Losing Money due to shortage of Liquidity.
Recently I was short of money when I found 2 stocks breaking from its trend giving a huge buy signal. I had to sell some holding stock to buy these new stocks.
Stock I had to sell was BPCL. (Below image is monthly charts of BPCL )
Reason to sell BPCL was
- Large cap stock. (Large caps are safe during market down trend, but they move slower).
- I was sitting on good profits. (8–10%)
Stock I had to buy was Camlin Fine.
Reason to buy
- Breaking out at 90 levels with good volumes.
- Sector on the move. The entire sector of chemicals is on the move. I was expecting 10% upside.
It was recommended in my site on 8th October 2016
- Even though I had made the right decision and earned profits, it had incurred me loss in some brokerage to sell and buy the stock.
- I had a target of 725+ for BPCL with SL of 635. I had to sell it in between.
- Consider if BPCL was up 2% and Camlin Fine was down 2%. 4% of loss + 0.5% loss due to brokerage. It would have been a loss of 5% just because of Liquidity.
Even though I hold 20+ stocks, loss due to absence of cash had happen. I suggest all who invest to diversify your stock holdings to atleast 30–40 stocks and hold 10 to 20% cash.
This 10% cash will help you earn the loss of liquidity.
Originally written on quora.