The new financial year is beginning on a rather somber note. The
auspicious festivals of Navratri, Ram Navami, and Easter are also failing to
lift the spirits of the people locked down in their homes. Offices, factories
and shops are shut. No one has rushed to complete the usual year end
compliances. Naturally, the financial markets are also despondent.
As an investors, my first instinct is to complete erase the
memories of FY20. For an overwhelming majority of market participants, it has
been a difficult and mostly forgettable year. Not only equity but the debt
portfolios have also caused similar degree of pain for many investors. The fact
that the previous year (FY19) had not been great either for most investors,
exacerbates the concerns even further.
However, the student of markets in me is telling me not only to
remember this year but rewind it every year to avoid mistakes that would have
been made in past couple of years. The following lessons in particular must be
learnt, memorized and practiced without fail.
1. Define your investment
objectives and goals clearly. Success in investment endeavor depends largely on
clarity in investment objectives.
Factors like
growth, yield, income, risk, are dynamic and will keep on changing every year.
Investors must periodically re-evaluate investment objectives and requirements.
2. Forming a solid
investment team is cardinal to successful investment strategy. Carefully assess the honesty, competence, and
objective of those giving you investment advice and services, e.g., investment
advisor, Portfolio Manager, Mutual Fund Manager, stock broker,
3. Know: Why, How much, When, and Where to
invest.
(i) Would you like
to do the same business, as the company you are investing in is doing or
planning to do, if you had sufficient financial resources?
(ii) Never invest in
companies whose business you do not understand.
Investment is much more than the roll of dice. Impulsive decisions are the ones you often
regret.
(iii) Invest
only that money which is free of obligations.
Never borrow money for investing.
4. Remain informed about how your investments
are performing. Be alert for news, legal
changes, policy changes, and
economic trends that could have a material impact on your investments.
5. Unreasonable expectations about return on
investments may deprive you of even reasonable return.
6. Remember, you are not an institution, and
never try to act like one. Do not calculate NAV of your portfolio daily, weekly
or monthly. You are under no obligation to report your NAV to anyone.
7. Assess the success of investment strategy
from the total returns you made on your entire portfolio. There will certainly
few outliers. Do not celebrate or regret these outliers too much.
8. You cannot and need not invest in all good
companies. Select those, which suit best
to meet your investment objective, are fundamentally strong and suit your
investment plan.
9. Remember the basic principle of economics,
money does not grow on trees, and in the long run all good businesses will
attain more or less the same level of profitability.
10. Try to use market movements to
your advantage, only in businesses which you otherwise find good for
investment. Never buy something just because it has fallen 70-80% from its last
high price.
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