You will have your biases – do not fight them, but surely know them. I am particular about knowing the promoter’s background especially if it is a small company and it is a first generation promoter. However when it is a Foreign company, there is nothing I can do about this and accept it as a given. Sounds stupid, but hey that is how it works.
Let your profits run and cut your losses. This is again not very easy for people to do – the reverse is easier. If you see yourself IGNORING the shares which are down (slightly or deep) and you are itching to sell something because you are in the money, control yourself. Good shares can go up 30-40 times over your investing lifetime.
The past performance is not necessarily a prologue. I am currently struggling with my investments in the Murugappa group. In 1986 when I bought the shares there was a different generation in charge of the group. Now it is the younger generation – so to know within the group what changes WILL happen is far more important than fooling myself into believing that ‘it is a great group – see how its past is’.
It is easier to make money by being a bull than by going short. When you are short (and you have solid reasons to be) keep a very strong stop loss – remember in a short, the risk is huge. In a long transaction, the maximum you can lose is what you have invested. In a short transaction, technically, the loss can be infinite.
Leveraging is not easy, and it cuts both ways. Leveraging should be used ONLY for very short transactions – or by people with multiple incomes. Borrowing / leveraging to invest within reasonable limits (the interest payment should not exceed your passive income) and a well diversified portfolio can give great scope for growth. However YOU know yourself, keep in mind that even great investors have been ripped apart by leverage going wrong.
Be open to other people’s views – but depend on your own analysis. As your investment gets bigger you may be buying research reports from younger analysts – make sure you know a few analysts well before depending on them. Again if you can afford it, but multiple reports – this reduces your OWN bias as well.
When you invest / trade make sure that you have other stable income for your day to day activities.
For investing to be a full time activity, make sure that you have a very stable G sec kind of a portfolio for all your COMPULSORY expenses. Trading income cannot be relied upon to meet crucial goals like accumulating money for retirement. However if you do make good trading profits, RECONSIDER your asset allocation.
Take a break, and build a big friend circle outside of equities / mutual funds etc.
See how the related industries, other investment opportunities (real estate for one) are doing. Seldom, if at all, do asset classes not look like each other over long periods of time.
Investing is very taxing on the mind, and calls for a healthy body. Also you have no clue how you function under stress. So keeping a calm mind while investing is a must. Try to learn meditation, it keeps you more relaxed.
Keep your investment expectations reasonable – if PPF is giving 8% return, equities will give about 12% return over very long periods of time. When you see the returns are in the region of 33%, be careful of over allocating to equity just on the short term performance basis.
Very important – read the past masters of the game. Immaterial of whether you are a trader or an investor – make sure you do read a lot. Understand, and assimilate the readings.
Nobody ever said that investing is easy, but hey if you do it well, it is worth the effort.