I am not a big advocate of stock market advisory. Just too much about stock market investing has to be LEARNT and very little can be taught. There is too much of common sense. Some of it looks like it is ‘obvious’ but I have seen too many people fail doing even this. So here are some lessons – take it or leave it – I thought it might be useful.
- Trading is a full time job, not a time pass activity: If you wish to make trading your career, there is a lot to learn. However, if you think you can do this like a part time activity, you are terribly mistaken. I have not seen ANY AMATEUR trader ever make money. Do not look at Deepak Shenoy. He is a professional.
- If you have a small corpus, you are better off with an index fund, but if you have say Rs. 50 lakh with which you can trade, you will be able to do some thing sensible. Start reading everything about share market investing and financial advisory apart from equity trading.
- Beware of neuro surgeons, dentists, drivers, Chartered accountants, auditors, directors, – ALMOST ANYBODY..bringing investing tips. The worst thing is it sometimes works. The probability is so low that it is laughable, but our brain fools us.
- Learn basic research – so that if a blogger (like Subra) tell you to buy a share at least learn to do some rudimentary research. Buying without research is amazing stupidity, but still very common.
- Repeating: Before you buy a share find out everything possible about the company, note it down, and KNOW why you bought that share. If you cannot remember it or if you do not understand it, and you still make profits, it is a danger sign. If the tipster were to not tell you when to sell you will hold it for eternity?
- Have an emergency fund, a cashless medical insurance, term life insurance for the rain maker, a constant cash flow to meet your life expenses in place. Once this is in place you can trade. If you INVEST without having these in place, one day you will be selling family silver to pay your EMI. I will not be sad, I will be appreciating the ruthless efficiency of the HDFC collecting machine.
- Do not try to get the bottom and the top of either any share or the market. You do not need to. I have done it on a couple of occasions – out of the 10,000 odd trades that I may have done. Sheer chance. Or pure lies.
- Learn to take your losses quickly, cleanly, and make notes on what went wrong. Losing money is fine, do not lose the learning from the loss – you have already paid for the learning!!
- Do not have too long a list. If you forget stocks that you bought, that is disaster. Keep them free for a quick sale. If you mortgage shares make sure you know how to redeem the mortgage over the phone or email requests.
- Always have some cash for a further investment at the downside. Markets can always go lower than you think. Stay lower longer than you wish, and go up much faster than you thought. Be prepared for depth, length of stay and speed on the way up or down.
- Do not buy what you do not understand. Read this line again. Then repeat. Then read it again and shout it out loud. Daily.
- Trends are never your friends.
- If in an equity meeting with analysts or fund managers if you do not know who is being fooled, it is YOU.
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