Skip to main content

Default Strategy for Investment Helps Make Me a Better Investor

For people who invest in the stock markets for the long term, perhaps the most critical point to note is to have a default strategy for action. This is a very overlooked part of investment and forces many otherwise brilliant investors to do foolish things. Most people tend to like action and that is why they buy or sell stocks to get into “action”. This results quite often in either selling good business too early (booking profits to satisfy the “action” bug) or to buy into questionable companies following a “tip” heard on TV(or from a friend).

I have the same problem. So, here is what I do to keep myself safe from the “action” bug. I have a default investment strategy. That is whenever I have money and do not have a company that I really want to buy, I buy into either a liquid fund (typically LiquidBees on NSE) or buy into an index fund (again typically NiftyBees on NSE). I chose a liquid fund when I don't have a good company identified and I feel the markets are overvalued. I chose a index fund in all other circumstances.

On the contrary, when I have a good stock I want to buy at a valuation I am comfortable with I sell either the liquid fund or the index fund and buy into the identified stock.

This approach has helped me a lot in stopping myself from doing stupid things. I hope it works for you too.

Comments

Post a Comment

Popular posts from this blog

Old friends reunite

This weekend was great. Saturday we went to the Alumni Association of our school (AGCS). I met a lot of old friends after over 14 years. I met Irshad, Tabish, Hemant, Debarshi Ganguly, Durjoy Sengupta, Rajni and Kavita after 1995. It felt really nice to see these people. Sandip (Das) is now in Calcutta for a vacation. So, today we met at Tung Fong, Park Street. Sandip and his wife, Sudipta and his wife, Biswajit and me. Sanjoy and Chotu came late, nearly the time when it was time for Bishu and me to leave. It's nice and cold in Calcutta now, so it was good to go to Park Street in the evening. The good thing was I managed to come out without eating a lot, so the new year resolution is on track.
Post a Comment
Read more

Oil, Liquidity and the Sensex @ 12K

The BSE Sensex – the default benchmark for the Indian equity market – touched 12,000 on Friday last week. There is a sense of euphoria, disbelief and caution in people depending on which group they belong to. There are people who have been waiting for a correction from 6000 and are amazed to see the sensex at double that. There are others who are perennial optimists and expect the market to continue giving them the returns in the way it has in the last 3 years. Milestones like 12000 are a nice point to just stand back and access the overall situation. So, what is the reality of the day? Today, the price of oil is hovering around $70 with the political situation in Iran not getting a whole lot better. Don’t think its going to come down in a while. Interest rates are showing signs of hardening. Prices of gold, silver, steel, aluminium, copper, zinc and sugar are in multi year highs. Real estate prices are going through the roof. So, in a way all asset classes are seeing handsome app...
Post a Comment
Read more

Porfolio Structuring (PS) Step 1: Evaluate Current Status

The first step to any long term investment plan is to understand where we are at present. So, to start with you need to list down your existing networth. For example, you can have a list as follows: Provident Fund 100,000 PPF 50,000 Bank FD 50,000 Mutual Funds-Equity 150,000 Mutual Funds-Debt 50,000 Cash In Savings Account 30,000 House 2,000,000 Housing Loan -4,000,000 Others 0 Total -1,570,000 A couple of things to note here. 1. I am not calculating the value of any gold/silver jewellery that you may be having. Indians, typically are not very keen on selling their family gold/silver so it really does not count as investment. You can think of it as an additional bonus if you do have gold/silver. 2. I am including the housing loan you may have as a negative here under the assumption that that is your primary home and not a second home bought for investment purpose. Also, I am ...
Post a Comment
Read more