Sensex = Sense + sex

With stock market plunging lower than a starlet's neck line, everybody who invested in stocks is worried more than Sonia Gandhi is worried for UPA government. In this edition, I try to help those who have already invested or want to invest in stock market but are shocked by recent spikes. So fellas here's the guide to how to play the stocks without burning a hole in you know where.
1. Patience pays
Daily trading might be quick money, but it has created more losers than winners. Moreover daily trading takes up your time and energy, not to mention unwanted excitement of market trends can affect your work at office. So my advice, invest from a long term perspective. It’s a very safe way. Wait for the company you have invested in to grow. It takes a while for any company to grow big and strong. After all you can’t build an oil refinery or automobile plant in a week. While you won't become a millionaire overnight but then you won't lose all your investment either. Statics show that you tend to earn lot of profit if you are entrenched for long term. Ground rule is that stock markets will go anywhere but north. True that it might get sluggish for an year or two but eventually they pick up pace. Time frame of investment varies from person to person. For some, 5 years is long enough while others would stay put for 20 years (very rare).
2. Little bit of research on my side
Dedicating some time for research never hurts. I know you are too busy forwarding emails at work and have to watch movie or attend parties on weekends but this is your money and missing out a movie or party won’t hurt. Before you put in your money, ask this. How good is the company you are putting your money on? How is the management and what is their vision? How is the cash flow? How would be the demand of their products/services in future? Who are the promoters? Questions like these can help you zero in on "lambi race ka ghoda". These questions are also important so as to avoid fake operators.
3. Tips are not HOT, Giselle Bundchen is
Try and stay clear of 'hot tips'. Tips are like bollywood flicks. they might have a glittering star cast but they flop. Don’t trust any tip except the one that comes from Director of Military Intelligence. Tips in the market are no secret, so everybody has more or less the same plans about hoarding up hot shares. What people ignore while betting their money on such stocks is that value of a stock is more important than its current price. There are overnight operators who float fake companies and shut them down after duping people. So while price of a particular stock might be rocketing at that moment might drop faster than you can say "OH SHIT". So don't lose your sleep over some tip doing the rounds. Remember "play safe". Even outside the stock market.
4. Bura waqt, Commando sakht
Panic is your worst enemy followed by your immediate boss. It’s only human to panic, but to take some stupid decision due to panic is unforgivable, financially that is. Most of the people panic when their stocks shed their price. But if you have invested in fundamentally strong companies, you need not even bother. After all a small dip in stock prices does not mean that the company will shut down. Don’t forget share prices can go north or south depending on ‘n’ number of reasons. So don’t let drop in prices force you in to selling your shares. Who knows prices might shot up the next day. In fact if the prices are dropping and you are confident about your company, then you can put in some extra money and hoard it. Panic is good, provided you can utilize it to your advantage.
5. You are your best friend
Your friends don’t want you to lose your money, but their advice regarding stocks might not work for you due to several reasons. Lack of knowledge, short-sightedness, different risk profile and different investment plans being some of them. So the best way to invest is to do your own research. Stock investors never had it so well, with resources like internet, business channels etc. I don’t say that you should watch business news all day long, but please do your research before investing. Once you have done this you can relax, no need to check the stock prices every 5 minutes. You can check it once in a week to keep track of how your stocks are doing. The joy of getting a good return after couple of years is just great. More so if you had forgotten about the money you invested.
6. Financial profiling
Don’t forget to prioritize. You may be single or married with kids. Everybody has different priorities and risk profiles. You should do justice to other monetary commitments like insurance, loans, etc because they are more important for normal life. Stocks are good investment but they should never come first. Mostly people bet their money on stocks thinking that once they make good money out of stocks, they’ll take care of other commitments. This is totally stupid. What would they do if stock market crashes? You can’t tell your bank that you are unable to pay your EMI because stock market is down by 1000 points. I am sure no banker in his right mind would listen to that. You need to set your priorities and decide accordingly. So if you are still young and don’t have many financial commitments, you can be more aggressive. Don’t forget that if you start early, you can make good money over your investment period. If you are newly married and both of you have good jobs without extra financial burden, you both can pool in your money and be aggressive. But before plunging in, discuss it with your spouse so that one of you doesn’t have to sleep on the couch.
7. Don’t beg borrow or steal
Never forget that stocks should be viewed as investments and not as a magic lamp. One good friend of mine told me that he wants to get a personal loan at 13-14%. He planned to invest that money in stocks and was expecting returns to the tune of 30-35%. As per his calculation, he’ll take home a good chunk of money even after paying off his loan. Luckily he didn’t do it, or else he would be in a soup. See stock markets are not fixed income tool. Nobody can assure X% of returns. Stocks don’t assure to double your money but they can sure cut it to 50% if you are not careful. The bottom line is, never borrow money – even from your girlfriend – to invest in stocks. Safer way is to suggest someone and get a cut out of it. No amount is too small to invest in stocks. Remember that it’s not the amount you invest that counts. It’s all about your discipline and frequency of your investment.
I don’t believe in “garibi hatao” (eradicate poverty) but “amiri badhao” (increase wealth). And wealth is not generated overnight.
Well I am no financial analyst or a big shot. Whatever I said here is my own analysis and common sense. So if you lose your money following it, tough luck. But if you do get rich following my tips, invite me over to home cooked dinner and I’ll be more than happy.

Comments

  1. TEJAS SHETH.
    I must say, I am not at all impressed with this blog. Firstly, it is laden with lot of preachings like "long term", "no panic" etc, that make it sound cliched and therefore, not at all innovative. Secondly, it should have had figures. Thirdly, there are some statements which I believe are quite contradictory to facts. Let me give some examples,

    "Statics show that you tend to earn lot of profit if you are entrenched for long term."
    - This would have been more effective with exact figure. To the best of my knowledge, equity returns over a period of decade is roughly in the vicinity of 16%.

    "Ground rule is that stock markets will go anywhere but north."
    - Not necessarily true. And essentially, it cannot be stated as a "ground rule". In the great market crash of 1989, Japan's index (Nikkei) nosedived. Today, almost three decades later, that index is still 25000 (yes, twenty five thousand) points below the peak it touched in 1989. Japan's is a different problem (deflation of late). But no one can take a pinch of salt and say the same is not going to happen with India. The bull run that set in in 2003 saw a huge spate of enthusiastic young indians flocking in. Guys like you, me and myriad others. We haven't seen a bear phase. In between the periods of Harshad Mehta (1992) and the fall of the dot com bubble (around 2000-2001), Sensex hardly gave any returns. It remained range bound. The escalation of sensex from 15k to 21k at lightning speed had wannabe "analysts" swearing the Sensex would touch 25k soon. It was a frenzied tide that never justified earnings growth. My point is no one knows whether the present turmoil is just an eclipse or the onset of a perennial night, a night that may have a morning to follow, but probably not before we retire. The best advice you could have given would be "STAY AWAY FROM DIRECT EQUITY EXPOSURE" till the sensex gains momentum, volumes, and it starts breaching 200 DMA (daily moving average) on a regular basis. (I haven't confirmed it, but Sensex's present value falls below its 200 DMA).

    - The most important word went missing from your blog - SIP. Though you have hinted at it in the last portion, where you have highlighted the importance of the 'frequency of investments' but the word SIP would have made more sense.

    Well these are just my subjective impressions about your blog. So they may not be entirely true.

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  2. Thanks for the wonderful response buddy. I am no number cruncher like you, thats why I have put a quasi-disclaimer at bottom. :))

    Yup I had SIP and MF in mind. But I thought it would be better if I kept this one equity only and dedicated another write up to SIP and MF.

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