is probably the best part of this long article cum tutorial because it comes
straight from my hands-on experience. I will list them in the order of their
importance. I used to wonder why even after the doctor warned an
individual about his level of liquor intake, he continues to drink? The
person is aware of the dangers and he tries to stop himself from abusing his
system; but invariably fails. Lack of will power to blame I suppose.
In much the same
way, we are all human beings and it will not be easy to have such will power
that is needed to take the right path. Human beings are easily overcome with
emotions like greed and make mistakes.
is those individuals with clarity of thought, perseverance, single
minded focus, and those who are not easily overcome with emotions no matter
what happens around them, who eventually succeed.
Hence my advise
is, follow the advice from reliable sources and do learn from your mistakes.
Anyway, onto my mistakes - I am a bit embarrassed but hope you benefit from
Having invested all my savings in equity.
mistake was putting all my savings in equity. It sent shivers down my spine
at one point when market was crashing relentlessly in a free fall. When the
market goes down and if some part of your savings is safe in the bank
account, it will be a great relief that you haven't put all eggs in one
When the crash
is strong and you are making loss, it is hard to even sell your shares. Now,
the thing is whether you need money at all in hand. If you don't, your
battered shares will eventually recover (provided your purchase was of good
companies). However it is a deadly thing to do by putting all your money in
equity alone. When it is shooting up, you would feel vindicated. However
share market is such that it can go down with the same speed.
Hence the advice
is "never invest all your money in equity". Some advisors say put only 30%.
That may be the wisest thing to do. However a 40 or 50% may not be a bad
idea depending upon your risk appetite.
one sell? when one scrip is not moving, or when a company performs badly in
two quarters in a row?.
The right answer should be the latter but most people
follow the former. Like them, I often made the mistake of selling and going
after a new scrip that's 'hot'. By the time I sell, the cold one becomes hot and
the hot one becomes cold. Because by the time you read a news item that
makes sense enough to go after a scrip, or hear a hot tip and follow
the scrip, it would have very often, lost all its steam and stopped
Now, I have almost fully learnt to trust and stay with my
scrip, my company, no matter what buzz goes around. I do move to a new scrip
but much more cautiously and prudently than I used to. An advice to my readers:
If one scrip is so compelling and forcing you to sell your holding, do that
selling slowly (over a week or a month) by selling part by part. Because you
never know! The moment you sell your favourite one, it could start shooting
up. That's the market; no one knows that a storm is brewing in your own tea
cup. But people often look into others tea cup's. Stop doing that, please,
for your own good.
Also, remember the broker commission and other associated
expenses for the selling and buying transaction. No matter whether you made
money or not, through your transaction of buying and selling, your broker
makes money and the government through TAX makes money too.
Look at the one year charts through
money.rediff.com. You can see
that there are many good scrips rise substantially once in an year and for
a brief period. How would you possibly catch that rise even if you stayed for 11
months; the ascent may come in the 12th month. There are also those which climb incessantly upwards and for longer periods, but how
know? Also, there is nothing like it - what goes up will come down.
So learn to stay, not sell. Selling is surely not
important. One word about buying - follow that 'part by part' policy while
buying scrips too. A scrip wont disappear but your money will.
Panicking and booking loss.
I trusted my
selections of stocks. I studied them however briefly, before I invested, I decided never to sell for a loss. Yet when
I saw the heavy crash in May
2006, I started selling and booking loss. By July, Market was undergoing a nice
recovery. Yet in May, I failed to pursue my decision 'never to sell for a
Not having chosen only the best.
As a beginner, I
must have chosen only the fundamentally strong companies. Only few
companies I have chosen, is performing poorly today. However I haven't
restricted myself only to the fundamentally strong companies. For example,
Reliance, Infosys, Tisco, ITC, to name a few.
Problem is that
in a bull market almost all good companies will be on an uptrend. Everything
will look good. It is when a serious crash starts, many that went up fastest
are likely to loose out first. Also, their recovery is very likely to be
slow. However the blue-chip companies such as reliance or Infosys rebound
faster and enjoy a good level of insulation from a crash.
I have built my
portfolio at a time when anything and everything was shooting up. That
is Jan - Apr 2006 period. At that time I looked like a genius. However
yet to see the fall and the impact struck me hard. May - July was very tough
time. That's when I wished I restricted myself to the blue chips or so called
large caps. These include Reliance, Infosys, TCS, ONGC, etc. Hence over
diversification not only becomes difficult to manage but also may not be
safe in volatile / crash times. I have taken up positions in close to
hundred companies while experts suggest up to fourteen from variety of
sectors for optimal diversification.
My Portfolio as of July 06