By Yogesh Chabria
Anil Ambani's much-talked about Reliance Power Initial Public Offering (IPO) listed at Rs 430 as against the issue price of Rs 450. What followed next was a whole lot of emotional outbursts — people cursing the stock market, the company, even Anil Ambani.
But unfortunately, for many retail investors, the Reliance Power IPO was their first entry ever, into the stock market. Well, instead of being discouraged, here is what you can learn from this experience. Lesson 1: Investors, be patient. And don't panic
If you bought Reliance Power shares, you may be feeling cheated, to see a poor opening in the market especially after the hype around the shares, touching Rs 900 or even more.
Well, before buying shares, make sure you have satisfactory answers to a few basic questions. For instance, before investing in Reliance Power IPO, you could have asked the following questions:
> Does India need power?
> Is there a good opportunity in the power sector?
> How many years will it take for Reliance Power to generate revenue?
> Where does is stand when compared to its peers such as National Thermal Power Corporation and Tata Power?
I’m sure your confusion and anxiety will end when you have answers to these questions. Investing in Reliance Power is not a bad decision. In terms of future prospects, India will need huge power to grow and the company will grow with it too. There are opportunities in this sector and Reliance is capable of capitalising on it in the next five to seven years. Lesson 2: Hold on for a long-term and allow the market to improve
Always remember: a loss is not a loss — until you sell. Lesson 3: Read the prospectus before investing
There’s just no excuse for not doing so. Investing without reading the prospectus and not understanding it doubles the chances of risks. So, no buying without reading offer documents. Lesson 4: Be well-informed
If you aren't, then the stock market is a dangerous place to park your money. The only way to survive this game is to arm yourself with knowledge. According to me, some of Reliance Power's valuations seemed a bit too optimistic. But it doesn’t mean that it’s a bad company. It's just that I find the valuations extremely aggressive.
Final word: I didn’t invest in the Reliance Power IPO nor will I do it now, with its price being much lower. Currently, I am more interested in buying stocks and sectors that are quoting extremely low prices.
I am a value buyer. I don’t like to buy Re 1 coins for Rs 10 just in the hope to see it at Rs 15 someday. Instead I like to buy Re 1 coins for 50 paise. This recent market correction should be used as an opportunity to learn the basics of investing because in the long run what we learn today can be used to create wealth tomorrow.
And remember: people who create wealth don’t indulge in panic buying and selling. (This writeup was first published on www.moneycontrol.com. Yogesh Chabria, investor and author, dreams of empowering every Indian retail investor with knowledge, and wants to create as many 'happionaires' as possible. Connect with him through www.blog.happionaire.com, a blog dedicated to his soon-to-be-launched book. Also, subscribe to his free newsletter.)
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