Keeping pace with Equity Investing

Keeping pace with equity investments

Equities have found a new flavour in India ever since 2014 elections resulted in the BJP being crowned the party having won the majority of votes on its own and not having to reach out to other parties for forming a Govt. After Late Rajiv Gandhi and his INC , it took nearly 30 years for a party to win a single highest majority in India.

The world was also relishing on supply of money from Central Bankers of some big Economies, and the result was visible , money was trying to find its way into every possible nation and Equity markets reached new heights with every passing month.

We will not get in to the numbers and figures , etc as these has been widely discussed and published in various sites and news paper daily.

Equity as an investment has to be understood before we put our hard earned money, no matter you prefer direct investment or through Mutual Funds. The result depends on where your money is parked. Being ignorant about equities is not the way to be , rather we have to attempt to understand and try to make profits out of this product. Most of the small and retail investors do not even understand why they are buying equity, Eg. their source of funds doesn’t match the time horizon required to be invested, i.e they may invest money kept aside for some emergency expenses hoping to make quick gains and only to realise that the investment hasn’t turned profitable before the personal need arises and they end up selling in a loss. They may borrow to trade a particular stock for short frame of time and end up either losing money or to realise that the short term trade has become an investment which is not making any profits and they need to hold for longer period of time , which may not be comfortable for themselves.

The above situations will make a small and retail equity investor call himself as being cheated , or incapable to understand the business of equities. Actually he may not even realise his own mistakes and blame someone else or the entire system. He will never realise that he choose the wrong way of approach, like the above examples, or didn’t profit because of bad luck, etc. We will study some basic principles before investing in equity market.

  1. Understand the product called , Equity before investing
  2. Read about the company or check its credentials before you decide to invest.
  3. Check the share price movement of at least last 1 year.
  4. Market capitalisation ( market value of a company’s outstanding shares) should be sensible and not crazily high at the time of investment.
  5. The above point no 4 is only a basic parameter , as there are various parameters to decide an investment, which a common man may not understand.
  6. Keep a time horizon of about 3 years and above for your investment, as even a Govt backed deposits require a time frame of about the same period.
  7. Price fluctuation are part of this market, use them to your advantage to add a stock and do not panic to sell the stock without verification.
  8. Only buy stocks with your own or family money , where you have a say and not on borrowed money.
  9. Markets are not here to shutdown , it will remain forever, so will be the opportunities, buy a good stock at a right price and not a good company at a wrong price.
  10. Always read and discuss with your brokers before investing.
  11. Never buy on rumours and never ever on overheard talks.
  12. If you don’t have time to read about the markets or do not want to read, rethink if you still want to invest, because only you can gauge your risks and not someone else
  13. Definition of risks will change when reality hits upon the stock prices of your investments, so be prepared to buy more or sell if markets movements change.
  14. Don’t put blind faith in your broker, they are here to do business and offer consultation based on their knowledge , nothing is offered free , so don’t let your broker decide your risk and time horizon. Let them only do their business of helping you get Company information, buy and sale for you, please remember even they are humans at EOD.
  15. Small investment growing with time should be the mantra , and not going overboard in order to profit unnatural.
  16. Loose information are freely available in the market, never rely upon them , rather study about a company from reliable sources before investing.
  17. Don’t blindly follow portfolio managers , newspaper articles , and clone your investments. Everyone has different agenda behind the same stock, never imitate with half information or verification.
  18. A reliable source of information many not be always right or may not be available for the first time, don’t let sensitive data available freely on the Internet or national newspaper affect your decision, as this news may not be true or may have come late to your attention.

The above is some guidelines to follow in equity market , we will take note of other valuable information to note before investing in the part II of this series.

No comments:

Post a Comment