It is not easy to give simple advice. It is ever more difficult to follow them. Simply because if you do follow them and make money, your MAIN assumption in life ‘what is complicated is good’ is shattered.
Ok here are some old nuggets which I have said in the past, saying it now, and frankly do not care if you do follow or not.
a. Use common sense: The cash flow determines the price. If you see a good share with good earnings, BUT a low price earning ratio buy the share. There are scrips (I have bought them, will not name them – I hate meeting the regulator from a defensive position). Scrips whose dividend yield and p/e ratio look good, are at historically attractive prices are available.
b. Be a Contrarian: There is nothing more difficult than this. I liked Bharti when everybody was writing off the telecom industry. It is on such a day that I bought Tata Power at Rs. 100. Sure that was long ago, but TP used to pay a dividend of Rs. 7. It could never get better than that. When you are sure that the world is going to end in Dec 2012, all companies will slash jobs and dividends, and everything that can will go wrong, buy some scrip. Even a GMR can go from 20 to 24 giving you a 20% return – which is what you will get in a debt instrument over THREE YEARS.
c. Do your Homework: Do not jump when you see a low p/e or a high dividend yield. Do some screens. Work on 2-3-4 years averages. Just because a share has gone up 15% in the past one week does not mean you missed the bus. If it is going to go up from Rs. 100 to Rs. 200, it does not matter if it has gone to 115, and you had seen it at Rs. 100 a week ago. If anything, it is proving your theory, somebody has seen it before you, that is all.
d. Make a big bet: If you are confident of your research, do not go and just buy 50 shares. It is not worth all the effort. Pick a big number to justify the efforts. If you are picking up the DVR of Tata Motors, or a HUL remember these shares are of blue chips – picking up an extra 500 nos. will not hurt you, it will make it worthwhile.
e. Risk and Reward are linked: Unfortunately when you are worried about Risk you forget to look at Return! This is true even when you interchange the words Risk and Return. Remember to take a longer view of the markets. When I say 10 years, do not be scared. I am happy to say 3 years if it pleases you, but just go back to 2009 and see what would have happened in 2012. Always take a longer view – if in the meanwhile the markets do boom, it will be a happy problem, right?
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