When Stocks rise we are happy and the opposite happens when they fall.
Let us understand this using a Simply Simple example.
Like a human being can be made to work either by the stick or the carrot method
Or investors get motivated to take action because of greed or fear.
There are two factors that take stock prices up.
One is company performance (fundamentals).
The force of demand to buy (technicals).
This is like saying a human body inflates or becomes larger in size because of two reasons.
Muscle Development & Fat Accumulation.
Muscle development is like Fundamentals such as ROI, ROE, EBIDTA etc.
Excess demand is like Fat Deposits that takes place in the body.
Hence a body which is muscular is like buying a company at good valuation.
But a body enlarged due to fat deposits is like buying a company with excess valuation.
When we are in the midst of a Bull Market many stocks grow large because of fat deposits.
This is when Valuations run very high in excess of their fundamentals due to the mad rush to buy during Bull Markets.
Extremely high Valuations means largeness on account of FAT and not MUSCLES.
Valuations are very important when we buy stocks because of this reason.
When stock markets are in steroids and everything around looks expensive, one must not forget the unlisted space.
This is a space where you will always find bargains and Great Valuations.
Very strong & muscular bodies with little or no fat deposits.
But most people are not aware about Unlisted Securities.
In fact before an unlisted security gets listed in the stock market, it gives massive returns to the early investors.
At IPO stage stocks are listed at a very high premium.
This however massively rewards the investors who came in at the unlisted stage of the business.
Investors who invest during IPO feel they will make a huge profit at listing.
Honestly people who invest during IPO also need to have patience 5 to 7 years to experience quality returns.
It makes no sense to critique Zomato, Nyka or PayTm.
These companies will need time to deliver returns.
And if they have fallen from their IPO prices then it offers a good investment opportunity
Because returns are not only generated by Equity and Debt but moreover by Market Volatility.
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