Friday, February 8, 2008

Investment Do's and Dont's

1. Invest a fixed sum regularly. It is called SIP, (Systematic Investment Plan). It may be weekly/monthly or yearly or any fixed number of days.

2. Pick fundamentally strong counters.

3. Book profits when the stock rises above your expectations. That is you purchased a stock at Rs. 100 with a target of Rs. 150 over next one year. You see the stock rise by 15-20% within a month. Sell at least a part of your holdings. This will reduce your holding cost. Even if you sell 25% of the shares at Rs. 120, your cost for 75% holdings gets reduced to Rs. 93.33.

4. Never panic in corrections/crashes (doesn't hold good if you have companies with poor or zero fundamentals)

5. Keep updating yourself on companies’ fundamentals. At lest look whether sales and net profits are on the rising line. Do not hesitate to get out of a company when the results are poor.

6. Always keep at least 15% cash. Invest this in fundamentally strong companies which become available at cheap rates during crashes.

7. If you are an earning member, keep investing a fixed portion of your earnings in same stocks (again SIP)

8. If you are a retired person, do not invest more than 50% of your long term money.

9. If you do not understand what a company is doing in actual day to day business, never invest in it.

10. Never ignore fundamentals.

11. People look at losses from latest purchases. They miss out that we purchased this stock partly from profits of earlier purchases. Even after the recent fall, my folio is up almost 50% in last 1 year. But most of my current holdings are in red that too by 10-15%. Learn to keep a correct track of what your original investment was and what is its value as on date. Use good portfolio software on net