5 GOLDEN RULES OF INVESTING

1) Don’t get greedy

If you have been avoiding equity all these years, don’t jump into the market too enthusiastically. Move cautiously.

Be cautious about investing in stocks that are riding on a momentum, such as real estate, banking and infrastructure. If you ride the wave now, chances are you will drown again.

2) Remember, you are buying a business when you invest in a stock

We believe that reality sector does not change as fast as the stock market may lead you to believe. Be careful of the kind of businesses you are planning to invest in and don’t get cheated by what the stock prices are indicating.

A complex economy like India won’t change in a year or two, however good the governance may be.

3) Stick to fundamentals, not FII behavior

Going by the latest inflows, it appears that Foreign Institutional Investors, or FIIs, seem to be rediscovering their love for the Indian stock market. Everybody seems to be highly optimistic about the new government.

Governments may come and go but the stock market is here to stay, so we suggest you do not take decisions only based on the government changes but focus on investing in high quality fundamental stocks at reasonable valuations.

4) Don’t ignore quality

According to Benjamin Graham, in the short run, the market is like a voting machine – finding out which firms are popular and unpopular. But in the long run, the market is like a weighing machine – assessing the performance of a company.

The message is clear: What matters in the long run is a company’s actual business performance and not the investing public’s fake opinion about its prospects in the short run.

5) Don’t concentrate complete investment in few stocks

Many investors make a common mistake of investing huge portion of their equity portfolio in just 1 or 2 stocks. This mistake not only creates a very risky and a dependent portfolio but also burns away all the chances of taking the advantage of other great quality stocks.

At max an investor can spread his investments in over 12-15 stocks belonging to different sectors with equal fund allocation for every stock.

We hope that our 5 simple but extremely important rules will help you become a safer and a much more aware investor.

Happy Investing