A new equity investor?

So you are 22 years of age and wish to invest in equities, right?

Welcome to the very many people who wish to invest in equities, but do not know where to start.

First things first. If you are doing a career in medicine, or are a lawyer or any other professional, chances are you will not get enough time to do direct investments. You might be better off investing in a mutual fund.

Having said that upfront, I do think that with a little bit of research and some diligence it might be possible to perform better than many of the fund managers. However your ability to beat the best fund managers looks close to impossible.

Start at the very beginning. First of all make YOUR Investment Philosophy Statement. THAT HAS TO BE THE FIRST STEP.

http://www.subramoney.com/2008/02/secret-of-successful-investing-philosophy-statement/

Once you know why you are investing start reading books – and I am not saying that reading has any sequence. Be very careful about what you read. Too many half baked websites on personal finance, equity, etc. – best is stick to the books. Unfortunately or fortunately most of the books on investing are American. No great Indian books, but Parag Parikh has made some start. Good websites by people like Chetan Parekh are a rarity, but yes a good place to start for sure.

http://www.subramoney.com/2011/06/investing-books-the-must-read-types/

Every share that you buy (portfolio) or decide to buy (watchlist) should have a logic, price target, time target, etc. The portfolio and the watchlist should go into a FREE WEBSITE like value research online, Morningstar (I have not used it myself),  so that you can analyse it industrywise, and track the performance vis a vis a top fund like I Pru discovery, or a Franklin India Bluechip or Hdfc Equity. Surely you will have your own preferences. What it matters is a 3-5 year performance, but if you are miles behind on a quarterly or a monthly basis for one whole year, you better have a solid, solid reason for that. All the reasons, logic, etc go into an Investment diary – the human mind deletes INCONVENIENT thoughts and data, SO IT MUST BE HANDWRITTEN diary – NOT just a word document saved somewhere on the web.

http://www.subramoney.com/2012/08/5-important-reasons-for-an-investment-diary/

this is a good beginning. Lots of people will tell you that it is impossible to outperform the fund managers. That is true only for the top fund managers – and some of them have some amazing advantages which you and I can NEVER HAVE. Do remember that all the fund managers have RIL which has pulled down the sensex from the year 2007 to 2013. Sure they will have solid reasons for that, but remember even if you have bought some FMCG share in 2007/8 you would be much better off. Do read fool.com – an American website which believes that individuals can beat fund houses.

I am caught between the academics who say YOU cannot beat the index, and some reality of index beating friends….so the choice is yours.

However if you do invest on your own or through a MF the above-mentioned steps are worth doing…..

 

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5 Responses to “A new equity investor?”

  1. The property crash is so near.

    The gold crash has demonstrated what will happen when unreasonable speculative bubble bursts. The results is all there to see. Gold has easily lost 1/3 of its value in a matter of 1 year. Although personally I believe gold may not fall much from here ( 2300 per gm Indian price), I expect property market to fall like a pack of cards.

    Do not underestimate greedy,cunning Indians of today’s age. They are not like people 2 decades back. If crash comes, it will be ruthlessly play out as Indians are ready to do anything to make money nowadays. Especially after the new economic policy (wrongly attributed to ‘not fit to be clerk’ MMS).

    In internet age the crash can be huge.

  2. Sir the list of book is huge. For a someone like me with no knowledge about accounting i think it will take years to read so many books. I have started with “Intelligent Investor” but apart from this suggest some must read book among the huge list you have prepared. I am not telling that i will not read all books or it is not possible but requesting you to list some books which are must read before taking the first step. Thank you

  3. @ Vijay

    There are no short-cuts. You will have to read a lot of them, and then assimilate the information and then read some more according to the school of thought which you find best suited according to your own personality and thought process. Till then, as advised, use the MF route.

    It will take years for you to have control over your emotions vis-a-vis the markets. So there is no hurry. 😀

  4. Vijay start with ‘Ramdom Walk down Wall Street’ an awesome book. Invest in a SIP in Franklin India Bluechip. Start picking up ONE STOCK EVERY SIX MONTHS…there is no hurry as Vijay says. First 10 shares should be in 10 preferably unrelated industries (for e.g. do not buy Tata Motors and Sundaram Fasteners) …As you create your portfolio, you may reduce the SIP amt. For a mid cap look at a fund house…Your own portfolio should not have more than 30-40 shares OVER YOUR LIFE TIME…so one every six months should work…

  5. How many companies perform in our lifetime? Assuming you will be rearranging the portfolio every 5 years, you will end up changing half of the companies you own. 30-40 shares in LIFE TIME looks less IMO.

    -Vinit

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