conditions, viz the greed for profits and the fear of losses. The ability to strike the right balance between fear and greed is the most vital determinant of profitable risk taking. Human nature operates on the chance of a gain rather than maximizing gains.

There is lack of focus on the magnitude of gains and losses, which is why I maintain that successful trading and investing requires you to go against the basic tenets of human nature. We are programmed to learn, and we learn to a pain. But in trading and investing, you have to learn to take a loss.

In trading, the first and the last principle is that trading is trend and price based, and not opinion based. This requires you to square an unfavorable trade regardless of your opinion. This means that if I buy a stock at Rs 100, and then the price falls to Rs 95, I take my loss and square off my trade. This is counter-intuitive to most people. This is the one common quality of all successful traders.

I have tried to rationalize this many times, and am always reminded of Winston Churchill, the British prime minister who led the country into WWII, who said, "You have to lose many a battle to win the war". I think anybody who wants to trade should not only remember what Churchill said, but also what George Soros says, "It's not important whether you are right or wrong, it more important how much you lose when you are wrong and how much money you make when you are right".

Great fortunes are made by the occurrence of the unknown, and the first portend of the unknown is price, price and only price. Good trading requires three qualities: broad idea of direction, knowing what and how much to risk, and knowing when and how to take a loss.

To be successful in investing, many elements have to fall into place. But four things are critical. There has to be an attractive, addressable, external opportunity; a sustainable competitive advantage; scalability and operating leverage; and the management should be of high quality and integrity. All have to be present but they still constitute only 50% of our necessary requirement. It is important what one buys, but it is more important at what price one buys.

In The Smart Manager, I have talked about my ten commandments of investing. The top three are:

- Be an optimist. It's a necessary quality for investing success

- Expect a realistic return. Balance fear and greed

- Invest on broad parameters and the larger picture. Make it an act of wisdom, not intelligence

I am happy to say that a loss in investing has been a rare occurrence in my career, and the key to it is that I am an investor who focuses obsessively on value. Therefore, I may have made a mistake in buying NIIT in 2001, but I still made a profit.

Stock Market Books

1. One up on Wall Street: Peter Lynch. This is a must read to learn about stock markets.

2. The Intelligent investor: Benjamin Graham. Warren Buffett learnt a lot by reading this book.

3. Security Analysis: Benjamin graham. This book is a must read for every value investor. This is “The Bible on value investing”.

4. The Best Investment advice I ever received: Liz Claman. Simple investment lessons from stock market legends.

5. All about Stock market strategies: David brown and Kasandra Bentley.

6. Your Money and Your Brain: Jason Zweig. Psychology plays vital role in stock market movements especially over short term. This book is all about brain’s role over your investment decisions.

7. Common Stocks and Uncommon Profits and Other Writings: Philip Fisher.

8. Wise investing made simple: Larry Swedroe.

9. Contrarian Investment strategies: David Dreman. Contra investors always make money due to their investment style and duration. But these investors needs extreme patience to make money.

10. Buffett: The Making of an American Capitalist: Lowenstein Roger. Read this book to know about the legendary investor.

11. The New Market Wizards: Conversations with America’s top traders – Jack Schwager.

12. Lessons from the Greatest Stock Traders of All time: John Boik. Good book for traders.

Top Indian stocks: 1998 Vs 2008 Vs 2018

Decade is a very long period in the globalised business environment. Top companies which fail to adopt to the ever changing business dynamics will be replaced by new companies with strong dynamic management. “Looking back” sometimes gives valuable information about future trends. I compared the top Indian companies by market capitalization in 2008 Vs 1998. Except Reliance and ONGC, none of the top 10 companies in 1998 made it to the top 10 list in 2008. It is surprising to see how fast the emerging companies are replacing the old giants! We as investors always look to find out those companies to make big gains over long term. Blind long term investment without proper strategy will only ruin your financial health.

Important statistics about 1998:

1. Inflation was around 3.5%.
2. Third most attractive investment destination after Brazil and Mexico – Morgan Stanley.
3. 1 Dollar= 39 rupees.
4. India was preparing for Parliamentary polls.
5. Asian countries like Korea and Japan are reeling under currency crisis.
6. China was nowhere in sight.
7. Infosys was just listed in the exchanges.
8. Big companies successfully recovered from the economic slowdown in 1996-97.

Top 10 companies in 1998:

1. ONGC
2. IOC
3. Reliance Industries
4. GAIL
5. HPCL
6. TELCO
7. BPCL
8. SAIL
9. TISCO
10. Larsen and Toubro.

Source: Business India, 1998 special edition.

Only 2 companies from the 1998 list (Reliance and ONGC) succeeded in making to the 2008 list. So probably 3-4 companies from the 2008 list may make it to the 2018 list. Long term investors should always look to find out those emerging giants. Those investors will only become millionaires by 2018 but not the day traders.

How many investors put their money in IT and Telecom stocks in 1998-2002? How many of us can really think and invest with such a vision? Most of the new age investors have neither vision nor patience. They are just "day dreaming" by particpating in "Day trading". Investors who will invest in next Infosys or Airtel will become millionaires.

Top stocks by market capitalization on July 31st 2008:
1. Reliance Industries
2. ONGC
3. Bharti Airtel
4. NTPC
5. NMDC
6. MMTC
7. Reliance Communications
8. Infosys Technologies
9. SBI
10. DLF
11. BHEL
12. TCS
13. Larsen and Toubro
14. RPL
15. ITC
16. ICICI Bank
25. Sterlite Industries.
28. Suzlon Energy
29. Reliance Capital
42. Reliance Infra
50. GMR Infra.

Top 10 companies in 2018: If you can able to imagine them, you will become another Rakesh Jhunjhunwala.

Top Indian stocks by 2018:

1. Alternative energy stocks like Suzlon or Infrastructure stocks like Reliance Infra or GMR Infra may replace IT stocks.

2. Finance stocks like Reliance Capital are also serious contenders along with stocks like Reliance Power.

3. Metal stocks like Sterlite are dark horses.

4. Public Sector companies may bounce back if disinvestment process will be executed.

5. Reliance Retail which may be listed in 2009 is another strong contender for top 10 slots.



Request: I am requesting users to share their stock picks for 2018.



When will you get exceptional returns?



1. Invest in small caps which have the potential to become mid caps or large caps.



2. Invest in midcaps which have the scope to become large caps.



3. Invest in emerging technologies which generates high margins as they operate in niche areas.



Ex. SPEL Semiconductors, Bartronics, Compact Disc India, Suzlon and Tanla Solutions etc.



4. Invest in turn around sectors like Sugar.



5. Invest in companies which are targets for acquisition like Spice Mobile. But you need patience here.



My recent successes:



1. My stock pick Kavveri Telecom gave 23% returns in just 10 days. Recommended price is Rs 97.5. CMP is Rs 119.



2. My stock recommendation "Rohot Ferro Tech" gave 45% returns in just 17 days. Recommended price is Rs 110. CMP is Rs 161.



3. Another stock pick Jet Airways is also going strong. Recommended price is Rs 439. It is now trading at Rs 501 in just 4 days.

Analysis: Stock Market trends

Psychology and confidence plays vital roles in changing the stock market direction. In Bull Run, investors prefer to invest at any valuations and everyone talks about shares. But in bear markets, investors prefer to stay away from stock investments even though valuations are attractive. Stock market trends give interesting insights about the investors and their behaviour.

Stock Market interest:

This chart is giving clear idea about the declining interest among investors on stock markets. Stock market interest which was peaked during January 2008 and is gradually declining along with falling Sensex. Stock market related searched are declined by more than 50% since January.

Stock market popularity is gradually gaining ground since 2004 and it was peaked in late 2007. Sensex rise is directly proportional to investor’s interest and vice versa. Stock market popularity is gradually declining in Ahmedabad in the last 12 months while it is unchanged in Surat and Mumbai.

Stock Market popularity:

Gujarat is far ahead as expected but Orissa surprisingly stands in the second place followed by rich states like Punjab and Maharashtra. My state “Andhra Pradesh” is not in top 10. Why Orissa people are more interested in Stock Markets? Tamil Nadu is the top Southern state and is in the 10th place. South Indians are conservative type unlike other Indians despite rising incomes.

Surat is the top city in the stock market popularity followed by Mumbai, Delhi and Mangalore. Chennai is the top South Indian city in the 7th place. Ahmedabad which was once in top place but now failed to find a place in top5.

But stock market interest increased by 500% in the last one month across the world due to current economic crisis. While most of the world is searching for "Stock markets", Indians are moving away from stocks.

Rising Stock Market searches: People are clearly in panic state and are interested in knowing about happenings in US Stock markets.

These things reveal about what investors are searching for. In 2007, more people searched for “Asian Stock market” but in 2008, they are searching for “US Stock market”. This is another interesting trend. “China Stock market” is popular search query in 2007. Madhya Pradesh and Haryana people generally use word “Share market” instead of “stock market”.

World Stock market trends:

There is a steep rise in stock market related searches across the world due to current turmoil. Wall Street Journal is reporting abnormal rise in traffic in the last one month. Indian investors are acting in opposite direction.

India is in the second place in the stock market related queries. Like Orissa, poor African counties, Nigeria, Zimbabwe and Kenya, are in the first, third and fifth places. Stock market interest is no way related to richness of state or country. USA and Singapore are in the 9th and 10th places. In 2008, Nepal is in the fourth place while 9 out of top 10 are occupied by poor countries from Asia and Africa. This is an interesting trend. China was left out due to language problem.

Mumbai and Delhi are the top cities in stock market interest and other top 10 slots are filled by American Cities. There is a steep rise in stock related searches in America in the last 1 month. New York, Atlanta and Boston are top cities in Stock market related searches. Like Madhya Pradesh, Nepal people prefer to use word “Share market”.

China, Japan and Korea are left out as english is not their primary language.

All the global markets crashed in the last one month and investors across the world are in panic state. But global investors are searching more to know about stock markets while Indians are not interested to know about credit crisis and global economic problems.

Investment tips from Rakesh Jhunjhunwala

Rakesh Jhunjhunwala, "Indian Warren Buffett" gave some valuable tips on investing in Indian stocks. He was nicknamed as "Young tiger" during Harshad Mehta days. Like Buffett, he started investing in shares from his young days.

Stock Market Investment Tips:

1. You have to wait for right moment before investing in stocks. Never invest in any stock with proper idea on its business and fundamentals.

2. First quality every investor should have is optimism. Ups and downs are common in stock movements but patience ultimately wins.

3. Monitor price moments regularly. Don't forget the past history of stocks. Never take decisions in hurry.

4. Believe in markets. Markets always do right thing in long term. Do not speculate.

5. Never miss good investment opportunities. If you find them, grab them with both hands.

6. Price at which you buy a stock is very important. Look for the opportunities around with a keen eye.

7. Maximize the profits and minimize the losses. Don't forget this basic rule.

8. Invest in a business not a company. He made big money in Praj industries.

9. Don't look for excess profits in a over valued economy. Greed is not good for Stock Market investors.

10. Investing is not my profession. It is my passion. Investing is the most interesting thing for me in this world.

11. You should have your independent opinion. Keenly Observe and read relevant information with an open mind. Means are very important. Never follow herds.

12. Learning is a continous process. Learn to accept losses with smile.

13. Ready for challenges and risks. If you want to win a war, you have to lose many wars.

14. You are not a owner of the wealth. You are a just trustee.

15. Indian stock markets will reach peak by 2010.

How to spot investment opportunities in stock markets?

Stock markets always provide wonderful opportunities for those investors who work hard and carefully analyse the news and emerging trends. Bear markets always provide safe investment opportunities for long term investors but they need to bear extreme pain before earning those rewards. Those who invested in the last bear market (2001-02) earned exceptional returns in the next 5 years. Current bear market will also test investors’ patience before making Bull Run. If you can able to face short term shocks and can look beyond 2009, one can find bright picture. New sectors and stocks will find favour in the next Bull Run but not outdated sectors like IT.

How to pick stock market investment opportunities?

1. Reactions:

A. Over reaction: Bear Sterns went bankrupt and sold all its holdings without thinking about the fundamentals of the stocks just out of necessity. Orchid Chemicals lost 50% of value in single session and sent panic waves among investors. This fall is no way relevant to stock fundamentals. But very few investors utilised this simple opportunity to get 200% returns in 20 days. Stock touched 340 from 113 in just 20 days. But you rarely get such riskless opportunities in stock markets.

B. Irrelevant reaction: Ranbaxy share lost 60% of its value due to FDA allegations and ban. This is a serious concern for the company and its investors due to drastic fall in prescriptions and serious dent to its image. In such testing times, investors generally tend to stay away from that sector due to dip in overall sentiment. Some stocks in that sector sometimes fall even though there is no impact on their sales. Investors should look for such opportunities. Same thing will also happen on positive side also. Had you remembered the boom in real estate stocks before DLF listing? This is all about psychological aspect of stock market investment.

2. Cyclical sectors: Metals, Real Estate, Sugar, Automotives and other commodity based stocks generally move in cycles. If you are on the positive side of cycle, rewards tend to be very high. If you are a late entrant, it will take 3-4 years to recover your investment. I knew many people who invested in SAIL and Tata Steel when they are trading at 9 and 80 respectively.

3. Fear Psychosis: “There would be no stock market in 1940” – Popular perception among Americans after 1929 Great depression. Current credit crisis is the second most severe economic turmoil after 1929 depression. Fear Psychosis will spread among investors in such times and stocks even good ones will make new lows (unbelievable levels) to provide good investment opportunities for courageous patient investors. Do you have guts, patience and vision?

4. Emerging sectors: There will be huge investments in the coming days in sectors like Wind Energy, Solar Energy, Bio-fuels, Water Management, Waste Management, Nuclear Energy, Animation, Power Solutions, Electric Vehicles, Mobile VAS, Micro irrigation, Plastics, Semiconductors and other niche segments.

Ex. Most of the American stocks are trading at 1-year lows while Solar Energy stock “First Solar” is trading near 1-year high. Americans and Chinese are already taking big steps to take leadership position in these sectors. Lack of visionary leaders is our bad luck. Don’t expect quick returns in these stocks as these companies will take 3-5 years to give exceptional returns.

5. Contra stocks: Rakesh Jhunjhunwala invested in BEML when it was trading at Rs 11 when no one was talking about PSU stocks. Some stocks will not be in lime light at certain point of time. Legendary investor Templeton invested in Japanese stocks when they were reeling under severe financial crisis. But these contra investments will give very good returns once they come into limelight which will generally happen. But this strategy is suitable only for patient long term investors.

6. Natural resources: Mines and oil are precious resources whose reserves will continue to decline while demand will continue to rise. Those companies who hold these resources will command huge valuations in the coming days. After 2020, agricultural lands will also command similar valuations due to increase in demand and lack of availability of sufficient cultivable lands.

7. Buy backs, open offers and acquisitions: Companies aggressively announce these offers in bear markets to benefit from low valuations. Investors should not miss such chances as they generally provide safe investment opportunities to get quick returns. Have you invested in Spice Communications and Zandu Pharma?

A. In America, promoters of Microsoft, HP and Nike announced buybacks to increase their stakes and save their stocks from free falls. These are classic bear market opportunities.

B. Yahoo is now trading at $ 18.9 and may fall to $ 12- $ 15 levels due to weak growth and lack of vision from management. But stock has so much intrinsic value and Microsoft is willing to acquire it by paying around $ 35. There lies investment opportunity even though stock is not good basing on fundamentals. So bad stocks also give good returns.

8. Why this stock is falling? This is the most frequent question that is come to your mind in bear markets. Why good stocks like ICSA, Opto Circuits and SREI Infra etc are falling? Why Punj Lloyd touched 190 just 3 months back? In bear markets, any stock will touch any low level. It almost impossible to predict exact lows in these markets as investors tend to move in herds. Instead of getting panic, one should treat them as investment opportunities.

Ex. Will Larsen and Toubro fall to below 2,000 levels? Impossible basing on fundamentals. My answer is “may be” basing on bear market reactions. Any level is possible in bear markets but those lows are not sustainable. That is crucial for long term investors.

9. Rallies: As I said in my previous posts, short term rallies are the characteristic feature of bear markets. You will get so many investment opportunities if you can satisfy with those 10-15% returns. If American Congress accepts bailout package, another short rally is on the cards.

10. Short sell: Out of exuberance, short term rallies will take some stocks to unreasonable levels which provide short selling opportunities. DLF reached 567 in September first week. Any sage investor will buy that stock at such levels means short it.

Conclusion: One can get so many such investment opportunities if one works hard on research and upcoming news. Large caps will lead the rallies in the initial days of bull market but battered mid caps and small caps will give exceptional returns over long term. When will stock markets make Bull Run? It is impossible to predict at this stage of credit crisis. Just accumulate good stocks with 2 year investment horizon.

Investment ideas:

1. Do you think that cash rich Indian Railways will stop spending due to current economic slow down?

2. Do you think that people stop purchasing medicines for their illnesses?

3. Do you think that Indian Government will not encourage agriculture based industries like food processing?

4. Do you think that nuclear deal will immediately provide opportunities to private sector companies?

5. Do you think that falling sugarcane output will have no impact on sugar stocks?

Please share your investment ideas through comments on the blog.

About IT stocks: IT companies are either masking the crisis or underestimating the severity of American credit crisis. They may be saved from crash temporarily due to this bailout package but one will see the real impact on IT stocks and on Indian economy (due to IT job losses) in the next 3-4 months when barrack Obama takes aggressive steps on outsourcing (out of necessity). Niche IT companies will be saved due to their positioning and vision. Big IT companies need to take aggressive cost cutting measures to save their investors but they are still waiting while things are moving from bad to worse.

About PSU stocks: I generally stay away from PSU stocks. I missed investment opportunities in good companies like BHEL and SBI due to this policy. But my faith is vindicated by Gujarat Government by its 30% profit sharing policy. Gujarat Government is planning to expand this policy to Gujarat based private companies like Reliance etc. What will happen if all state Governments opt for similar steps? All Indian companies will need to share 30% of their profit before taxes with Government. Who is advising Narendra Modi (if he is not a mad man) to take such mad decisions? Will they really use it for poverty eradication?

Analysis of portfolios of legends:

Outlook Profit magazine published portfolios of legends like Rakesh Jhunjhunwala, Mankekar and Nemish Shah Etc. I am surprised by their stock selection. If they think that those are the best stocks in the stock market, I may hesitate to call them as legends. There are some very good stock picks like Pantaloon India, CRISIL, Lupin, Ion Exchange and Praj Industries etc. There are so many bad selections in their portfolio. These bad stocks will also give very good returns as they are long term investors (3-5 year duration).

Ex: Rakesh Jhunjhunwala portfolio: He always says that scale and market leadership are important. How can he justify investments in Geojit Financial services, Karur Vysya Bank, Nagarjuna Constructions, Dwarikesh Sugars, Kajaria Ceramics, Mid Day and Viceroy Hotels etc? If Rakesh is thinking that these stocks are the best ones in their sectors (scale and leadership), it is very difficult to understand.

These legends successfully picked the emerging trends of the last decade but miserably failed to find the next emerging trends like alternate energy etc (except Ion Exchange India). I don’t know their exact stock holdings in various companies. I am commenting according to the portfolios published in the Outlook Profit magazine. Another interesting aspect of their portfolios is their belief in mid and small caps. Why? Large caps generally give safe and reasonable returns but will rarely make you a millionaire. Their way to become crorepati is “pick an emerging company with strong management, buy a large stake and give the management sufficient time”. Are you following the similar strategy?

Verdict: Indians stock markets got some oxygen from positive news like bailout package, interest rate cuts by many central banks and passage of nuclear bill by House of Representatives. Outflow of foreign funds will be slowed down at least in short term. If American Congress rejects bailout package (which is an unlikely scenario), what will happen? I don’t want to think about such situation even in my wild dreams.

Latest statistics: 50-80% of American start-ups will be killed by current credit crisis. More than 300 American banks are on the edge of bankruptcy.

Advice for new stock market investors

Many new investors are asking me for advice on their recent “investments” in the stock markets which were bought at steep prices. Most of these investors do not know much about stock markets. They have just entered into these markets to make some easy money (brokers, media and "expert" friends are real culprits).

My advice for these “innocent” investors:

1. Indian stock markets are not investment centres at current valuations. They became gambling centres in the recent days. Can anyone finally make money in gambling?

2. Do you know what happened to the investors during Harshad Mehta days and IT boom time?

3. Do you know, like Ambanis now, Wipro’s Premji became the second richest man in the world for some days due to these stock markets? Anil Ambani will become the world richest man after Reliance Power listing. Are you thinking that they can stay there?

4. Never believe in the words of CNBC analysts and broker’s words. They will change their words according to the market sentiment. Just analyse their statements by going through the archives of business newspapers or moneycontrol.com. Do you what they have said about Ispat Industries when it was at Rs 14?

5. Don’t lose your hard earned money in the stock markets by investing at these valuations. Stock markets already discounted 2009-10 earnings also. I know it is very difficult to control one after seeing the euphoric mood among your friends. Have patience. Better opportunities will come for investments at reasonable valuations.

6. Any government will take populist decisions before elections. Don’t expect significant industry helping decisions in the election year.

7. Accumulate more knowledge about various companies and businesses by regularly reading business newspapers and magazines.

8. Know basic fundamentals about stocks like P/E ratio, Book value, historical stock prices, when to buy/sell shares etc.

9. Day trading may give you some short term gains but long term investors are always the real winners in stock markets. Never indulge in day trading. Leave it for big brokers.

10. Never invest in stock markets just basing on tips of brokers and friends. Do your own research on the company and business and its growth prospects and valuations.

11. Never invest in Z, S and other unknown company shares with poor management. They may hit upper circuits in bull markets. You will finally left with some papers with no buyers. Biggest losers in any bull market are these kind of investors who may never able to sell their shares of those unknown companies.

12. Never enter into stock markets to make big money in small time. You need to work hard by doing enough research on companies before making big money. Long term investors in good companies will always become millionaires.

13. Compared to secondary markets, IPOs are safe in these times. Focus on primary markets by investing in good IPOs.

14. But sometimes, you need to follow herds as in Reliance Power IPO. We know it is not a good idea to invest in Reliance Power at such a steep price. But in bull markets, investors never follow caution and reason. So invest in Reliance Power and book profits on the day of listing.

15. United States is experiencing its worst recession after 2001. So better prepare for more bad news.

Why Indian stock markets are rising and falling?

Current steep rise in stock markets is not due to fundaments but just due to liquidity. Mutual funds and Insurance companies are providing domestic liquidity while foreign investors are gambling in Indian markets. Foreign money will move out of our country at any point of time. Stock exchanges are adding fuel to the fire by encouraging derivative market. We have to wait and watch when will this mess clear up and better senses will prevail.

Final advice: Don’t put your hard earned money in these gambling centres. BSE Sensex will oscillate between 18,000-21,000 points for some more time. New innocent investors should stay away from Indian stock markets until the emergence of clear picture. I am against investments even in mutual funds also. Most of these mutual fund managers are inexperienced ones as they have never managed funds in bear market. Sometimes patience will save you from catastrophes. Don't move your money into stock markets from bank deposits. Greed is not good for your financial health.