5 Simple investment tips…that work always

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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7 Responses to “5 Simple investment tips…that work always”

  1. Nice one Subra sir.

  2. Thank you, Subrabhai.

  3. Many thx subra.I am sure Regular Readers to our site will benifit a lot .Thank you so much once again

  4. Barun Chowdhury on June 16th, 2012 at 10:54 pm

    Hi Subra,

    I am exactly following these points. Best investment tips..But in simple words.

    Thanks
    Barun

  5. Subra
    This is one of your best posts. Thanks for the great advice as always.

  6. Sir… Good Points…

    I remember the story or message my teachers use to tell. If your task is to cut the tree, spend more time to get the right tool and ensuring that tool has enough potential to cut the tree.

    In short, spend time to sharpen your saw before you cut the tree.

    In finance world. There are lots of plans and strategy. What is needed ins descipline. What you have laid is perfect plan and approach what is needed is descipline. Many of us lack this.

    In financial planning, its descipline more important than the plan. what is use of having best plan and no descipline???

    Are there any stocks on your raddar now? Need not be buy call but something to watch out for?

  7. Sir, Can you clarify more on Point 3. What all constitutes doing homework? Are you suggesting reading last 3-4 years Annual Reports instead just last years report.

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