Saturday, April 16, 2016

9 Mistakes First-Time Investors Make




    Courtesy : .thestreet.com

Investing in the stock market is no easy game. Many enter with high hopes, only to find themselves crushed and broke after a few months of trading. That is the harsh reality for would-be investors who do  not exercise caution, and who do not strive to find knowledge and understanding before they pump their money into the first "hot" share.
There is money to be made in the stock market, but competition is strong and fierce, and experienced traders have been learning the tricks of the trade for a long time. First-time stock market investors often enter this strange world of numbers with false expectations and ideals that ultimately lead them towards common mistakes.
Those who are new to the world of the stock market would do well to learn from these errors before they find themselves astray. Here are nine mistakes that first-time stock market investors frequently make:

 1. Not Having A Plan
 
Successful stock market investors have a solid plan, and they stick to it. Newbie investors on the other hand tend to go in blind, like a boat without a compass, and therefore get lost and stranded at sea.
A personal investment plan helps you to map your goals and objectives, your entry and exit points, the amount of capital you will invest in a certain trade, any potential risks, the maximum amount you are willing to lose, and your plans to diversify your portfolio. With these details you will be able to invest with purpose, according to and against your own principles. New investors who make a plan may also struggle to stick to it, and change their course whenever the market dips, or whenever an investment doesn't go exactly as they expected. Sticking to your plan will help you to navigate the stock market even when times are tough. Not having one can cause you to flail out and make emotional decisions that are detrimental to your aims

 2. Playing The Guessing Game
 
Playing the guessing game with your stock market investments is exactly the same as gambling. It is your ability to work with stock market data and other relevant channels of information that distinguishes the two.
A real investment is not made on speculation, or on the basis of a rumor that you heard, but on a valuable opportunity that you have researched, and which looks like it will pay enough long term profits to justify the risk.New stock market investors tend not to do their homework very well, or at all. You should never take a stab in the dark with the stock market; you may as well play roulette. Instead, try to gather and monitor enough data that you can start to make informed decisions about where you will invest your money.
 Do your homework, stick to the plan, and your investments just might pay off.

 3. Not Understanding Risk.
 
Every investment comes with a certain amount of risk. That is the nature of the stock market, and of all investments. Newcomers often don't properly evaluate the risk of their investments, or their own tolerance to that risk. This can cause them to make flamboyant moves with serious life savings that quickly land them in the dump.
On the other side of the coin, risk aversion can create a psychology of scared money, in which the first time investor is frightened to take an opportunity that looks lucrative because they don't want to risk the losses.
 
 There is a balance to be found, and it lies in knowing that every investment is a risk, and also in knowing the margins that you are willing to push.
There are safe bets out there; investment options that come with very little risk. One example is to purchase blue-chip stocks from a very well established company. There is always some risk involved, but you can be fairly confident that these stocks will rise, or that the company will pay dividends.
Investments in which you stand to gain more, generally (but not always) come with a higher amount of risk. New investors fail to think about what they stand to lose as well as what they stand to gain. Your risk tolerance will likely determine, at least to some extent, your style of investment.


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4. Not Knowing How Much Is Too Much.
 
If you are new to stock market investments, and you play with only money that you are willing to invest, then you at least only stand to lose what you can afford. The single most devastating error that a first time investor can make, is to play with money that they cannot afford to lose. This is a direct ticket to complete emotional turmoil, irrational decision making, and perhaps even financial destruction.Whatever you do, only play with money that is yours. Do not take out loans to invest in stocks, especially if you are a beginner. Don't invest your own reserves. Even experienced investors keep a liquid asset stream.

 5. Short-Term Thinking.
 
Many new investors rush to make their first stock market investments. The stock market isn't some sort of get-rich-quick playground.New investors often enter with high hopes for a steep and rapid profit, and they want to make it big with short-term investments. This makes for bad investment decisions at the best, and for many leads to nothing but a quick exit from the marketplace.More established investors have a totally different idea about what makes a short-term and a long-term investment. In their view, a long-term investment might be 20 or more years, and even when they consider an investment to be short-term they will probably be looking to stick with it for three-to-four years.
If you thought you were going to turn a quick profit in a few months then it is time to re frame your approach to time. Be in it for the long run, or don't be in it at all. Investment is best seen as a process of long-term wealth accumulation.

6. Selling Out In A Panic.
 
If you do have a long term plan in place, and you understand that stock market movement is best understood over the course of years and not weeks and months, then you probably won't be in much of a panic if stocks start to decline. Stocks rise and fall all of the time.
First-time investors, if they have a short-term attitude towards investments, or obsessively monitor their stocks for daily movement, can often get more than a mild case of hysteria if they spot a downward trend. This can cause them to sell out their position blindly, without properly considering whether or not they are likely to rise back up.Very short-term trends are not great indicators overall, and experienced investors may see opportunity for recovery. Whatever happens you shouldn't panic. Now is the time to make wise, sober-minded decisions

 7. Failing to Cap Losses.
 
The opposite to selling out in a blind panic, but just as damaging when the tides are against you, is to hold on to a losing stock even when market indicators suggest that the share is unlikely to pick up again. Did you see the keyword there? "Market indicators." This is what an experienced investor uses to decide whether a downward trend is just a temporary blip, or whether it is a long-term loser.
Experienced investors cap their losses, and move onto the next investment idea. When a share is depreciating, knowing when to cut your losses is essential.
  
 8. Failing to Diversify Investments.
 
This really is a huge mistake that a lot of first time investors tend to make. It is never clever to put all of your money in one investment, or even one type of investment. Markets can crash, and stocks for a single company can go down the drain. If your whole investment strategy revolves around one company, or even one industry, then a single movement could cause you huge trouble.
More savvy investors tend to diversify their investments across several industries and sectors, and have a portfolio that involves stocks in a variety of different companies.Investors who feel intimidated with the market can reduce their risk and increase their diversity by investing some of their money in mutual funds and index funds, as well as making their own choices in a diverse way. It is also useful to keep assets outside of the stock market; keep some money separate, and invest in hard assets such as gold to diversify even further.

 9. Investing In Alluring Stocks.
 
First-time investors, if they are not making their decisions based on the proper information and stock market data, often do so based on what looks like a good deal. The problem with this is, those which look good at first glance, are not often the most lucrative investment opportunities.
Many new investors think that a low stock price makes for a great opportunity, but this is not necessarily true. Value is key, not price. Sometimes high priced stocks offer a high potential for return, and low priced stocks can be worthless investments.

Following the herd is another mistake, and can lead new investors into paying too much for a "hot" stock that will not hold its value in the long term.




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109 comments :

  1. sir what is your view on MIC Electronics ?

    ReplyDelete
    Replies
    1. Already expressed my opinion about this company.

      Delete
  2. Dear VP, what is your current views on RS Software? Is it advisable to invest now, as this is the architect of UPI application, which will be the future of banking payments.

    ReplyDelete
  3. What u think about Suzlon in very long term????

    ReplyDelete
    Replies
    1. Business is expected to improve going forward but increased floating stock and over ownership of retail investors may keep the up move of stock price under pressure.

      Delete
  4. What is scope in Adlabs Imagica?

    ReplyDelete
    Replies
    1. Industry is in nascent stage in India and good growth potential.Considering the debt company raised for the execution of project,it may take 2 years to turn into black.For high risk investors with some patience.

      Delete
  5. Sir, anything to worry about bambino agro as it's MD has resigned but he is still a chairman. Please reply.

    ReplyDelete
    Replies
    1. I believe it is part of their family arrangement . The real point we need to understand is how the entry of new players like Pathanjali impacted their business.

      Delete
    2. Yeah, Patanjali stores are even present in villages.I spoke to one of the shop opener and according to him patanjali provides better margin than other MNC and so many are trying to get the dealership of patanjali.

      Delete
  6. Dear vpji pls share views about provogue India, A2Z maintenance.

    ReplyDelete
  7. Sir, u r views on Pidilite industries

    ReplyDelete
    Replies
    1. Pidilite is a stock suggested to buy @ Rs.166.

      http://value-picks.blogspot.in/2012/07/pidilite-industries-buy.html

      which is currently trading around Rs.625 , no new suggestion at this price.

      Delete
  8. Can i know the reason for ERA INFRA not trading?

    ReplyDelete
    Replies
    1. Non compliance of listing norms . For the next 6 months it will trade only on Monday's .If company comply during this period , will back to normal trading otherwise suspended.

      Delete
  9. Sir, I will greatly appreciate your views on dhanlaxmi fabrics and mangalam drugs.

    ReplyDelete
  10. Dear VP

    Whats ur view on V2 retail? Management seems to have given an updated guidance of 50% rise in FY17 sales and also doubling of store count.. Dont you perceive this too be aggressive? Seems like RC Agarwal is not learning from his past mistakes...

    Regards
    Ravi

    ReplyDelete
    Replies
    1. They mentioned that expansion is through internal accruals and not on debt.

      http://www.moneycontrol.com/news/business/v2-retail-eyes-50-risesales-at-rs-450-crfy17_6204641.html

      Delete
    2. Dear VP

      But where would they generate so much accruals from? do you think internal accruals would suffice for opening of 20 additional stores + working capital requirements of existing stores+new stores?

      This is definitely an aggressive plan dont you think so?
      Regards
      Ravi

      Delete
  11. Pls share your thoughts on Tiger Logistics (India) Ltd.

    ReplyDelete
  12. Sir
    Your view on Sanwaria agro

    ReplyDelete
  13. Sir
    How is Ashok Alco Chemicals for investment?
    Rgds

    ReplyDelete
    Replies
    1. Based on the published numbers , prima facie,it seems very cheap. Since I have not studied it in detail,not in a position to express any firm opinion for the time being.

      Delete
  14. Dear VP ji wat happen to cupid rubbers on Bse trading. In any restrictions. Pls clarify. Thk u.

    ReplyDelete
    Replies
    1. Nothing happened ,restarted its trading with 2% circuit filter.

      Delete
  15. Dear sir please your view on Praj Industries

    ReplyDelete
  16. Sir, is there any sugar stock that you like? Sugar and cement seem to be in a fierce uptrend. Is there also any cement stock that you like at cmp?

    ReplyDelete
    Replies
    1. Sugar us a tricky sector mainly due to two reasons .
      1)Depends a lot on weather condition which is unpredictable.
      2)Government policies are changing every time. Central government influencing product price( Sugar Price) and state governments influencing raw material price ( Sugarcane Prince). These policies are highly influenced by state and central elections..etc and unpredictable, hence as of now I am not tracking this sector as a whole.

      We have already discussed many cement companies in the past and prefer to hold the same.

      Delete
  17. Any views regarding oriental trident??

    ReplyDelete
    Replies
    1. Not aware of any listed company in the name Oriental trident.

      Delete
  18. Dear sir what's your view about newly listed infibeam, bharat wire rope, quick heal.

    ReplyDelete
  19. Sir what is happening with SKM Egg Products. It dropped form 90 odd to 6 yesterday.

    ReplyDelete
    Replies
    1. Could not understand what you are saying. Today's closing price is around Rs.97

      Delete
    2. moneycontrol will show bse price of 6 which is incorrect.Check on NSE price which is where SKM is listed.

      Delete
  20. sir ur opinion on 3i infotech's debt restructuring plan?

    ReplyDelete
  21. Hi what is your view on CEBBCO? Commercial engineers & body builders, in view of CV sales on uptrend & good monsoon

    ReplyDelete
  22. Sir,
    What do you think ,will lead to growth in Poddar pigments.It is already working at 100% plat utilisation. Is it because prices of their product in the international market trending up?

    ReplyDelete
    Replies
    1. Poddar Pigment is currently a debt free company and it is steadily growing for the past many years. Its operating cash flow increased from just Rs.2 Cr to Rs.19 Crore in last five years. What you said is correct , it is working near to its full capacity and it is also an indication of the demand of its products and management's efficiency . Now they are concentrating in value added products and raw material price is also favorable . I believe , a company with efficient management, good balance sheet with near zero debt and enough demand for product is a good proposition from an investment point of view and I believe capacity expansions a possibility in near future. On valuation basis also it is cheaper compared with its competitor Plastiblends where the same is trading at a P/E multiple of 18 against a P/E of just 11 for Poddar.

      Delete
  23. Dear sir, your view on subex after conversion of convertible bond. I am not able to weigh the impact of it on common shareholder. On one hand the number of shareholder has increased so will impact on EPS and on other hand interest outgo will reduce. Please guide on this with your expertise and experience. Thanks in advance.

    ReplyDelete
    Replies
    1. All FCCB converted shares immediately dumped into the market , this excess supply is the major problem for any significant up move in near term.

      Delete
    2. Sir, the huge increase in equity of subex due to fccb conversion will restrict price appreciation...this was exactly the point i asked you when you first recommended Subex. At that time you gave a different reply and now...you are giving the same reason.

      Delete
    3. Dear

      Subex is not a stock I suggested to buy either in blog or in FB , When someone asked my opinion on it I mentioned that stocks like Tanla and Subex may be turnaround candidates. Turn around never means stock price but about profitability and I still believe it is a turn around company in FY 15-16.

      Delete
  24. Sir what is ur view on Scanpoint geomatic ltd, network 18 and bharathiya global Ltd.

    ReplyDelete
  25. Sir, Do you track Gujarat Ambuja exports ltd and Eastern Treads?

    ReplyDelete
    Replies
    1. Not tracking above mentioned stocks.

      Delete
  26. Sir, SEBI regulations state that as long as you are stating or advicing to buy scrips and are providing your suggestions on public forum and media only, you are not restricted to speak about equities. I am sure a lot of people like me would benefit if you start putting your views on stocks like your previous years posts.

    ReplyDelete
    Replies
    1. Dear

      The terms like 'Public Forum','Media' ..etc can be interpreted as they like.

      Delete
  27. Dear valuepick sir, kindly provide your opinion on Bombay dyeing which is trading around RS.50. All other textile stocks like indocount, mafatlal, welspyn, trident, ambika etc had significant upmove in the recent years. I think Bombay dyeing is also in the same space as welspyn and indocount. Can wee accumulate this for long-term? Can it become a multibagger sir?
    Thanks in advance
    Regards

    ReplyDelete
  28. Hi Value Pick Sir,

    What is your view on Sanghi Industries after Piramal Enterprises investment of Rs 256 crore in the company by subscribing to non-convertible debentures. Also the company showing good improvement in last few quarters. You discussed many cement stocks which belong to South India which already appreciated a lot from ur discussed price. Your valuable views on Sanghi Industries as it belong to North India.

    ReplyDelete
    Replies
    1. We can't attach the brand 'Piramal' with Sanghi because of this group subscribing non convertible debentures and not any equity stake. As a reasonably good cement company,let us hope it will perform once the impact of govt's efforts to kick start infra sector visible.

      Delete
  29. Dear Sir,
    Please share your views of Arrow Coated Products at current price. Can it be bought at current levels?

    ReplyDelete
    Replies
    1. This stock suggested around Rs.10 . No new suggestion at CMP Rs.638.

      Delete
  30. Sir, any respite on business conditions you aware of in your earlier recommended stock AIMCO PESTICIDES. thanks

    ReplyDelete
    Replies
    1. Monsoon failure of two consecutive years and issues of Brazil economy ( Which is one of the biggest export market of Indian agro chemical companies) negatively impacted almost all companies from this sector.It is too early to comment about the situation of this year.

      Delete
  31. Sir please share your views on Mazda and l&t finance holding Thanks

    ReplyDelete
    Replies
    1. Mazda is an already suggested stock @ Rs.98 . Suggesting to hold @ CMP Rs.360

      L&T Finance holdings is expected to be a steady compounder over a long period of time. But the journey may be boring and test our patience unless they opt inorganic route for growth.

      Delete
  32. Sir your view on bodal chemical ,Plz check

    ReplyDelete
  33. Hello sir,
    Your views on nithin spinners
    Thanks Sir
    Regards

    ReplyDelete
  34. sir, your view on kilburn Engineering and Mcnally Bharat & EMC ltd merger ? it will become a power - engineering giant post merger turn over 7000+ crore will it create a huge investment opportunity also ?

    ReplyDelete
    Replies
    1. If history is an indication , this business group is not investor friendly.

      Delete
  35. Dear Sir, There will be around 2% in margin of persistent system as stated by management. Should we worry about it?
    http://www.moneycontrol.com/news/results-boardroom/ibm-deal-to-put-200bps-pressuremarginsfy17-persistent_6385221.html?utm_source=IW_DATA_stockpage

    ReplyDelete
    Replies
    1. I don't think Persistent is a stock to avoid only because of few point dips in margins for few quarters.

      Delete
  36. Hello VP sir,

    Even if you post any recommendation it is fine; at least keep this blog as active. I do not see any of your view after 22nd april

    ReplyDelete
  37. sir pls share ur view on PIONEER EMBROIDERIES and DCB bank

    ReplyDelete
    Replies
    1. No change in opinion about Pioneer till result is out.

      Delete
  38. Wts ur views on Meghmani Orgarnics and Diamond Power infra??

    ReplyDelete
    Replies
    1. Not tracking Meghmani and not very positive on Diamond Power because of the following reason.

      http://www.business-standard.com/article/current-affairs/diamond-power-infra-md-arrested-for-tax-evasion-by-central-excise-granted-bail-115030201344_1.html

      Delete
  39. Still waiting to hear the comment from you about MIC electronics?

    ReplyDelete
    Replies
    1. My opinion about this company already shared, nothing to comment more for the time being.

      Delete
  40. Could you please share your view on kiri industry

    ReplyDelete
  41. VP Sir, Krebsbiochem is one of the Pharma stocks suggested by you in 2010 at Rs.38/- Whats your view on this stock at this point in time. Can we accumulate now.

    ReplyDelete
    Replies
    1. As you are aware Krebs was a closed down units for about ten years . I hope ,revival of the company will happen by this FY.Show some more patience.

      Delete
  42. Hello sir...what is opinion on idfc bank result ....kindly share your views....pls...

    ReplyDelete
    Replies
    1. Such fluctuation in earnings is natural during the beginning stage of any bank .Increase in NPA is due to the loans provided when it was IDFC . I believe this quarter result is not a big worry for a long term investor. Please don't take it as a stock to multiply within few months or quarters.

      Delete
    2. VP sir, equity base is enormous compared to most of the PSU/Private banks ! Is not that a dampener ??

      Delete
  43. Dear VP
    Do you like mindteck because of its foray into IoT ( Internet of things ) ?

    ReplyDelete
    Replies
    1. We have discussed about it previously .

      Delete
  44. Hello Sir,

    Need your views on Ricoh, Crompton Greeves and IDFC ltd.
    Ricoh dropped drastically from its high of 1000+. Is there any issue? Is there any clarity on how/when crompton greeves or IDFC ltd. is splitting the stocks among its subsidiaries?

    Thanks
    Venkat

    ReplyDelete
    Replies
    1. You can easily understand the reason for fall in the price of Ricoh just by googling.

      Crompton and IDFC not splitted but de-merged and de-merged portion of IDFC is IDFC bank which is trading in both exchanges for the past many months. Crompton also de-merged and yet to be listed.

      Delete
  45. Hi Sir,
    Do you have any idea whether SEBI has taken any action on people running any blog/social media. Is there any way to get confirmation from SEBI that discussions of stock on blog is a crime or not?

    ReplyDelete
    Replies
    1. If you need an official confirmation , only RTI is the way.

      Delete
  46. Dear VP Sir

    Kindly share your views on Triveni Glass.

    Regards

    Sreejith G

    ReplyDelete
  47. Hi,

    What's your view on Thyrocare, Ujjivan & Parag Dairy IPOS?

    ReplyDelete
    Replies
    1. All these companies are reasonably good ,but the issue is these companies are aggressively pricing their IPO's and short term gains may be capped.Some scarcity premium is possible for Thyrocare.

      Delete
  48. Please share your view on welspun india

    ReplyDelete
  49. Please share your view in singer India

    ReplyDelete
  50. Sir please give us your view on Biocon after its latest positive results.

    Thanks

    ReplyDelete
    Replies
    1. Biocon is an already suggested stock and one can still HOLD it.

      Delete
  51. Dear VP Sir,
    What is your view on Power Finance Corporation and Rural Electrification Corporation at the current level?

    ReplyDelete
  52. Dear VP
    After seeing EPC results , do you think it's back on track or are you still sceptical?

    ReplyDelete
    Replies
    1. Yes , business seems improving and good potential is there . My only worry is whether Mahindra's will stick on their earlier policy of creating a single company for all agri related business, as they promised earlier or deviating from this plan. Because , recently they formed an entity to bring all agri business under single fold but it is surprised to see that EPC Industries excluded from this process,which is against their earlier promise and our expectation.

      (http://articles.economictimes.indiatimes.com/2016-02-12/news/70568970_1_mahindra-mahindra-agri-inputs-mssl)

      It is not clear whether they will merge this with EPC in future to get it listed or not . This is the biggest confusion about EPC at this point of time.

      Delete
  53. sir ur view on ROLTA india and vidhi dyestuffs

    ReplyDelete
  54. Sir
    your view on Ramky Infra at CMP

    ReplyDelete
    Replies
    1. I believe , worst is over for Ramky Infra but suggesting it only for those with above average risk appetite and ready to hold at least for two years.

      Delete

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