Saturday, July 25, 2015

10 GOLDEN RULES OF INVESTING IN STOCKS


Courtesy : ET


The lure of big money has always thrown investors into the lap of stock markets.However, making money in equities is not easy. It not only requires oodles of patience and discipline, but also a great deal of research and a sound understanding of the market, among others. Added to this is the fact that stock market volatility in the last few years has left investors in a state of confusion. They are in a dilemma whether to invest, hold or sell in such a scenario. Although no sure-shot formula has yet been discovered for success in stock markets, here are some golden rules which,if followed prudently, may increase your chances of getting a good return

1. Avoid the herd mentality:

The typical buyer's decision is usually heavily influenced by the actions of his acquaintances, neighbors or relatives. Thus, if everybody around is investing in a particular stock, the tendency for potential investors is to do the same.But this strategy is bound to backfire in the long run. No need to say that you Should always avoid having the herd mentality if you don't want to lose your hard-earned money in stock markets. The world's greatest investor Warren Buffett was surely not wrong when he said, 'Be fearful when others are greedy,and be greedy when others are fearful!'

2  Take informed decision :

Proper research should always be undertaken before investing in stocks. But that is rarely done. Investors generally go by the name of a company or the industry they belong to. This is, however, not the right way of putting one’s money into the stock market.

3 Invest in business you understand :

Never invest in a stock. Invest in a business instead. And invest in a business you understand. In other words, before investing in a company, you should know what business the company is in.

4. Don't try to time the market:

One thing that even Warren Buffett doesn't do is to try to time the stock market,although he does have a very strong view on the price levels appropriate to individual shares. A majority of investors, however, do just the opposite, something that financial planners have always been warning them to avoid, and thus lose their hard-earned money in the process. 'So, you should never try to time the market. In fact, nobody has ever done this successfully and consistently over multiple business or stock market cycles.Catching the tops and bottoms is a myth. It is so till today and will remain so in the future. In fact, in doing so, more people have lost far more money than people who have made money

5. Follow a disciplined investment approach:

Historically it has been witnessed that even great bull runs have shown bouts of
panic moments. The volatility witnessed in the markets has inevitably made investors lose money despite the great bull runs.However, the investors who put in money systematically, in the right shares and held on to their investments patiently have been seen generating outstanding returns. Hence, it is prudent to have patience and follow a disciplined investment approach besides keeping a long-term broad picture in mind.

6. Do not let emotions cloud your judgement:

Many investors have been losing money in stock markets due to their inability to control emotions, particularly fear and greed. In a bull market, the lure of quick wealth is difficult to resist. Greed augments when investors hear stories of fabulous returns being made in the stock market in a short period of time. 'This leads them to speculate, buy shares of unknown companies or create heavy positions in the futures segment without really understanding the risks involved,' says Kapur.Instead of creating wealth, these investors thus burn their fingers very badly the moment the sentiment in the market reverses.In a bear market, on the other hand, investors panic and sell their shares at rock-bottom prices. Thus, fear and greed are the worst emotions to feel when investing, and it is better not to be guided by them.

7  Create a broad portfolio :

Diversification of portfolio across asset classes and instruments is the key factor to earn optimum returns on investments with minimum risk.Level of diversification depends on each investor's risk taking capacity 

8. Have realistic expectations.

There's nothing wrong with hoping for the 'best' from your investments, but you could be heading for trouble if your financial goals are based on unrealistic assumptions.For instance, lots of stocks have generated more than 50 per cent returns during the great bull run of recent years. However, it doesn't mean that you should always expect the same kind of return from the stock markets. Therefore, when Warren Buffett says that earning more than 12 per cent in stock is pure dumb luck and you laugh at it, you're surely
inviting trouble for yourself.

9. Invest only your surplus fund:

If you want to take risk in a volatile market like this, then see whether you have surplus funds which you can afford to lose. It is not necessary that you will lose money in the present scenario. You investments can give you huge gains too in the months to come.But no one can be hundred percent sure. That is why you will have to take risk.No need to say that invest only if you are flush with surplus funds.

10. Monitor rigorously:

We are living in a global village. Any important event happening in any part of the world has an impact on our financial markets. Hence we need to constantly monitor our portfolio and keep affecting the desired changes in it. If you can't review your portfolio due to time constraint or lack of knowledge, then you should take the help of a good financial planner or someone who is capable of doing that. 'If you can't even do that, then stock investing is not for you. Better put your money in safe or less-risky instruments.

36 comments :

  1. Nice information sir, any change of opinion in rungta irrigation Ltd, one of your old selected stocks? Kindly let me know, thank you

    ReplyDelete
    Replies
    1. Already suggested to come out of Rungta

      Delete
  2. Merrill Lynch sells 43 lakhs shares of subex at 15:80 and again within 10 days buys 36 lakhs shares of subex at higher level of 16:30, what does it mean, is it good sign for Subex?

    ReplyDelete
    Replies
    1. I don't know how the sale and purchase in secondary market affect the fundamental business of a company

      Delete
  3. very good article VP sir. sir can i have your views on latest cupid results if you have gone through them

    ReplyDelete
    Replies
    1. Good result and after the recently received orders visibility is also there .

      Delete
  4. Sir please share your views on results of Can Fin Homes.

    ReplyDelete
    Replies
    1. Good result.This stock recommended @ Rs.145 ( http://value-picks.blogspot.in/2013/04/canfin-homes-buy.html ) , at CMP Rs.820 , one can still hold.

      Delete
  5. Hello Sir...the points you mentioned about investors truly reflects on me. Once again very informative points...

    ReplyDelete
  6. Dear sir, Your view on Tirumalai chemicals and srikalahasti pipes for long term

    Best regards,
    Rajeev

    ReplyDelete
    Replies
    1. Chemical business is commodity type in nature and one should adjust entry and exit according to business cycle of that particular product . For the time being it is OK .

      Result of Sri kalahasti Pipe ( Formerly Lanco Ind) was good .This stock suggested @ Rs.65 ( http://value-picks.blogspot.in/2010/03/lanco-industries-ltd-integrated-play.html) which is currently trading around Rs.230 .One can still hold

      Delete
  7. Siddharth BhaskarJuly 25, 2015 at 8:20 PM

    Hi Sir,
    Please share your view on the following:
    1. Mahindra holidays
    2. Cox & kings
    3. Jet airways
    4. DCB bank
    5. Hindalco

    Also are there any pharma stocks that are attractive at this point that we should lookout for?

    Awaiting your response since a long time.

    ReplyDelete
    Replies
    1. Cox & King is the only stock I am tracking closely which already suggested below Rs.100

      Delete
  8. Sir are u tracking gujarat themis biosyn??

    ReplyDelete
  9. Another great article sir... can u please delineate the no. 9 point sir? if i dont have any surplus fund, should i stay out of stock market??? and is it a prudent idea to have stocks instead of storing the money in bank a/c?? if i have a 30-40 years view then should i buy only blue chips like hdfc, maruti ??? i am just out of my teenage years , so kindly don't mind if i sound too dumb sir.. .. Thank u... your views are most important ..

    ReplyDelete
    Replies
    1. No doubt , one should invest in stocks with whatever remaining after enough savings.

      In my opinion, Long term never means buy and forget for 30-40 years and I never believe such a strategy will bring profit to any investor. The fund you are committing in stock market should be for long term but your investment in stocks should be periodically reviewed and decisions should be taken based on company's / industry's potential and performance. Suppose you are investing in a Cyclical industry and forgetting for 30 years . In this 30 years there may be 5 or 6 business cycles for that particular industry .If 30 year completed at a time the cycle is near the bottom you may not get a return in percentage terms compared with the peak of the first cycle which is just 4-5 years later your first investment. What I mean is , like bank FD , return from investing in stocks will not increase along with time .Investing in stocks is a business of businesses and you should understand such businesses to do this business properly . I can't say buy and forget is the right strategy , but , since market is always unpredictable the money you are bringing to stock market should be always for long term and never invest in stocks with amount you kept for other time bounded purpose like marriage of daughter , education of children , building of house ..etc.

      Delete
  10. Please comment on Nitin Spinners result. Due to removal of tax benefits, tax expense occurred. Expansion plan is there.

    -
    Satya

    ReplyDelete
  11. Sir, Please share you views on Crompton Greaves result.

    ReplyDelete
    Replies
    1. Result is bad , but the ongoing de-merger may unlock value

      Delete
  12. Sir, just has a question.. wen u say" u r not tracking a stock" ..it means u r not convinced with its future potential and thats u dont track it ? OR u r not aware of the stock and now someone has asked u so now u will start tracking it?? And may be u start tracking it later...plz answer

    ReplyDelete
    Replies
    1. It never means 'I am not convinced' .As humans ,we have limitations to track beyond certain numbers .Even if I know the basic details about such stocks , may not enough understanding to express an opinion about such stocks ,that's all .

      Delete
    2. Ok sir thanks for replying....so there is a possibility that when someone has asked you, u start tracking it and u may have a firm opinion for it in future..i have a share in mind which i find of good potential..its vidhi dyestuff...someone asked u about it and u told u r not tracking it....has ur view changed after it??

      Delete
  13. Hi Sir,you posted the complete list of your recommendations till 2014 december.Is there Any company among that list which under performed or less performed due to some reasons can be bought?like ramky etc.Thnks.

    ReplyDelete
    Replies
    1. Not 'any' but 'many ' , whether these are suitable for investment or not depends on the reason of under performance and hence difficult to give a general answer for this.

      Delete
  14. Dear Sir, kndly suggest any stock where i can invest immediately as i have surplus money for long run.

    ReplyDelete
  15. Very good article...please share your views on SML ISUZU for next week

    ReplyDelete

Followers

Tweet TopOfBlogs