Overconfidence while investing is one big problem while people invest. Even worse is a half baked understanding of what the masters have said.
Let us take just 2 examples…from the big man – Warren Buffet himself.
1. Diversification is for mediocre people: If you do not know what you are doing, you need to diversify. So there are some people who think they should buy 4-5 stocks and ‘hope’ that they beat the index and do well. This is quite a joke. WB in another context says ‘do indexing’.
If you are not in the same class as Warren Buffet or a Rakesh J, or a Vallabh Bhansali, or a Uday Kotak….please index your portfolio. These are investors par excellence, and many of their deals are stunning. It does not mean if you buy L&T, HUL, SBI, and TCS every month you can create a great ‘focused’ portfolio. Check your basics, folks.
2. Value buying: If you do not understand value investing (by the way all investing is value investing – it is a matter of time horizon) there is a great chance that you will hit value traps, and get pulled down.
3. Rule no. 1 is : Do not lose money and Rule no. 2 is Remember Rule no. 1: Fantastic rules, but like all WB rules this is over sensibly long periods of time, and AFTER CONSIDERING the time value of money. So if you bought some shit share for Rs. 500 in 2002 and sell it off in 2012 for Rs. 500 and think you have understood Buffet, please stop laughing all the way to the bank :). Your banker who charged you ‘demat holding charges’ for the past 10 years is already laughing.
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