Category: Article

19 Mistakes People Make In Stock Markets

I was reading this month’s issue of Money Today and found a great article worth sharing. Even I make these mistakes particularly the tenth one, after reading this I realised that I don’t know when to sell my stocks, after getting regular at stock market investing (investing into direct equity and not mutual funds) till date i have always bought never sold. I feel that I need to rectify some of these mistakes to avoid major losses.

  1. When we hear the ultimate bedroom line, “This stock will treble in three months and don’t ask why”, we don’t ask why.
  2. We believe all the fiction published in research reports even when they are suffixed with an “E” (estimate).
  3. We believe that if an investment house is even discussing a company’s prospects with a positive bias, then it has bought into it.
  4. We discuss stock prices when we should be discussing profits; we discuss profits when we should be discussing the commodities that influence them.
  5. We willingly buy stock in companies that we wouldn’t buy debenture (bonds) from.
  6. We seldom have a perspective on future profit in the companies that we have invested in. So we buy into companies reporting higher profits ignoring that they could well have run up before the results were announced.
  7. When a stock that we have invested in slips, we dismiss it as a technical correction; when it drops more, we say it is a great buying opportunity; after it has sunk, we promise to invoke that dispassionate weapon called “stop loss”- next time!
  8. When we see great counter being overlooked for long, we begin to doubt our wisdom, make a sheepish exit and leave the fortune for someone else to encash.
  9. We believe that when the market corrects from 15,800 to 13,900, it is going down to 11,000 and when it rebounds to 19,000, it is headed for 25,000.
  10. We are over- researched in buying opportunities but selling expertise… well, our official stance is that we are invested for the long term so why bother?
  11. We are always buying and selling equities based on someone else’s reference of what is cheap and expensive, seldom our own.
  12. We confuse the fact that the smartest investors are more concerned with what is happening inside companies than what is happening in their stock prices.
  13. We overlook the fact that investing is 99% strategizing and 1% trading.
  14. We hope, when its time to act.
  15. We think brokers know.
  16. We seldom encash profits to raise the quality of our lives.
  17. We encounter some of the biggest multi-baggers in the newspapers under the column “research reports’ but flip the page to look at the quotations instead.
  18. We buy more stock when the market climbs but flip from the front page to the back page when it melts.
  19. We do not thank the person giving us a tip… the tip is not our birthright!

Source: Money Today November 15, 2007 pg. 56 Author: Mudar Patherya

Systematic Investment Plan

Systematic investment plans (SIP) are coming out as a popular investment option. SIPs involve investment on a systematic basis over a period of time. Under a SIP option, as investor commits making regular investments in a particular mutual fund/deposit. Investing in mutual funds through systematic investment plans is easier and efficient. It helps to grow one’s investment over a period of time.

The SIP option is available with all types of funds like equity, income or gilt. SIP is a long-term investment plan. The investor needs to set aside some amount of money every month for investing in a fund like a diversified equity fund or balanced fund. The investor needs to give post-dated cheques or debit advice to the fund house. The investor can put more amount also as per the policy of the fund. He can change the SIP structure only in the multiples of the SIP amount. In case an investor is investing in two different schemes of the same fund he can fill in a common SIP form for all the schemes. However, if the first holder in those schemes is different, they will have to fill different SIP forms, as the first holder has to sign on the form.

The investor invests a specific amount for a continuous period, at regular intervals. So, the investor can save compulsorily a fixed amount each month. He can also avail the advantage of rupee cost averaging. The investor automatically participates in the market swings. The amount of investment remaining the same, the investor buys more number of units in a declining market and less number of units in a rising market. By investing consistently the same amount at regular intervals, the investor’s average cost per unit will be lower than the average market price, irrespective of how the market is rising, falling or fluctuating. The advantage of rupee cost averaging is that the net asset value (NAV) is averaged out, as the investor will be entering the fund at different NAVs, which may be higher or lower depending on the market condition. As such, the returns are enhanced under the SIP schemes.

Rupee cost averaging offers its greatest benefit with investments that tend to regularly fluctuate in price. When one invests the same amount in a fund at regular intervals over time, he buys more units when the price is lower. Thus, he may reduce his average cost per share over time. Thus, rupee cost averaging helps make market fluctuations work for the investor, and reduces the risk of investing all his money just before a market downturn.
SIPs can be especially effective when used in buying equity funds. The NAVs of these funds can vary widely. Through rupee cost averaging, an SIP can make this volatility work for the investor. It is to be noted that rupee cost averaging may not work well if the market rises continuously.

As it is systematic, SIP ensures that one plans for his long-term goals along with the short-term goals. SIPs offer a disciplined investment plan and help reduce the susceptibility to market fluctuations. It helps preserve capital and also translates into substantial creation of wealth in the long run.

An investor who is not having a lump-sum amount to invest and also does not want to take much risk on his investment should always select a SIP option. This will enable him to invest regularly. Some plans now also offer additional features like life insurance.
The investor is at a liberty to enter or exit from the scheme whenever he wishes to , depending on the market conditions. He can redeem his units any time irrespective of whether he has completed his minimum investment in that scheme or not. SIP offers more flexibility and helps identify funds that suit one’s risk-return profile. In case of SIPs, the asset allocation keeps pace with the investor’s changing risk return profile Also; it offers instant liquidity whenever required.

An Article from Economic Times Dated 1st April 2006