Investing is not something very difficult or needs exceptional intelligence to make money in the markets. Yet there are only few successful investors while most end up losing money in the markets. I have tried to compile some of the common mistakes we make which leads us to make losses in the markets eventually. These things might look very simple but are difficult to follow.
1) Preservation of Capital : The first goal for the investor should not be making big profits in a matter of few days but preservation of Capital. For this the stock selection has to be done after immense personal research. Stocks like ITC Ltd. are at almost same levels now as it was when the Sensex was at 21000. One should always lookout for such solid stocks to make up the portfolio.
2)Patience : This is a very important factor as far as being sucessful in investing is concerned. There are so many times when one invest in a stock and sells it off in 3-6 months as the stock is hardly making any moves. But suddenly the stock spurts up. If you have done good research in selecting a stock then be patient with it. Dont expect stocks to give 100% returns annually always. One is so patient with 3-5 year fixed deposits which yield 12% return annually then why cant one stay with good stocks for this time frame. Try it and you will get big returns for sure.
3)Following the Crowd: One usually invest in sectors where everyone is investing and every analyst is talking about. But thats the biggest mistake one can make. When such a big crowd is already pumping money in the stocks of any sector then the stocks are already overbought. It makes much more sense to invest in a sector which is good but has been neglected for the moment. That is where you will find real undervalued stocks. Also trust in your own sense of things and dont follow analyst. Remember the best investment opportunities are seen first by common man then analyst.
4)Since the stock price has fallen let me average out: This thing is done by a lot of investors and at times it works. But whenever the stock price falls drastically you first need to investigate why the prices are falling. If any unusual things in earnings is observed or the company management is not what people expected it to be then its better to exit on losses then to average out and finally find the stock price falling even more. So always be investigative.
5)Diversify risk by buying many different stocks: As one of the famous investors said "risk is not knowing what you are doing" , so if you want to diversify risk the best method is to be fully informed and aware of what you are doing and why. Hardly few people will be able to explain the business model and investment rationale of the company they invest in. This kind of investing will not give good results anyday. But maybe 6-12 stocks but know well about each company and each business. All great investors in the world have small portfolios.
6) Try to time the markets: Many investors try to predict the markets and base their investment decisions on that.However, through experience everyone learns that it is impossible to time the markets. So when you are investing think just of the stock (undervalued or overvalued) and make the investment in that business for long term. If you pay too much attention to day to day stock market fluctuations then things will surely not work out. A good company will always make you rich in the long term.
7) Always sit on cash of at least 15% of your portfolio;- This will provide you cushion for any mkt. meltdown and you will get an opportunity to buy some good stock at bargain.
8) Never use leverage or the money which you will need of near term...
LAST but not the least know your risk...............
No comments:
Post a Comment