India’s 2014 General Election results are almost out, and the Narendra Modi led BJP is all set to form the next government. There is euphoria in the air, and at no other place is it seen better than the stock market.
Amidst this, here are five quick rules I believe you can follow as you invest in a Modi-fied India that looks promising (at least on paper!). The broader idea to still tread with caution instead of throwing your sense and sensibility to the wind.
Here are those five quick rules…
- If you have been sitting on the sidelines for the past five years, and itching to surf the high tide now, don’t start at the top of the tide by investing in stocks that are on a momentum (like real estate, banking, and infra). There’s a chance that you will drown again if you start at the top of the tide!
- In real life, things don’t change as fast as the stock market may lead you to believe. So be careful of the kind of businesses you are looking to get into and don’t go by what the stock prices are doing. A complex economy like India won’t change in a year or two, however good the governance may be.
- FIIs seem to be rediscovering their love for Indian stocks following their faith in the new government. This is what their latest inflows suggest. Don’t take cues from FIIs and their stock trades. They have always been fair weather friends and may leave out of the exit doors before you can even notice and react.
- Remember Graham when he said that in the short run, the market is a voting machine but in the long run it is a weighing machine. So avoid investing in stocks like you vote (emotionally). Instead, invest only after weighing the quality of businesses you intend to invest in.
- If you own good quality stocks and want to book profits after last few months’ rally or today’s, don’t! Think in terms of the wealth these can help you create over the next 15-20 years, instead of short term profits you have earned from them in recent times. In fact, if you are young, you have to have a high allocation to equities, and for the next 15-20 years.
Finally, one bonus rule for today – Avoid watching election results on a business channel. 🙂
Hi Vishal, Thanks for assuring few beliefs.
What you say are the cardinal rules an investor should follow.
Agreed Vishal. I hold mostly high Div yield companies (>3.5% yield) and have kept them aside for the long run.
I did invest in Adani Enterprises on a hunch 2 months ago, and made a good 66% today. And yes, I sold it and got out as I know there were no fundamental reasons for the huge upsurge.
Hi Vishal,
While I agree with you in general in your posts, I dont think i agree here completely. Volatility in general is a friend especially for a small investor. Today market is volatile and it was expected to be. a lot stocks ran up like crazy. when a stock moves 10-15% on a news not related to stock i think its better to think about it. Modi is good but should it cause icicibank to run up 10%? Icici is a great bank selling at a reasonable price. I did book some profits (not all and would wait patiently) I think there will be a day in not too distant future when it will sell at least around 1300 if not below meanwhile if i want return on my money i will put it into a debt fund or something like deepak fertizer or LGbala who inspite of great results were down today, (especially since it held for over an year meaning no tax implications) Now for a stock like shriram transports even though it ran up like crazy i didnt sell. I agree over there and i think with piramal having made a recent bet on it it doesnt seem prudent to sell so soon. May be i am wrong in short term market is really gambling.
Hi Vishal,
I was sorely tempted to sell off some blue chips with a plan to re-enter, but I held on.
After reading your post, I know I did the right thing.
Thank you for the reassurance.
Regards,
Narayanan
Some thoughts…
If you are selling your profitable stock, a question to ask yourself is “what are going to do with the new money?”
Except being psychologically feeling great to have won, what is that you are finding more attractive than what you have now?
In my personal opinion, the hardest thing is know when to sell it.
Unless you are an expert at valuations and you can spend time following many other things with respect to money, you would be better of if you hold a QUALITY stock for long term like 15-20 years. May not be better in the standards of the best guys, but should be better is a meaningful way.
The investor focus on 1. Business 2. Promoter and 3. Valuation.
By elimination, you can reject a lot of bad apples. The good guys will hint you about good companies with respect to company’s business and the promoter, but, not about it’s valuation. An average guy can spreading the investment in set of good company’s over very long time.
TIME is your best friend:
If you look at compound interest of 1 Crore (I am taking a large amount because I think people take large amount seriously. I also used some random website to arrive at the result.) invested for 30 years compounded annually
at 12% interest, you would get 30 crore
at 14% interest, you would get 50 crore
now think about 40 years,
at 12% interest, you would get 93 crore
at 14% interest, you would get 188 crore
Imagining that you will get this high rate of interest for this long period of time is in itself a stupidity. But what this demonstrates is the POWER OF COMPOUNDING and TIME and also the 2% difference over long term.
May be the rate of return is not in our control, but certainly we can take control of Time and Savings.
We can save a lot more than this 2% if we are mindful of what we are doing. Avoiding capital gains tax, transaction fees, discount purchases at shopping malls, impulse purchases, purchases for the sake of status rewards.
By being happy with what you have. Investing in good hobbies will help us to take our mind from falling into these traps. Save as much as you can and invest in health, you will reap great rewards in long term.
One last thing, When we have money, we don’t need to spend or buy something for the sake of having money (Man with a hammer syndrome).
There is a story behind every purchase we make, I am not an exception to this. In today’s marketing, stories are what sold more than products. Learning to sit with cash will rewards in in terms of opportunity and in terms on uncertainty.
@ Ragu- Points to ponder over. Thanks for your comments.
I agree with all the points specially 1,2 and 5.People on business channels advising to move money from very good companies into high risk sector like infra,capital goods,cement just because a strong govt. has come is absolutely ridiculous.Plus you see targets of 15000 for nifty and I don’t know whether to smile or feel angry.
Bad business will remain bad business.Just because high beta stocks are moving up doesn’t mean you need to invest in them.Some of the companies with negative cash flows from start,huge debts,declining sales are going up and people seeing them move up by almost 30-50% are getting rid of the companies which are not appreciating as fast as others .This is a time where many will go with the flow invest in bad companies and value traps without doing proper research and then later regret.
Hopefully with Vishal’ s initiative we can try to spread the message of doing our own research before investing and minimize the damage done