10 commandments of successful investing


Ramalingam K

Once the strategy is set, do not fluctuate in your decision each time you decide to invest. This would only mean losses instead of profits

Let me unveil the 10 commandments of successful investing today. These commandments strictly followed can make you a successful investor; make you richer. The successful legendary investors like Benjamin Graham, Warren Buffet have followed these principles. So why not you…?

1) Decide your investment strategy and stick to it:

An investor may invest in SIP (systematic investment plan) and when the market continues to fall he will discontinue his SIP. But market crash is the right time to continue your SIP. Because, during the market crash you will get more number of units and the averaging works out in your favour.

Another investor may decide 50:50 as his debt: equity asset allocation ratio. When the market goes up he may want to invest more in equity and hence he may change his asset allocation to 30:70. Actually when the market goes up, one needs to reduce his equity exposure to bring the portfolio back to his predetermined asset allocation ratio.

Don’t change your strategies midway. You know what is best for you and this applies to deciding with foresight the ideal investment strategy for you. Once the strategy is set, do not fluctuate in your decision each time you decide to invest. This would only mean losses instead of profits.

2) Conduct your own research on stocks:

It is not advisable to just depend on hear say and decisions of your neighbour, friend, relative or tips from the media or your stock broker and invest in stocks. It may seem easy but could amount to gamble. Being an informed investor investing your hard-earned money needs you to ensure if the investment would meet your financial goal. This could be done through research from various sources.

3) Learn to overlook short term fluctuations:

If you want to be a successful investor, you need to understand that it is futile to be affected by short-term fluctuations of the stock market. Investing in good and reputed portfolio ensures good quality of your investment and capital appreciation in the long run. The short-term volatility of the share market has got nothing to do with the long term performance of your investments and achieving your financial goals.

4) Resist investing in penny stock:

Some investors have a common misconception that it is better to invest in penny stock than in high value stocks. This is wrong as whether you buy stock at Rs. 5. You need to see the background of the company before looking at the price of the share.

5) Discard the losers and pamper the winners:

There is a tendency among investors to sell off appreciated stock and to hold on to depreciated stock in the hope that it would rise. It is wrong, as it is possible that the shares which are not doing well may continue to underperform and the shares that are doing well may continue to perform in the future.

It is better to acknowledge you went wrong, swallow your pride and discard the loser stocks and lessen your losses. Your decision lies in deciding to suffer a one-time loss for future long-term gains.

6) Look before you leap

Even good company shares bought at the wrong price can be a poor investment choice. So devise some strategies like SIP, asset allocation to avoid this mistake.

7) Adopt an open-minded investment strategy:

It may be advisable to consider investing in good companies; however it is wrong to overlook the point that small start-up companies would make losses. Even such companies with good strategies and growth plans could contribute to long-term capital appreciation. Always have an open mind in taking your investment decisions.

8) Base your investment strategy on the future:

Investment decisions based on past happenings may not always be right. It is better to consider the happenings, but give more importance to the present and future prospects of the investment. An informed decision based on the fundamentals and mission of the company helps in long-term wealth creation.

9) Consider tax friendly investments:

Making investment decisions based on tax considerations may prove counter-productive. However, minimising taxes and maximising returns after taxation would help. The long term capital gain tax is nil. So if you invest for a time horizon of more than one year you will have better post tax return.

10) Adopt a long-term perspective:

Adopting a long term perspective is advisable if you want to be a successful investor. If you want to get short term results, then you will be able to cultivate only coriander leaves. If you want to grow a large banyan tree, then you need to wait for years. So if you really want to be richer and create wealth, you need to be a long term investor.

You could have seen a lot of success stories of people, who bought a good stock 10 or 15 years back and accumulated a good amount of wealth now because of the appreciation of those stock prices. But have you ever heard of a person accumulating wealth by trading in the stock market or moving in and moving out of the market?

By trading in market you may make profits in a few transactions, but you will not be able to make profits forever. There is a lot of difference between making profit in a single transaction and being a successful investor forever.

Knowing vs doing

There is a huge difference between knowing what we should do and actually doing it. The knowledge piece appears quite exciting; being interested, learning something new, coming up with that cool idea. The doing part sounds comparatively like routine work, no matter how easy this work may be to do or how obvious that it should be done.

Don’t fall into that "Knowing vs doing gap". Now you know the 10 commandments to successful investing and put it into practice to become richer.

The writer is the chief financial planner at Holistic Investment Planners

Read more:

Power of compounding… A motivating story

Good habits to manage your finances

Follow these simple steps to be financially fit

Disclaimer: Any content, views, opinions and/or responses on any of the pages of  www.indiainfoline.com, expressed or submitted by the creators, contributors, sponsors or  advertisers, other than the content provided by IIFL, are solely the views, opinions and responsibility of the person submitting them and do not necessarily reflect the opinions of IIFL.  IIFL does not warrant the accuracy, completeness or usefulness of the information. Nothing contained in or provided through this page is intended to constitute advice or solicitation for any investment/financial products or services, neither does it constitute an offer for the purchase or sale of any financial instrument or confirmation of any transaction.

IIFL does not hold any responsibility for the consequences of any action or omission thereof based on any information related to investment/financial products or services that may be available on /through this page. Any reliance you place on such information is strictly at your own risk. We may include links to other web pages, but these links are not an endorsement of those pages, products or services. IIFL is not responsible for the content of any web site by other operators. Under no circumstances will IIFL be responsible or liable in any way for any content, including but not limited to, any errors or omissions in the content, or for any injury, death, loss or damage of any kind by any person as a result of any content communicated whether by IIFL or a third party. In no event shall IIFL be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits arising out of or in connection with the availability, use or performance of any information communicated on this page.

Please read our other disclaimers and Privacy Policy.

Disclaimer | Disclaimer - Research  | Disclaimer - Discussion Boards | Disclaimer - Chat | Disclaimer - Twitter | Terms & Conditions  | Privacy Policy




Best Viewed in - 1024 x 768 and above resolution, IE7 & above, & other popular browsers
Copyright © 2011 Flame. All rights Reserved