February 19, 2015

Should I continue to invest in the stock market? The curious case of REI Agro LTD.

I am not an avid investor in the stock market but I like to play with Google Finance to understand some trends. In June 2014, I used the filters provided by Google Finance to search for the most traded stocks in the Bombay Stock Exchange (BSE) having a value less than INR 10. The first stock that matched this search criteria was a stock called REI Agro LTD. For curiosity,  (and that I decided to invest in this madness for some fun) I periodically follow the progress of this stock. What I observed during the last one year is really interesting because it seriously made me think if I should continue investing in the stock market.
https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1411466400000&chddm=35163&chls=IntervalBasedLine&q=BOM:532106&ntsp=0&ei=VLXlVOiwHKOZwwPcgoCIAQ


In the above picture you see how the value of this company sky rocketed from INR 0.5 in May 2014 to INR 6 in July 2014! So if you had invested in 1000 shares for a total price of INR 500 in May 2014, the value of your 1000 shares would have skyrocketed to INR 6000 in July 2014;  you would have earned INR 5500, which is 11 times of what invested! Now when I first came across this stock in June 2014, the volume of shares traded was in the order of 3 million shares a day! So the amount of money exchanged and the profits made is just insane! Did REI Agro come up some ground breaking invention during this time period? The  answer is a big NO! If you do not believe me then have a look at the website of this firm [ http://reiagro.com/ ].

Furthermore, if you have a closer look at the the recent trends (shown below) you see the stock value increases and decreases at about 4% each day (size of each blue step in the picture below) and the volume of the stocks traded is not small.


As you can see, that even now (as recent at January 30 2015) there are days when about 2 million shares are traded! Which shows that the amount of money being exchanged is not small, and this is no fly by night ponzi scheme. I hope SEBI or some regulator takes this into account! Also, today (Feb 19, 2015) the stock value rose by 4.26% (the last blue step in the picture).

And now when I looked closely at the books of the mid-cap stocks, the stocks which have gained an insane amount of value during the last one year, the picture is something similar. They have made little or no progress but their stock value just keeps rising or falling in steps! So this is making me seriously question if I should pull out all the money I invested in the stock markets (especially the mid-cap stocks) before it is too late.