To be invested in equities I normally look for the following characteristics in an individual. Will enumerate them here, but when I make such a statement, I mean really heavily in equities – like say 85% on a portfolio BELOW Rs. 5 crores.
Beyond Rs. 5 crores, frankly ratios do not matter. I know a 86 year old who has about Rs. 15Lakhs in bank FDs, about Rs. 1 crore in debt funds of mutual funds and about Rs. 13 crores in DIRECT EQUITIES. What I call asset allocation indifferent. Has enough dividend income to run his life 🙂 and a son who looks after the portfolio.
If you do not have these characteristics, invest LESSER amounts in equities.
1. MUST, MUST, MUST understand markets. Not so easy, but make an attempt damn it
2. Should have been in financial markets at some stage of his life. This helps knowing somewhere to check on whats happening in the market.
3. Understand enough maths to know Mean, Median, Mode and Standard Deviation.
4. Understand the risk of inflation, and that VOLATILITY is not risk.
5. Have a real LONG TERM VIEW (think in terms of life times and generations, in terms of 20 plus years). If you think 3 years is long term, you have been talking to your RM for too long. You need to de toxify.
6. You should really have short term RISK TOLERANCE. If you panic every few months while looking at your portfolio and buy put options to ‘protect’ your portfolio, you will damage your net worth because of your RISK INTOLERANCE.
7. The amount you wish to draw down should be in zero volatile assets like bank fixed deposits, liquid funds, low duration debt funds, etc.
8. Over a real LONG TERM a non hedged portfolio without ANY debt element gives the best possible return.
9. I would do this for myself, but DARE NOT RECOMMEND IT TO any client, or as a case study in my training(s).
10. Dramatic Calm Mind and Mental Peace is also a pre-requisite. Ask yourself what were you doing when the market came down from 21k to 9k? Did you sell at 10k and feel great at 9k? Then this is not for you. Think like a WINNER not as a person ‘who does not want to lose’.
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