Value buying or value trap for retailers !!

Retail investors often take their investment decisions based on the share price instead of the fundamentals. They tend to buy what looks ‘cheap’ and get influenced by the news around a company. They often see a large fall in share price as an opportunity. However, such investments often end up becoming value traps. A huge price decline may not always be due to a temporary issue but also due to a permanent dent in the company’s prospects. Also, a sudden surge in the stock price attracts retail investors. They then invest in such a company, without paying much attention to its fundamentals. Curiously, the lower the ticket size of the share, the more interested retail investors become. All these are wrong reasons to buy a stock. A stock should be bought because the fundamentals of the underlying company are robust. Tracking the activity of promoters, FIIs and DIIs can be a useful input in determining this.

-source Valueresearchonline