Wednesday, August 31, 2011

Investment blunders to avoid

Your income is regular and so should be your financial and investment plan. However, you should be a little more careful while writing out investment cheques. Your advisor is the right person to guide you in the maze called investments. Apart from being safe, your investment should not only be conforming to your financial plan (if it is in place), but should also be earning more than inflation.

However, if you are one of those DIY (do it yourself) investors, given here below is a negative list which should always be flashed before your eyes when you are contemplating an investment:-

  • Do not put all your eggs in one basket. No matter how promising a particular investment may appear, it is prudent to diversify your portfolio across asset classes.
  • Investments decisions based on free advice can give nasty surprises at times. It is impossible to make a crore by investing in a tip appearing in a financial newspaper worth Rs. 2. Consult your financial advisor for his feedback/opinion.
  • If you are investing in stocks, do not put blind faith on your broker. Trust, but verify.
  • Do not sell out too quickly. Always re-look at the bigger picture before pressing the panic button when market goes down.
  • Do not invest in instruments about which you do not have full information. Avoid investment just because your friend has invested.
  • Do not try to time the market. Remember it is time in the market and not timing the market that matters.
  • Remember, it is not your thinking that makes big money. It is sitting! Avoid trading. Be it stock or mutual fund.
  • It is time to be cautious when you hear/read the sentence “it’s different this time.” Time to get out of the market lock stock and barrel.
  • Last but not the least; appoint a qualified financial advisor who has your concerns in mind rather than his gains.

Happy (safe) investing!!

Thursday, August 11, 2011

USA Downgrade--An Apocalypse

Every time the markets tumble, not only do we try to find the reason for it, but we try to compare with similar situations in the past. Since Friday 5th. August, 2011, investment media has been awash with articles trying to prove how the present crash is similar to or different from the one of 2008. It was as if the sky had collapsed with USA downgraded. An apocalypse of sorts!

Now there are two ways to react to situations like this. Either you can stay permanently scared, panicking every time conditions resemble the original disaster. Or emerge as a wiser; more confident you-- ready to face what ever the future brings to you.

It is evident that the worst thing to do now is to panic. Agreed that we’ve had a few weeks of nerve-wrecking bad news—regularly flashed by investment media-- globally as well as domestically.  However, you should also remember that the news bites are mostly targeted at short term traders.

However, for long term equity investors (either funds or direct) none of this should matter. We believe that things in India are bad only on a relative basis. Relative to the rest of the world, or relative to what they should have been.  Remember, in crisis like this, you should focus on the absolute rather than relative! For this is an economy that is still growing faster than many others in the world and will continue to do so for many more years. There are and will be plenty of businesses of different sizes that will continue to grow and create wealth.

History is a great teacher. What happened in 2008-2009? The only investors who lost money were the ones who stopped investing—when the markets plunged-- and moved over to safer avenues like fixed deposits. Hindsight tells that all that happened then was that when the buying opportunity was at its best, investors were scared. Those who let their SIPs continue during the crash emerged winners.

So what does the present crisis tells us? Restructure your life around the present condition—as it is going to stay for a long time. You’ve got to live with it—much the same way as we live with a chronic condition—say diabetes. What is it about the rest of the world that’s going to change? Will USA start growing at 5%? Will the EU find a solution to the sick economies? No. However, one thing's for sure that countries like India, China will continue to grow—despite all the impediments—both globally and domestically. The question is not how long you’ll have to wait for the crisis to end to start investing. The question is how long before you realize the truth and get on with your investments.

Your goals are waiting for you to realise this—sooner the better! 

Friday, August 5, 2011

What is your type?

Print media is awash with articles about the type of financial advisor you should be working with, the qualities that a financial advisor should possess et all. We believe that in this season of advisor bashing, it is but natural for print media to be carrying articles with gospel truth for IFAs.

We also believe that while such articles offer a valuable tool in selecting your personal financial advisor—they but are just one side of the coin. Investors can also similarly be grouped according to the traits they display while investing. Though IFAs cannot choose the clients they wish to work or not work with, but working with a like minded client can make life a little easier for the advisor & client.

While it can be interesting to note the kind of investor you are or better should be, it would be even more interesting to know the type of investor you should not be. What ever form of investing you choose, there are few traits that you should avoid while managing your money.

The Collector

This type of investor is an avid collector of stocks/schemes. They are a broker/agents’ delight.

He is so focused on accumulating that he usually cannot review his portfolio which in any case resembles Big Bazaar supermarket. To an outsider, such an investor may appear to be an eternal optimist who holds on to his funds even when it is under performing. The only reason why he cannot sell duds is because he is too busy accumulating new funds/stocks to his already bloated portfolio.

Our advice to such an investor would be to start selling NOW rather than on judgement day! Focus on your goals and tune your investments to achieving them.

The Hyper Investor

Such an investor usually does not hold on to his investments for long. He only needs a slight movement in the market to swing into action—buy a new stock/scheme and/or sell the old one. His portfolio is always in a fluid state---always on the move. So is his financial advisor.

Such an investor believes that constant churning of portfolio is the only way to generate a higher yield. His fund/stock should perform whether or not the underlying market is performing. He is a darling of publishers of investment journals and so called “market gurus” offering tips to their subscribers. The one thing he lacks is patience. He does not believe that “it is not your thinking that makes big money, it is sitting”. It’s one thing he will never be able to do.

Our advice to such an investor would be: - Calm down your nerves and ask yourself if the anxiety and sleepless nights you get with every movement in the market are worth it. Say to your self—“time in the market is more important than timing the market”, five thousand times before even thinking of a portfolio shuffle.

The status quo investor

Such investor never takes the first step to invest. He has to be nudged into buying/selling. He never updates himself with articles appearing in financial dailies. He for one would rarely refuse to believe “get rich quickly” stories.      

Our advice to him would be to simply stop believing that comes his way. He should also exercise his own judgment in evaluating an investment proposal.

Having talked about the investor that one should not become, let us now highlight traits that should be followed while investing:-

  • It pays to adopt a long term perspective while investing your hard earned money. The basis of an investment should not be maximum returns but your long term goals.
  • Choose an investment option after carefully analyzing your risk profile in consultation with your advisor.
  • Since you have invested for long term, it would be futile to become anxious with every fluctuation in the market. You will only panic and take wrong decision. Look upon short term movements as hurdles while remaining focused on your long term goals.

Remember just as your personality reflects your investment style, the success of your investments will reflect your lifestyle. It pays to be a confident, sensible, long term investor.

Happy Investing!

The data/information in this article is meant for general reading purpose only and not meant to serve as a professional guide / investment advice for readers. This article has been prepared on the basis of publicly available information. Whilst no action has been suggested or offered based upon the information provided herein, due care has been taken to endeavor that the facts are accurate and reasonable as on date. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments. We shall not be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits in any way from the data / information / opinions contained in this article.