PLAY BY RULES

 

Ten Golden Rules of Investment

The purpose of the article is to make easy, simple approach to achieve financial freedom by investment. Equity Investment is one of the toughest to analyze & predict. When you think, the markets will boom, they boomerang. When the market analyzers predict for a crash, markets bounce back. The stock market is indeed a myriad world, almost like a Kaleidoscope with different colors, hues, and even approaches. But there are Some Simple, Effective and Uncomplicated sets of rules that make Equity Investment the Best investment. Equity outperforms all asset classes in long run. But still people often miss it. Why? Is it difficult, Answer is Simply NO. Here we will have some effective and golden rules for Investments with proper reasoning.

1) There is big difference between trading & Investment. People often mix it. Trading focuses more on technical aspects, news, and speculations. It also involves various global, FOREX, and commodity markets. Investment, on the other hand, emphasizes fundamentals and long-term macro and microeconomics circumstances. When you choose any trading stock, one should check volume, News, overall stock & broad indices trends. On the other side, for investment, one should examine company fundamentals. You should also consider future prospects, sector value, management ability, and long-run economic growth. Historical record also suggests, stocks which are popular among traders never give outstanding returns in long run. Hence, Choose stocks which are fundamentally sound not famous.

2) One can’t time the market accurately. Most of the time, Market moves irrespective of fundamental and technical reasons.  One should always look for Value & growth in particular scrip rather than broad indices. If one feels, there is enough value in a stock, one should invest in irrespective of market trend. Invest Via Systematic Investment Plan; small amount every month and get better profit in long run without timing the market. Here is a great example. Even if someone started invested in good fundamentally strong scrip’s in Jan, 2008 when Sensex was @ 21,000 By S.I.P. for next 10 to 15 Years when Sensex is around 820300 that would be in profit. So it really doesn’t matter where the scrip and market is. One should never wait to start. Only Wait to Add via S.I.P.

3) Never ever panic; Stock market runs on various reasons. It can fall 10% in a day on some negative news. But overall long term growth doesn’t get over in a single day. It takes years to Build. A person who has invested 1,000 Rs every month in quality mid caps must be millionaire today in few years. If stock is fundamentally strong and has great future. Always be invested and Average on S.I.P. Manner. In Short term, Fundamental may not work, but over period of long term, it does works. “Crash is always good for Value Investment”. Don’t exit in Panic. If you exit in Panic, you exit at very cheap.

4) Don’t see price, see Fundamentals. I have often realized people often believe a stock trading @ 10 can rise to 50. However, they think a stock trading @ 100 can’t rise to 500. Absolutely wrong. A stock never rises on Price, But on Value. Do you know Stock MRF Tyres trading @ 130500 is less expensive than Apollo tyres? It's trading at @ 540 in the same sector. Always Check Companies market capitalization, Earning, Financial data, Debt, Value & Future prospect for investment.

5) Don’t invest & forget. Fundamentals do changes. Company is Dynamic not Static. People often believe investing in good companies for 5 to 10 years guarantees decent returns. This is a myth. Easier said than done. What happened if someone invested in Real Estate companies from 2013 to 2017? And what happened if someone invested in the same sector from 2018 to 2020 or even till 2022? Compare 20 times Growth vs 50% Return in Real Estate sector. Stocks mainly run in a cycle. Very few sectors has performs equally all the time. Before investing, always check Long run sector performance as fundamentals do change. If changes switch to others which has value, growth and Blend.

6) Equity Investment is mainly for long run, minimum 3-5 years for better profit appreciations. Don’t get carried away with short & medium term volatility.  If stock is right, be invested & don’t book profit. If company is good and it has some good value. It will keep rising in future too. Only Book profit in Investment either if you need money or company future prospects gets dimmed.

7) Don’t invest in the stocks which have fallen a lot. If stock has crashed & it’s down more than anything. Generally, a good fundamentally strong company never fall more than other stocks in general market condition. If it has, then there is a high chance that the fundamentals are not strong or have changed. Big fat cats have already sold their positions. What you are buying is what smart people are selling. Until & unless some smart money comes the stock will never move irrespective of fundamentals. So you will be left with nothing but just Hope.

8) Diversify; Simple but effective rule. Diversification reduces risks and increases rewards. Diversify across Market Cap, Sectors, Themes, Groups, etc. Few months back, investments in sugar, real estate, and infrastructure sectors led to low returns. Investors might even face losses. Hence, Always Diversification is simplest rule for wealth creation.

9) Don’t own too many stocks. A portfolio of 10 or 12 stocks is considered as good one. I have notices in my experience people buy too many stocks, most of them almost carbon copy. Believe in quality not quantity. There must be some big reason to add even 1 more stock in existing portfolio. There is no point buying BHARTI or even like Vodafone, BSNL together. If you think Telecom sector can perform well in future, buy only 1 which convinces you.

10) Market is always Bullish. Yes, it do, specially an emerging nation like India. There are still lots of things to be done in every sector. In every correction, Do Remember India is an Emerging Country & not a Developed country. There will be always some value in few companies. Buy & Hold and create wealth. It’s Easy?? Yes of course. Then why not everyone do it??  Because 90% people don’t really know how to invest in Equity due to many reasons.