10 commandments of Equity Investing

It is a Deja vu feeling as I write today. I remember the over exuberance in 2007 and then the opportunity lost in 2008.

One thing is for sure, equity investments are true test for any investor across. The falls in the market show the differentiation between an Investor and a trader.

I thought I will list few traits, I personally believe can help investors to look at equity differently:

  1. Thou shalt Strategize: The first step is to build a strategy for investing in equity. The strategy should lead you to buy equity, not your greed.
  2. Thou shalt Allocate: Put only that part of the portfolio in equity which won’t give you sleepless nights, even if it were to fall by 50%.
  3. Thou shalt Ignore: Don’t watch your portfolio regularly, ask your advisor to hide the equity portion for a couple of years. If you don’t trust your advisor, then you already are in a wrong boat…change it.
  4. Thous shalt have liquidity: Always have some amounts ready for dips and don’t invest all at any point of time. It’s like seeing a Merc available at 5 lakhs but you don’t have the money to buy it.
  5. Thou shalt avoid timing: Nobody knows where the market is heading, not even your advisor and people who pretend they know, also don’t know. Keep investing as investments from peak to bottom also generate decent returns.
  6. Thou shalt stagger: Staggered investments into equities through SIP, STP, etc are the best way to buy volatility.
  7. Thou shalt know that the falling market is thy friend: If you are a long term investor and have set out to create wealth and are investing regularly, then the market dips should be used to buy more.
  8. Thou shalt know that the information you have is not the information you need: Stick to your portfolio basics and don’t get influenced by news flow….it corrupts your mindset.
  9. Thou shalt invest in thyself: Financial education is a must and try calling your advisor at your place for education for a change.
  10. Thou shalt ignore sentiments: Decisions influenced by bias or sentiments can cause pain in the longer run. At the same time let your advisor take unbiased and non-sentimental decisions on your behalf.

So much more can be written and it’s high time we Indians understand why we haven’t made money in equity so far. Markets have risen from 1000 points to 24000 levels, Mutual Fund NAV’s have risen from 10 Rs. to 700 Rs. in past 18 years and we still believe equity is risky. I think a human being who can control emotions and decide strategically is the best suited for equity. Question is ‘Can we all control emotions?” and the answer is “YES WE CAN”

~ Anil