Super Investor

How not to lose money

Business services are a recognisable subset of Economic services, and share their characteristics. The essential difference is that Business are concerned about the building of Service Systems in order to deliver value to their customers and to act in the roles of Service Provider and Service Consumer.

Asset Allocation Holds The Key

One of the most prudent ways of investing is to follow an asset allocation strategy. Asset allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets based on an individual’s goals, risk tolerance and investment horizon. Investors also need to understand that risk and return work in tandem. Generally, a high risk investor needs high compensation in the form of returns.

For  goals over a short time frame, debt products like debt mutual funds or fixed income instruments should be preferred over equity, as equity is a volatile asset class and generally deliver best over larger time frames. If an investor has longer time frames for achieving goals along with a decent risk appetite, then equity as an asset can deliver inflation beating risk-adjusted returns.

Investments To Be Backed By A Thorough Investment Process

There are many ways of analysing stocks. Some investors prefer Technical Analysis for identifying investment opportunities based on time frames, various technical tools and theories (like monthly charts, quarterly charts etc). Many investors prefer Fundamental Analysis to look at qualitative parameters like management pedigree, free cash flow, ROE, ROCE, PE, PEG RATIO, etc. Whichever way the investor follows (fundamental or technical), it should be backed by proper analysis.

In case an investor lacks the skill set for analysis, it is advisable to seek advice of a competent person like an Investment Advisor. If an investor is unable to find any appealing companies, it is better to put their money in a bank until the investor discovers the same.

Diversify enough and avoid market grape vine

For novice investors, it is advisable to have a diversified portfolio of stocks or mutual funds. Diversification helps to mitigate loss from a sudden change in market environment. However, over-diversification has its drawbacks too and may not give desired results.

Many times, investors get swayed away due to negative noise and end up parting ways with quality stocks. Similarly, investing based on market grapevine can be injurious to your portfolio performance. Euphoria based investments should be completely avoided.

Additionally, many investors prefer chasing small priced or penny stocks for high returns, which may also cause loss if fundamentals are not in place.

Emotions need to be kept at bay while investing

Emotional decision making should be avoided while making or holding investments. Stocks are a medium to achieve your goals for wealth creation. An investor should not marry stocks. If fundamentals change substantially, it’s better to exit rather than being emotionally attached to a stock. However, an investor also needs to understand that quality stock at a high price generally won’t give desired profits.

Review and monitoring of investments

Buying is just one part of the investment process, it’s the regular reviewing & monitoring that holds the key for its successful outcome. You need to carry out regular reviews and switches to weed out low quality stocks or underperformers  can go a long way in wealth creation. Patience is the most important virtue for your stocks and portfolio to grow (after all the hard work of stock identification)