Principles for successful investing in the Stock Market
Over the last few years, we had interacted thousands of investors (mostly retail/small investors) and came across many common questions and doubts. Based on our real life experience, the following article is written in very simple,easy-to-understand language. It will guide on your successful investing journey.
Principle #1 -Don’t try to predict market movement –
The common queries that we receive from our clients are like, “Do you think we need to sell our stocks before the budget and re-enter after that?” or like “What’s your short-term strategy about the upcoming election? Do you think the market will correct after the election?”
Simply putting, retail investors are always looking for short-term market movement prediction. They rejoice during any market rally. However, any 10%-20% correction makes them highly worried.
The truth is not a single human being in this world can accurately predict short-term market movement consistently. Yes, I repeat, “not a single human being”. Even predicting long-term market (Sensex/Nifty) movement is wastage of time. The following image may surprise many investors. You can notice that, during October 2007, billionaire investor Rakesh Jhunjhunwala predicted that Sensex will touch 50,000 within next 6-7 years. Today, after 8 years, Sensex is below 30,000! Click here for the link to his detailed interview during October 2007. Investors have very short memory, today retail investors are rejoicing with the prediction of “Sensex at 1 lakh+” !! (I don’t have any intention to criticize any analysts or investors, I just want to convey the message that while many big names are failing to predict market movement then why you (small investors) are always looking for the market movement prediction?) Successful investing doesn’t require prediction on the market movement.
What you need to do?
Forget about where the market is heading over the next 1 year or 3 years. Successful investing requires selecting high-quality stocks and have the patience to hold the same. Remember, even during 2008-2013 while Sensex remained range-bound, then also 80+ stocks generated 100%+ return and some even 400%+ return. However, during 2014 bull-run you will find many stocks those generated negative return. So, don’t think that during the bull run you are poised to earn the positive return by investing in any stocks. At the end of the day, successful investing is all about stock selection.
Principle #2 -Don’t get worried about daily (short-term) price fluctuation-
During March 2014 we had recommended Caplin Point Lab at Rs-150 and advised to hold for at least next 1 year (whatever be the short-term price movement).From March 2014 to September 2014 the stock moved up sharply from Rs-150 to Rs-540. After that, it corrected around Rs-400 level. Exactly on the same time one of our client mentioned that his portfolio was badly affected by Caplin. We were surprised and asked the reason. His response was more surprising –
“I had purchased Caplin at around Rs-180 and till few weeks ago at Rs-520 it was showing around 200% return but over the last few weeks it crashed around Rs-400 and now just around 100% return. This affected my portfolio badly”
Nothing can be surprising than that. Our simple response was “whatever be the short-term price movement,hold the stock for at least 1 year”. However ignoring our suggestion the client booked full profit to protect the further downside. At the time of writing this article (February 2015) the same stock is quoted around Rs-800. Thus he missed the chance of earning 400%+ return within 1 year just because of short-term price fluctuation. Nothing can be disappointing than that. Focusing too much on short-term price fluctuation is another obstacle for successful investing.
Further, while Caplin Point Lab remained on the same range (370-440) for 4-5 months,we had issued several “repeat buy” calls. Click here to read one such old article. Many new investors purchased around 420-440 during Aug-Sep,2014. As the stock remained on the same range over next 4 months, so again we received many queries like “Why it is not moving over last 4 months?”. Not only the Caplin Point Lab, while any of our recommended stocks remained rangebound over several months we receive such queries.
What you need to do?
Stop following daily price movement. Successful investing doesn’t require to stay in front of the terminal throughout the day. Checking stock price once in a week will be sufficient if you invested in the fundamentally strong companies. After purchasing a land or house or gold, investors are ready to hold for many years without following daily price movement. Sadly in the stock market, retail investors behave exactly the opposite. You won’t find any billionaire (or successful) investor across the world checking the price of his portfolio stocks twice or thrice in a day.
Principle #3 -Stay away from the crowd (Invest with peace in your mind)-
Once of our client mentioned, “Every day there’s too many things are happening in the market. However, you provide only one stock recommendation per month and merely one weekly update. Don’t you think you need to provide updates on buy and sell more frequently? What’s the harm to book 10%-20% profit and then re-enter at the lower level?”(The principle that we always oppose)
Well, here the point is if we remained more active and issued frequent Buy-Sell-Profit booking call, then today not a single client of us can make 100%+ return from a single stock. Today we can proudly say that thousands of our clients are getting 100%+ return (in some case 300%+) from our recommended stocks like Can Fin Homes, Ajanta Pharma,Yes Bank,Caplin Point Lab, Atul Auto etc. During my initial days of the investment journey, I had practiced the principle of booking 10%-20% profit and then re-enter at lower level for 4-6 months. Finally realized why one can’t make big money from that strategy.(It will take another big article to describe the reason so I am leaving it for now)
Every day several analysts are coming on TV channels like CNBC, ET NOW etc and in total there are approx 10-15 stock recommendations everyday for intraday,short term,futures and options etc etc. The only way to become wealthy is to avoid all of those recommendations. Successful investing doesn’t require sitting in front of CNBC through out the entire day. Following example will clear the point –
During August,2013 while banking sector crashed heavily we had issued “Strong Buy” call in Yes Bank at around 250.Click here to check that old article. Along with many other client Mr. X also purchased the same. Now before 2014 general election, Mr. X came to know (from few experts) that market will crash after election result.So he booked full profit from Yes Bank. Today at the time of writing this article Yes Bank is quoting around Rs-860. After election result,instead of crash, Yes Bank moved up 80%+ within next 10 months!! This is the result of following too many experts across TV and internet.
What you need to do?
“Stay away from the crowd” – is another principle for successful investing. No need to follow CNBC everyday. No need to check daily quote and analysts recommendations on . Once you are invested in fundamentally strong stock, then your only task is to hold it across ups and down. If you only invest in our recommended stocks, then you already invested in fundamentally companies. Now you are only one step away from successful investing and that is to HOLD the same across ups and downs.
Successful Investing -Principle #4 –
Don’t expect quick returns-
We have noticed the similar mindset among many investors. They are not happy with 8%-10% return over 4 months (which translate 25%-30% annualized return). In other word for many investors 20%-30% annualized return from stock market is nothing. Surprisingly, those same investors remain highly satisfied with 7%-9% taxable annualized return from bank’s fixed deposit. The same group of people happily accept Post office deposit or any other government deposit scheme that merely offer 6%-8% return. However in stock market they want 80%-100% return every year! This mentality is one of the main reasons why small investors are losing heavily in stock market following stock tips providers. Just do a basic Google Search, you will find many stock tips providers are offering 50%-100% return within 1 months or 2 months. Small investors can’t resists themselves. They fall into the trap and lose heavily. Instead of blaming those stock tips provider, I think the fault is in the mindset of retail investors. While we mention 20%-30% annualized return to our new clients, few of them demand more, “Why can’t you offer 100%+ annual return while many other websites are saying 100%+ return within 2-3 months?”. We politely reply “Don’t join to our service if you are looking for 100%+ return over 2-3 months ( even 8-10 months)”. Click here to check our service page where we clearly mention “Don’t join if”.
What you need to do?
Successful investing requires application of common sense. If one can achieve 100%+ return within 2-3 months consistently then there will not be any word called “Poor”. Even 100%+ return on every year will translate 80% of our population into “crorepati” within next 10 years. There will be heaven-like situation where everyone is leaving their full time job and concentrate on stock market. If every individuals can apply such little logic before investing then today there won’t be any complaint against stock market. Unfortunately still maximum investors consider “Stock Market” as a place of gambling. Everyday thousands of gamblers are trying to make fool others and at the end of the day they themselves are getting fooled.
Since our inception, our primary aim remains to help retail (small) investors and to make them believe that anyone can become wealthy from this market. Till now we are maintaining unique track record of 100% satisfied client base. As mentioned above, you just need to practice few simple principles for successful investing. We are here for selecting high quality fundamentally strong stocks for your investment. Rest depends on how you are utilizing them.
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