Around 5-6 months had written this article - BSE Smallcap Index and Nifty/Sensex–Momentum Divergence–How long can it continue ? cautioning about the craziness in smallcaps even though we were riding on the same.
A paragraph from the above post.
“For now the kind of momentum in smallcaps is like a problem of plenty for a momentum trader in smallcaps. Even while making money you are envious on the ones which you missed. Greed and Envy at its peak and this is when one can make stupid mistakes. You need to be nimble when you ride momentum and be ready to get out when your stops hit.This is not a caution but a reminder to stick to discipline. This is the time to ride if you are a discilpined as a trader and as an investor just sit out and watch the fun and book part profits if fully invested and look out for new sectors to churn this cash“
If one is not disciplined in stoploss in any momentum in smallcaps you may be left with some lemons in the portfolio. Also sizing of positions becomes more important. Getting influenced by some news on business channels or an investor buying can hurt bad if you take a large allocation. ( We too have a lemon called Balrampur Chini A buiyback arb ,more reasons and bad timing)
Just look at the price corrections. Many of these names were in the news for various reasons. Also not the most trusted managements. Many have dropped 30-90% from peak and many may never recover.
Have just covered a few --- There are many more – Sunil Hitech Suzlon Zee Media IL & Fs Investment etc.
BLS International – In this one to even we got in a trade but stopped out at 250 and stock has fallen 40% after that.
Vakrangee --- Have tweeted quite a few times warning on this.
Conclusion – If you are not nimble and disciplined with stoplosses and position sizing one should be very careful in buying the latest buzzing stock and do some research.
P : S – Do not ask me the view on above stocks – To hold or buy or sell… I have absolutely no view on the stocks above apart from being scared to touch them.
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