It hardly matters whether it is equities or real estate, the reasons why people lose money is so simple to enumerate:
1. Not knowing the difference between trading and investing: they buy some shares, hope it goes up when it does not they sell off. Since they do not know whether they should be averaging (works only in a portfolio like the Index) or stop loss (a typical trading strategy).
2. Buying on a whim, holding for an uncertain, unplanned period of time, and selling unscientifically.
3. Buying a big high sounding share, holding for say 4 years (long term is more than 1, right?) and then selling off. One of the kids I know had bought Hindalco at a high price – Rs. 190. Then he did the classic job of ‘averaging’ by buying at 139….. Suddenly when I bought Hindalco (Mid May, 2013 at about 94….I called him. He had sold the share to buy some real estate….completely irrational portfolio building.
4. Not even knowing what is investing time horizon. Recently one girl stopped her SIP saying ‘I invested one year ago….I have got ONLY …….12% p.a.’. She has NO CLUE on what return she wants, needs or gets from other investments that she has made. Who is to tell her that if ppf gives her 8% and she gets 12% in equity, this is a brilliant return.
5. Completely goal less investing, redeeming, and NOT calculating the returns using excel. This means that over a 5 year period if a share has doubled in value, they have no clue that they have got 14% return.
6. Being mathematically challenged and not even knowing how much they have EARNED in dividends! Innumeracy, is a disease.
…lots more..but this is today’s dose!!
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