Saturday, June 11, 2016

10 Tips for the Successful Long-Term Investor

Courtesy : Investopedia

While it may be true that in the stock market there is no rule without an exception, there are some principles that are tough to dispute. Let's review 10 general principles to help investors get a better grasp of how to approach the market from a long-term view. Every point embodies some fundamental concept every investor should know.

1. Sell the Losers and Let the Winners Ride!

Time and time again, investors take profits by selling their appreciated investments, but they hold onto stocks that have declined in the hope of a rebound. If an investor doesn't know when it's time to let go of hopeless stocks, he or she can, in the worst-case scenario, see the stock sink to the point where it is almost worthless. Of course, the idea of holding onto high-quality investments while selling the poor ones is great in theory, but hard to put into practice. The following information might help:
  • Riding a Winner - Peter Lynch was famous for talking about "tenbaggers", or investments that increased tenfold in value. The theory is that much of his overall success was due to a small number of stocks in his portfolio that returned big. If you have a personal policy to sell after a stock has increased by a certain multiple - say three, for instance - you may never fully ride out a winner. No one in the history of investing with a "sell-after-I-have-tripled-my-money" mentality has ever had a tenbagger. Don't underestimate a stock that is performing well by sticking to some rigid personal rule - if you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting. 
  • Selling a Loser - There is no guarantee that a stock will bounce back after a protracted decline. While it's important not to underestimate good stocks, it's equally important to be realistic about investments that are performing badly. Recognizing your losers is hard because it's also an acknowledgment of your mistake. But it's important to be honest when you realize that a stock is not performing as well as you expected it to. Don't be afraid to swallow your pride and move on before your losses become even greater.
In both cases, the point is to judge companies on their merits according to your research. In each situation, you still have to decide whether a price justifies future potential. Just remember not to let your fears limit your returns or inflate your losses

2. Don't Chase a "Hot Tip."

Whether the tip comes from your brother, your cousin, your neighbor or even your broker, you shouldn't accept it as law. When you make an investment, it's important you know the reasons for doing so; do your own research and analysis of any company before you even consider investing your hard-earned money. Relying on a tidbit of information from someone else is not only an attempt at taking the easy way out, it's also a type of gambling. Sure, with some luck, tips sometimes pan out. But they will never make you an informed investor, which is what you need to be to be successful in the long run.


3. Don't Sweat the Small Stuff.

As a long-term investor, you shouldn't panic when your investments experience short-term movements. When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Also, don't overemphasize the few cents difference you might save from using a limit versus market order.
Granted, active traders will use these day-to-day and even minute-to-minute fluctuations as a way to make gains. But the gains of a long-term investor come from a completely different market movement - the one that occurs over many years - so keep your focus on developing your overall investment philosophy by educating yourself.

4. Don't Overemphasize the P/E Ratio.

Investors often place too much importance on the price-earnings ratio (P/E ratio). Because it is one key tool among many, using only this ratio to make buy or sell decisions is dangerous and ill-advised. The P/E ratio must be interpreted within a context, and it should be used in conjunction with other analytical processes. So, a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued.

5. Resist the Lure of Penny Stocks.

A common misconception is that there is less to lose in buying a low-priced stock. But whether you buy a $5 stock that plunges to $0 or a $75 stock that does the same, either way you've lost 100% of your initial investment. A lousy $5 company has just as much downside risk as a lousy $75 company. In fact, a penny stock is probably riskier than a company with a higher share price, which would have more regulations placed on it.

6. Pick a Strategy and Stick With It.

Different people use different methods to pick stocks and fulfill investing goals. There are many ways to be successful and no one strategy is inherently better than any other. However, once you find your style, stick with it. An investor who flounders between different stock-picking strategies will probably experience the worst, rather than the best, of each. Constantly switching strategies effectively makes you a market timer, and this is definitely territory most investors should avoid. Take Warren Buffett's actions during the dotcom boom of the late '90s as an example. Buffett's value-oriented strategy had worked for him for decades, and - despite criticism from the media - it prevented him from getting sucked into tech startups that had no earnings and eventually crashed.

7. Focus on the Future.

The tough part about investing is that we are trying to make informed decisions based on things that have yet to happen. It's important to keep in mind that even though we use past data as an indication of things to come, it's what happens in the future that matters most.
A quote from Peter Lynch's book "One Up on Wall Street" (1990) about his experience with Subaru demonstrates this: "If I'd bothered to ask myself, 'How can this stock go any higher?' I would have never bought Subaru after it already went up twentyfold. But I checked the fundamentals, realized that Subaru was still cheap, bought the stock, and made sevenfold after that." The point is to base a decision on future potential rather than on what has already happened in the past.

8. Adopt a Long-Term Perspective.

Large short-term profits can often entice those who are new to the market. But adopting a long-term horizon and dismissing the "get in, get out and make a killing" mentality is a must for any investor. This doesn't mean that it's impossible to make money by actively trading in the short term. But, as we already mentioned, investing and trading are very different ways of making gains from the market. Trading involves very different risks that buy-and-hold investors don't experience. As such, active trading requires certain specialized skills.
Neither investing style is necessarily better than the other - both have their pros and cons. But active trading can be wrong for someone without the appropriate time, financial resources, education and desire.

9. Be Open-Minded.

Many great companies are household names, but many good investments are not household names. Thousands of smaller companies have the potential to turn into the large blue chips of tomorrow. In fact, historically, small-caps have had greater returns than large-caps; over the decades from 1926-2001, small-cap stocks in the U.S. returned an average of 12.27% while the Standard & Poor's 500 Index (S&P 500) returned 10.53%.
This is not to suggest that you should devote your entire portfolio to small-cap stocks. Rather, understand that there are many great companies beyond those in the Index, and that by neglecting all these lesser-known companies, you could also be neglecting some of the biggest gains.

10. Be Concerned About Taxes, but Don't Worry.

Putting taxes above all else is a dangerous strategy, as it can often cause investors to make poor, misguided decisions. Yes, tax implications are important, but they are a secondary concern. The primary goals in investing are to grow and secure your money. You should always attempt to minimize the amount of tax you pay and maximize your after-tax return, but the situations are rare where you'll want to put tax considerations above all else when making an investment decision .

The Bottom Line

There are exceptions to every rule, but we hope that these solid tips for long-term investors and the common-sense principles we've discussed benefit you overall and provide some insight into how you should think about investing.

77 comments :

  1. Sir,

    Please comment on Rajesh Exports and its results. They have purchased a refinery in Valcambi and are said to be largest gold exporter from India. What is your opinion on the companies fundamentals. . .

    Also please comment on investing in MIC electronics at the current price.

    ReplyDelete
  2. Good day VP Sir,

    All the talk recently has been about Sugar sector. Are you tracking any companies from Sugar sector which you can share with your fans. I am one among them Please advise..

    ReplyDelete
    Replies
    1. sir wanted ti know about SETCO AUTOMOTVE.

      Delete
  3. Good afternoon VPji,

    Your view on TIL Ltd after the CAT biz sale?

    ReplyDelete
  4. Hello VP Sir,

    Wanted to know your views on two low equity stocks but good management.

    1. Mallcom India
    2. NGL Fine Chem

    Thanks a lot for all your inputs..

    ReplyDelete
    Replies
    1. Not tracking both cos and no idea about their management.

      Delete
  5. Sir,

    Do you find any negative in Sunil Hitech Engineers result? not sure why it is falling continuously after results.

    Thanks
    Varun

    ReplyDelete
    Replies
    1. As per media reports ,few months back there was an IT Raid in Sunil Hitech which led to a disclosure of unaccounted income to the tune of Rs104 crore by the company . These type incidents will surely impact any company's image and it will affect valuation.

      Delete
  6. sir please share your view on balmer lawrie

    ReplyDelete
  7. Dear sir,
    I had purchased few shares of Alphageo @51/-After your first recommandation.Today the price is around Rs.800/-.I understand that company hv order book of 1700 crore & market capitlization is just 450 crore so i feel that there is good earning visibility in the coming years.I would like to hold the share for few more years.I need your suggestion/Opinion for the same.
    Thanks for your excellent recommandation
    Regards

    ReplyDelete
    Replies
    1. Rs.1500 + Cr order book is highest ever in its history.I believe they have capacity to execute it successfully and it may positively affect company's fortune in future.

      Delete
  8. Dear VP, what is your opinion on Indocount? It has corrected almost 20% and is available at good valuations.

    ReplyDelete
  9. What's your take on hydro s&s? What is the right price point to enter?
    Thanks....

    ReplyDelete
    Replies
    1. As per media reports http://www.plasticsnews.com/article/20151218/NEWS/151219821/kingfa-announces-major-expansion-in-india)
      Kingfa group is planning major expansion in India , but Rs.774 Cr Mcap for a rs.300 Cr company is not cheap.

      Delete
  10. VP Sir, I have been holding IL&FS Engg at an avg of 70/-. is there any hope of turn around ?

    ReplyDelete
    Replies
    1. Already suggested to shift from IL&FS .

      Delete
  11. Hi,

    Are you tracking Gujarat Pipavav Port Limited? Any views on their Q4 results?

    ReplyDelete
  12. Sir, please share your view on following:
    1.Raunaq EPC International
    2.Cupid.

    Thank you- Peace :)

    ReplyDelete
    Replies
    1. Though performance is not bad ,Over concentration in pipe line work is an issue for Raunaq EPC.

      Delete
  13. Sir, are you following Geecee Ventures.?? Lately their performance has bern good, good prmoter holding.. i have always incested in your recommendations only. But now that you have decided to follow SEBI guidelines.. trying to do my own research with my little experience. Your inputs will be highly appreciated

    ReplyDelete
    Replies
    1. GeeCee Ventures ( formerly Gwalior Chemicals) is currently a real estate developer, I am not tracking too much companies from that sector.

      Delete
  14. vikas kumar tomerJune 15, 2016 at 1:35 PM

    Sir what's your view on DCM shriram industries

    ReplyDelete
    Replies
    1. All sugar stocks jumped multi fold in past few months . Being a cyclical sector , entry and exit is the key.

      Delete
  15. Sir,
    I am holding shares of Themis medi from rs.180/-.Recently company announced to placement of shares on Rs.500/-Per share to Promoter & Non promoter.
    Kindly advise me for what to do hold or sell.
    Thanks

    ReplyDelete
    Replies
    1. Recommending BUY/HOLD/SELL may violate new SEBI rules , hence not in a position to offer the same and not interested to violate the rules set by authorities.

      Delete
    2. Sir, it is understandable that you dont wabt to break Sebi rules but is it possible for you to share quaterly reports of companies which you are positive on without any comments?? That we will get the hint and do our own research. In fact you were doing this after the Sebi guidelines had come .. So just requesting to continue this practice atleast

      Delete
  16. Sir, Can we have your opinion about the future of Magna Electro steel. It is steadily declining since you brought to our notice

    ReplyDelete
    Replies
    1. I think it is because of the overall trend of stocks in that particular industry , nothing specific to the company.

      Delete
  17. Vpji, Your take on the current results of Bilcare ? Looks like a very slow improvement or no hope

    Thanks and Regards

    ReplyDelete
    Replies
    1. Yes , some green shoots are there.

      Delete
  18. Sir, instead of recommendation can you not write stock stories of great potential stocks? Will that also be alluded to as stock recommendation as per SEBI guidelines?

    ReplyDelete
    Replies
    1. Frankly speaking I have no clarity on this subject , so not interested to do that and land in trouble. :)

      Delete
  19. Dear Sir,
    Any views on Patel Airtemp..it has fallen a lot and is available at last year's price...is there anything going wrong fundamentally ?

    Thanks,
    Ramesh

    ReplyDelete
    Replies
    1. I don't think so , probably due to not so good business environment for the entire industry.

      Delete
  20. Sir..Do you think Shree Hari chemicals will be as good as Poddar pigments considering that H acid prices have raised to a very good level plus china cracking down on companies there which can change the supply demand situation in favour of indian companies.. Shri Hari chem is a zero debt company as well.

    ReplyDelete
    Replies
    1. Bhageria Indutries is the only stock I am tracking from this sector .

      Discl: Holding shares.

      Delete
  21. VP ji,

    Which are the sectors that are of interest to you now? I understand that the performance of the companies matter rather than the sectors but i wanted to know from a growth perspective which sectors stand out. Please provide your inputs.

    Thanks,
    Siva

    ReplyDelete
    Replies
    1. Infrastructure and Cement are expected to perform in medium term. Rest a lot depends on monsoon.

      Delete
  22. Sir, your views on KNR Construction, Sree Rayalaseema Alkalies and Veto Switchgears !!

    ReplyDelete
    Replies
    1. Veto Switch gear is the only stock I am tracking from this list.

      Delete
  23. Sir, your take on the huge crash happening in Websol

    ReplyDelete
  24. Hi Sir,

    Whether your opinion is changed after you have first posted in mmb about websol energy considering the recent quarterly results ?

    Thanks,
    Shashiraj NK

    ReplyDelete
    Replies
    1. Company's last quarter result was poor and company not given a satisfactory explanation at least in the foot notes for such a sharp fall in top-line ,this may be the prime reason for dip in price .In addition to that recently company increased its authorized capital from Rs.30 Cr to Rs.60 Cr and hence investors may anticipating further dilution in equity.

      Delete
  25. whats your view on talbos engineering co ? Is it right one to add in portfolio ?

    ReplyDelete
  26. Sir what are your views on eastern treads? with the development and changes around the parent company in the condiment space having stakes bought by a global firm, do you feel eastern treads will now get the attention and focus from the management towards sustained growth?

    ReplyDelete
  27. As you have mentioned, cement being a good sector in medium term can you throw some light on the company Katwa udyog (Sri keahav cements) and NCL

    ReplyDelete
  28. I understand you cannot recommend, but there are no restrictions on answering questions . So if someone asks you whether you would prefer to buy/sell/hold a specific stock, you can reply to them.

    ReplyDelete
    Replies
    1. Not sure about the interpretation of various rules.

      Delete
  29. Replies
    1. Not tracking after the change in management

      Delete
  30. Hello VP

    Could you please let me know your view on Mahanagar gas IPO

    ReplyDelete
    Replies
    1. Company with reasonable potential.

      Delete
  31. Sir , what is your view on NCL industries .Can i buy stock at current level 135/-?.

    Thanks

    ReplyDelete
    Replies
    1. It is already up by 100% from suggested level.

      Delete
  32. Sir, your views on Exide Industries, Welspun India and NMDC Ltd!!

    ReplyDelete
  33. Sir, your views on Diamond Power Infrastructure?

    ReplyDelete
    Replies
    1. Not interested

      http://archive.indianexpress.com/news/it-raids-on-firm-find-massive-tax-evasion/925244/

      Delete
  34. Hello sir can you please share your view of Arvind infrastructure. this is big project showing there website data and can its give continues growth for long run.

    ReplyDelete
  35. Sir Good morning, Sir as I heard Mr Modi Govt Second Half going to have positive impact on Our economy, and its going to be mother of all bull run, sir do u find it's best time to buy infra player like gammon India, and gammon infra for long run. Post q4 number Is there any turn around story intact in gammon India? Eagerly waiting for ur reply? Thank you sir jee. God Bless You

    ReplyDelete
    Replies
    1. There is every chance for positive impact on infra sector due to govt.initiatives in future.But how many listed companies from this space can survive with their bleeding balance sheets till then is the moot question.

      Delete
  36. Any Comment on Meghmani Organics ?

    ReplyDelete
  37. What is your Views on Spicejet specially after 100 % FDI but in Brexit Environement?

    ReplyDelete
  38. Sir your view on technocraft industries

    ReplyDelete
  39. Hi sir,

    Your view on shilpa Medicare and walchand people first

    ReplyDelete
  40. sir,want your opinion on BURNPUR CEMENT

    ReplyDelete

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