20 MANTRAS TO WISE INVESTING
Save prudently…..Invest even more wisely
- You need to invest, otherwise your savings will depreciate in value/purchasing power.
- However, mindless or reckless investing is hazardous to wealth; Please become an investor… and not a trader or a gambler.
20 Mantras to Wise Investing
Follow life-cycle investing
- You can afford to take greater risks when you are young.
- As you cross 50, you should consider gradually getting out of risk instruments.
- By 60, you may exit risk instruments. (To not lose your capital when you have stopped earning new money). There are better things to do than watch the ticker on TV!
Read carefully, and take informed decisions
- Do due diligence; take informed decisions.
- Read about options and processes on iepf.gov.in and visit mca.gov.in for more information on companies.
- For example, for IPOs, read about the offer. This is difficult, with the offer documents now running into more than 1000 pages; abridged prospectus too is difficult to read. Yet, read you must, at least, the risk factors, litigations, promoters, company track record, issue objects and key financial data.
Invest only in fundamentally strong companies
- Invest only in companies with strong fundamentals; these are the ones that will withstand market pressures, and perform well in the long term.
- Strong stocks are also liquid stocks.
- Do not go for penny stocks; you may get lured as these rise by 5-10% a day against top stocks that rise 5-10% in a year; you will typically enter at peak and then make losses.
- Remember, equity investments cannot be sold back to the company/promoters.
Consider investing in IPOs
- IPOs have been a good entry point.
- Decide whether you are investing in an IPO as an IPO or in the IPO of a company.
- During bull runs, almost all IPOs provide positive returns on the listing day. If investing in an IPO just because it is an IPO during a bull phase, it may be advisable to exit on the listing date, as you have invested without due diligence.
- However, most such investors put IPOs on a pedestal and expect them to perform forever. That will not happen as an IPO becomes a listed stock on the listing date, and will then behave like that; and only some will be outstanding.
- If an investor does not book profit on the listing date, he is either greedy or takes a wrong call on the company/industry/market. He should then not fault the IPO price or blame regular/issuer/merchant banker. In any case, he invested in the IPO by choice; it was not forced upon him.
- However, if you invest in the IPO of a company, with due diligence, then do not get bothered by immediate post-listing performance or volatility. Remain invested as you would in a listed stock.
PSU IPOs deserve special attention
- PSU IPOs are typically from companies that are profitable and have a significant track record and market leadership; also very little risk of fraud.
- In almost all PSU IPOs, there is a discount for the retail investors.
Invest in mutual funds, but select the right fund and scheme
- Mutual funds are a better vehicle for the small investors, most of whom have little skills or time to manage a personal portfolio.
- The problem is that there are too many mutual funds, and there are too many schemes. Spend time to select the right fund manager and the right scheme/s.
- And remember, mutual funds are subject not just to market risks, and that investing in these does not mean guaranteed returns.
Beware of free advice
- Too many people in the capital market offer free advice; these come through TV, print media, websites, emails and SMS.
- Don’t act blindly on such advice; remember free advice carries no accountability.
Don’t get taken in by advertisements
- Advertisements are to make you feel good.
- Don’t get carried away by attractive headlines, appealing visuals/messages.
- Don’t get carried away by upward arrows, big percentages and deceptive numbers.
Don’t get overwhelmed by sectoral frenzies/bull runs
- Remember, you can not buy the shares of the Indian economy or of India Inc. or of a sector… ultimately you have to buy into a specific company.
- Also, sectoral frenzies keep changing.
- All companies in a sector are not necessarily outstanding. Each sector will have some very good companies, some reasonably good companies and many bad companies.
- Be also careful about companies that change their names to reflect current sectoral fancy.
Look at the credentials of the entity/person
- Many scamsters are waiting to exploit your greed; targeting gullible small investors.
- Be careful about the entity seeking your money; visit watchoutinvestorts.com before investing.
Be careful promoters issuing shares/ warrants to themselves
- Many a times, preferential allotments to promoters are for the benefit of the promoters only, at the expense of minority shareholders.
“Cheap” shares are not necessarily worth buying
- Price of a share can be low (and therefore appear cheap) because in reality the company is not doing well; the hype about the company/sector and comparison with prices of good companies may induce you.
- Worse, the price can become low because the face value has been split (over 500 companies have split their shares); rationale given is to make shares affordable to small investors; not valid as one can buy even one share; real purpose is to make shares appear “cheap”
Beware of guaranteed returns offers
- Be extra careful before investing in any offer which promises very high returns.
- Remember the plantation companies many of which promised phenomenal returns (in some cases, 50% on Day 1)!
- Let not greed make you an easy prey!
Don’t borrow to invest
- Interest mounts by the day; returns don’t necessarily.
- Invest within your means.
Deal only with registered intermediaries
- There are many unregistered operators in the market who will lure you with promises of high returns, and then vanish with your money or they will mis-sell or they will undertake unauthorized transactions.
- Deal with registered intermediaries, it also allows recourse to regulatory action.
Don’t over-depend upon ‘comfort’ factors like
- IPO Grading
- Independent Directors
- Corporate Governance Awards
- CSR Activities
Don’t take decisions based just on summary accounts
- Read through the schedules as well as qualifications and notes to the accounts.
- Check out for “Other Income” and unusual expenses.
- Look out especially for entries relating to related party transactions, sundry debtors, subsidiaries’ accounts, cash/bank balances.
Learn to sell
- Most investors buy and then just hold on (Regrettably, most advice by experts on the media is also to buy or hold, rarely to sell).
- Profit is profit only when it is in your bank (and not in your register or Excel sheet).
- Don’t be greedy. Leave some profits for the buyer too. Remember, you cannot maximize the market’s profits.
- Set a profit target and sell, unless you have good reasons to hold on for very long term.
If after all this, you do have a grievance…
- Seek help of www.investorhelpline.in.
The final… Mantra 20
- Be honest as only then you can demand honesty and fight for your rights.