| |
| Many investment theories have come and gone but a few rules have remained from time immemorial
|
| |
| Through the past 20 years that I have been associated with the markets, I have been in constant pursuit of a good investment strategy.
|
| |
| I have realised that to create wealth in the stock markets, one needs to be humble. Humble to the extent of learning from anybody.
|
| |
| Through my readings of various books written by gurus such as Buffett, Graham, Smith, Train, among others, I have learnt about the wisdom of investments.
|
| |
| Many theories have come and gone but a few investment rules have remained from time immemorial and I would like to share a few of them with you.
|
| |
Don't make hasty and emotional decisions
|
| |
| These decisions, which are based in sync with the crowd, are often wrong. Resist this 'sale' temptation. Investors must distinguish between buying stocks and buying clothes in 'discount' stores.
|
| |
| In discount stores, you need to grab so as to lay your hands on the best stuff. But stock markets work differently. It makes a lot of sense to pull yourself back and withhold buying.
|
| |
| History has time and again proved that the masses are not well informed. Masses are undisciplined and unable to make the right choices at the right price. They are very much like cattle, identifying leaders they can follow.
|
| |
| Masses are known to get excited in bullish times and get extremely panicky in bearish times. In good (read bull) times, even negative news about companies is shunned.
|
| |
Never sell great companies
|
| |
| Very often when investors meet disappointment, they come to us with their portfolios. Our past experience shows that investors are very hesitant to sell their stocks at a loss.
|
| |
| They would prefer to sell off top quality stock at a profit but would not, at any cost, get rid of 'junk' stocks.
|
| |
| When we sell top quality stocks, we only convert our asset from one type to another. On the other hand, it makes no sense to hold on to companies that have no future and it is best to sell them.
|
| |
Don't get married to your stocks
|
| |
| At the end of the day, we must know what price we are paying for the stock. If you have committed a mistake, accept it. Don't double it by 'averaging'.
|
| |
| Averaging is fine as far as good companies are concerned but could prove lethal if you are stuck in junk stocks.
|
| |
| Running away from reality will not do any good. Even the greatest investors through the years have made dud investments. Committing a mistake is not a sin. Accept your mistakes; you will come out a winner.
|
| |
Red-hot tips
|
| |
| Investors today want quick money. Tipsters cater to this demand. After taking a position in a particular stock, the rumour-mongers start churning out different 'growth' stories about the company.
|
| |
| Surprisingly, even the pink papers have easily given in to some baseless stories in the past. It is here that investors need to keep in mind their level of receiving (LoR). LoR is nothing but analysing your position in the information ladder.
|
| |
| Example: the managing director and chairman would be, say, at level one. Insiders, auditors and the like would be at level two.
|
| |
Some analyst tracking the company from close quarters would be at level three
|
