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20 May 2009

MY TOP THREE INVESTING MISTAKES

This is a take off from the post (http://www.theincomeportfolio.com/life/my-top-three-investing-mistakes/)  initiated by my fellow blogger TIP Guy.

LISTENING TO THE EXPERTS
Well the biggest mistake I have ever made (and I keep doing it again and again!) is to listen to the 'experts' on the prominent english business channels. I forget that they have a vested interest in the movement of a particular stock/ index. Their livelihood depends on it. Barring free publicity, they do not gain by telling me which stock to buy/sell. If the gain is not pecuniary its not capitalism. And here we all are talking about the epitome of capitalism - the stock market! Consider this. If I were an institutional investor and had invested a great deal of money and effort unearthing a gem of a stock, I would be looking to buy a very large quantity of the stock. That itself would send the stock price ascending, without me adding to it the rocket fuel of retail interest by coming on TV and proclaiming the discovery. I would keep it under wraps till I had cornered my share and then disclose.

RESEARCH - INVESTMENT MISMATCH
The first part of this mismatch is intuitive- investing without adequate research and analysis. (Do I sound like a spook here - a RAW Guy - pun intended here too!) TIP Guy has brought out this issue succintly. I too succumb to this flaw on occasion. However what intrigues me is its antipode - having researched and analysed a stock to its bare bones, finding it investment grade and then not investing in it! It defies all logic. And why do I do that? I havent the foggiest. Perhaps its paralysis by analysis or it conforms to the old hindu saying - 'Saraswati and Lakshmi do not reside together'. i.e knowledge and wealth do not stay together.

THE SELL DECISION
Having identified and bought a good stock at rock bottom price, selling it off too soon simply due to the excitement of having made the right choice or the stock having hit an arbitrarily decided target. This list is endless - 400 Bharti at Rs 30, 150 L&T at Rs 140 (that 150 today would be 2400 by split/bonus). Both are examples when I had a 'target' of 25% per stock! Lots of investment advisors say that to sell on a target is disciplined investing. While that may be true for beginners, seasoned investors should play it differently. A sell decision , like a buy , should be a dictated by fundamentals. The two reasons to ignore the demands of fundamentals should be - a better opportunity or constraints of liquidity.

Well these were three of the most significant amongst loads of mistakes I have made in my last nine years of investing. I will not talk about the rest here else y'all will stop reading this!

10 comments:

Charu Gupta's Blog said...

Dear Puneet,

If you're an amateur investor while investing since the past nine years, then I wonder what catagory will I fit into? lol :) Cos its not even a year since I've been investing.

How well any of us can relate to the mistakes that you've made... they are so common. Taking advice from friends, brokers and investing in them without a thorough analysis. I'm new to the investment world... and I couldn't have agreed more and relate more with you... well written

I also really like the name of your blog... KuberKhana... pretty interesting :)

Regards,
Charu

Puneet said...

@ Charu,
Thanks for the nice comments.

I use the word amateur analogous to a 'golf professional' or 'amateur golfer'. The former charges for advice rendered and stands to lose if she/he makes you more competent.

Also, time spent may not determine one's actual ability.

income.portfolio said...

puneet,

i am glad you included "sell decision". I continue to struggle with it too.

lately, I have decided to follow a objective based process. Helps avoid emotional decision making.

BTW: i am happy to see you already posted 4 posts in May alone, ;-)

Best Wishes,
TIP Guy

Anonymous said...

@ income.portfolio
Somebody rightly said, selling is the dark continent of investment.

unitechy said...

Only for my inability for "the sell decision" i am suffering from heavy loss... Not that the loss is really heavy... but being student and investing i thought i would make loads of profit, which never happened

Anonymous said...

@ Unitechy
Welcome to the gang. We all are victims of the 'sell' dada!

Anonymous said...

Well... interesting read out here..we so called a real investor still loosing our hard earned money most of the time on so called tips/good calls/ or we tend to fall love in scipt we boughted..we simply marry with our portfolio..for years.. eventually got lost.

sumi said...

Dear Puneet,

Like the slight humour in your post especially the part about buying a stock at rock bottom and then selling at some arbitrarily decided price. I struggle with that part daily since I have bought during the bear phase. Similarly doing a complete analysis and not investing a decent amount. I have to kick myself for putting in small amounts in a self analysed company and big amounts in suggested tips. I would also like to thank you again for analysing rohit ferro tech and mailing me the same. Please keep posting waiting to read the next one.

regards,
sumi

Puneet said...

@ Sumi. Thanks for your comment. Good to know that one is able to share knowledge and it has been of use.

michaeld said...

Very good article.

In my opinion, it is all a matter of market timing. It does not matter if it is gold, oil, or Microsoft, if you have access to good market timing signals, they will help you get in and out at a profit.

No guarantees in this business, but if they are right most of the time, you can still make $s.

There are may web sites providing them out there (search Google). Just find one that works and use it! Check out http://invetrics.com as an example.

Its Dow Jones timing signals are up 44.7% as of 6/24/09 while the Dow is up just 26% off its March lows.

Following a market timing system works!

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