Care to be taken while investing

All of like to do investments in equity, but we are not sure where to invest, the reason is not that we do not want to put the efforts, but the lack of time and expertise to do it. Avoid some of these regular mistakes

• Invest on tips – When we buy electronics, we usually do some research, speak to some friends or relatives who have purchased same or similar items. The reason is simple, we do not want to lose money. But when it comes to investing in equity, we do not do this. For us research is usually limited to tips given in the newspapers or heard on television or even found through a search engine on the net. We do not usually do our own research.
• Investing for the short term – Whenever we buy equity we say we want to make money and we want to make it fast. Ask yourself, what is the timeframe by which you want to have this money, what is your goal? Most of the tips received is based on short term movements, but if you look at how big market players have made their money, it is over long periods and not short term. If long term is the way to make money they why do you track price movements daily?
• Booking profits – This is the most common mistake most of us do, i.e. sell as soon as we see a profit. If you have invested for a long term, wait for that period, do not book profits early. You end up missing a bigger opportunity.
• Following the crowd – As I had said earlier, just because some market expert says that a particular equity share is good, you have purchased. So if there are many people like us who run after the same equity share, the price of that equity share is bound to rise. Then you start rationalizing. But if you do a bit of research, you should be able to separate the wheat from the chaff.
• Tax – Some people just hold the equity shares for more than a year, so that they do not have to pay capital gains tax. Equity Shares should be purchased and sold based on valuations and not on tax considerations. If the equity share is in profit, but the market outlook for that particular share does not look good, get out of it, it is better to pay taxes than to end up with a loss. Also when the equity share is not doing well and the outlook is also not good, cut your losses. Do not keep holding it for eternity hoping one day it will go up.

If you find all the above a bit difficult, then just let some experts handle it. It is much safer paying some money for advice than hoping to make money based on free advice.

Success formula for equity investing

Most of us want to invest in equity to make fast money. The reason is simple, all data shows that equity has given very good returns over a period of time. But then all good returns have their share of risk. It’s looks too easy, whom do you trust on the advice to invest. One of the best things to do is invest in a portfolio of equity shares and review them on a regular basis. Get rid of the ones not doing well, this is the most difficult part for most investors, they tend to hold on to them. You do not review your equity shares daily, it will be futile. If you had the time, then you and the rest of the world would have been doing only this. If you look at the list of wealthy people, you would have noticed that their wealth is in the form of equity shares. They invest their money in shares of a company, which they believe will grow, the company might be their own or of someone else.

So if they can get rich by holding shares, why not you and me. The challenge is picking the right shares. These wealthy people, believe in making money by participating in the growth story of the company, you and me can also do the same. But then we are lazy and want tips. What tips do you want? Look around, what do you and your neighbor’s use daily? Buy shares of those companies. If you trust those products to use daily, then the company would be growing for sure, so you should participate in the growth. There are many persons who give tips or follow tips given by many, but only a few make money. This is because only those who stuck with the shares made money. Daily trading does not make money in the long run, unless that is your full time job.

So what should one do? The easiest way would be to go for a well-diversified mutual fund scheme, where the fund manager does the job of stock selection. Best would be a index fund, here the fund manager does not need to do much, the index is managed by the stock exchange, all he has to do is ensure that his scheme is in tune with the index.