The common mistakes which new investors generally commit during investments. Some of the common mistakes stock market investors make which can be easily avoided.
1. Borrowing money to invest in stocks or leveraging
When you borrow money to buy stocks it is called leveraging. Many investors in over confidence about their convictions about stock market borrow money to invest and they are the ones who suffer the consequences. Margin money is the amount an investor pays to a broker to have a larger position than the money that has been deposited. The interest rate on such lending is higher. When the stock prices are rising and stock markets are rallying the return on such investment is much more than the interest cost. On the other hand when the market falls, there is a complete wipe out of investor’s money.
For example if a stock 250, you bought stocks worth Rs 40,000 on an initial capital of Rs 10,000. If the stock moves to Rs 270, it has gone up by only 8 per cent, but the return on investment is 32 per cent. Now if the stock dips to Rs 200 down 25 per cent, you stand to lose 100 per cent, add to this the interest cost to the total capital loss, then the initial capital is completely wiped out.
So, Avoid leveraging or borrowing funds to invest in the stock market it can spell disaster for your financial well being.
2. Averaging the cost
Whenever the price of a stock starts falling, the initial reaction from investors is to buy more to average out the cost to lower levels. Although it might bring down the total average purchase price of the stock, a lot of money has gone into this process. It is almost like throwing good money after bad money. Often, this happens when one refuses to believe that things are turning sour and the recovery would take a long, long time.
Do not get emotionally attached to a stock as it can be very damaging. If you have made the mistake of buying shares at higher price, don't multiply it by buying them at every low.
3. Do not investing on tips or rumors
Many investors can be accused of this one. But things can go real bad sometimes. This is especially true with mid- and-small-cap stocks. There are hundreds of examples where tips are given for penny stocks. Initially, it may give you some money. In the long run, however, such investing tactics can be fatal. You should invest some of your time researching the stock you want to buy. Most of the information is available on the net.
4. Derivatives (Futures and Options)
New investor should stay away from the derivatives market. According to Warrant Buffet “derivatives are 'financial weapons of mass destruction”. A large number of small investors used the derivatives route to invest rather than the cash segment. It was easy since futures and options allowed them to take positions on either side (long or short) with little over 20 per cent margin or little option premium.
But since they have to pay only 20 per cent, bigger risks are taken. That is, small losses are not booked. Instead, positions are rolled on in the hope that ultimately things would favor them. No wonder, losses keep mounting and can really hurt sometimes. Derivatives are not an investment tool but a hedging mechanism. So either don’t use it or use only after you have learnt about derivates or know the ins
5. Investing in IPO (Initial public issue)
When the stock markets are booming the initial public offerings (IPOs) of companies is oversubscribed by 40-50 times. On listing at the stock exchanges usually the stock lists at a premium and investors make some money by selling it. If the IPO lists at a lower price you can be stuck with a dud stock. During a bear market phase like the present one even those IPO’s which listed at a premium tend to go below their issue price and investors lose money.
Long-term IPO investors may still make a decent return over a long run, but subscribe and sell on first day is out of sight at the moment. Invest in IPOs only when you believe in the company. Otherwise, just stay away.
Besides this,Here are some points, which will help you to invest in Indian equity markets and earn better returns beyond your expectations:-
1) Never invest the 100 percent of your investment in one day in market because due to higher volatility, market may give you either positive or negative returns. High risk may ruin your whole investments.
2) Investing in equity markets on monthly or quarterly basis just like Systematic Investment Plan in Investment sector will help you to minimize investment risk and fetch better returns in your life.
3) Have patience while investments because market is fully loaded with risk and may be your purchase of Rs. 100 a share will show you the price of 50 after one month and may be due to impatience you may sell it and after one month the same share will be at 150.Here is your patience level will be tested at acute level. Your patience will fetch you returns.
4) Always cash out your portfolio at right time. The investor who joins the market at right time and exit at right time is known as an Intelligent Investor. Study your stocks at least weekly basis and try to analysis them so you can get higher returns every time on your hard earned money.
5) Never invest that money which you may need in emergency time. For example, you are planning to buy new bike worth Rs. 50000 and have Rs. 20000 in hand and hoping that stock market magic wand will make your money Rs. 60000 in 3 or 4 months. Here is mistake from your side. Invest that money which you don’t need for at least one year, if you are holding buyer or long term investor.
Monday, December 27, 2010
The 15 strategy and features for Every Investor from George Soros.
Every Investor should know the investing basics. Seven fundamental principles of investing need to be applied by the investor at the time of investment. Topics include knowing your current situation, investment goals and risk tolerance; getting your finances in order; thinking long term and focusing on stocks; researching and monitoring your investments; and knowing when and how to get financial help.
Start Investing Now: We say this, not just to disagree procrastination, but an early start for investment can make all the difference. In general, every six years you wait doubles the required monthly savings to reach the same level of retirement income.
Another motivational statistic: Some amount needed to be contributed by an investor, in every single month for nine years without lapse and nothing afterwards, or if the contribution is null for first nine years and then it is made for the same amount each month, for the next 41 years, Investor would have earned the same amount.
Know themselves: Current situation, future goals and personality of the investor plays a vital role in taking right course of execution for investment
• Current Situation-It depicts the financial capability of the investor, which includes net worth, monthly income, returns, savings, mode of investment and expenses.
• Goals-It confirms the financial goals of the investor, and how much he needs for investment and to confirm whether he is going on the right path in relation with investment.
• Risk Tolerance-Investor should have risk bearing ability. The appropriate level of risk is determined by the personality, age, job security, health, net worth, amount of cash needed to cover emergencies, and the length of investing horizon.
Investment can be started in a reverse order. If investor doesn’t know, where his money goes each month after investing, there will be ambiguity in his mind regarding misplacement of his hard-earned money and he will not think to invest his money anywhere. Tracking the spending habits is the right cure to get rid of these types of ambiguousness from the mind of investor. Investor needs to relieve himself from the burden of debt, which can be credit card, or some other debts before going for investment. He should plan for post - investment situations, how much he can save every month and how much he needs to save to reach the desired goal. If investor is transitioned from a debt situation to a paycheck situation to saving money every month situation, he will be ready to begin investing what he saves. Investor should start investing by amassing enough to cover three to six months of expenses, and keep this precious money in a very safe investment like a money market account or saving bank account, so that he can be prepared for an emergency.
Once the investor has saved for emergency reserve, he can proceed to high-risk investments, bond of money that you expect to need in next few years and stock mutual funds for the rest. Use dollar cost averaging, investing the same amount each month. This is always a very good idea but there is a dramatic fluctuation in the share market in past 10 years. Dollar cost averaging will make the things easier for investment
Investors are warned, not invest in those shares, for which there is some ambiguity:
Develop A Long Term Plan: Investor should know his current situation, goals, and personality very well. He should be pretty clear what his long term plans should be. Investor should know very well, where the money will go whether in cars, houses, college, and retirement. He should be well aware of the source from where money is received. Hopefully the numbers will be about the same.
· Investors are advised not to time the share market. Get in and stay in. Share market conditions fluctuate in every minute. It is not possible for investors to predict where the share market graph diverts. That’s why he should be in touch with regular share market updates to avoid any mishappening.
· Investors are advised to review the plans periodically as their needs and circumstances change. If they are not confident that their plans will be executed successfully, they need to talk to the investment advisor or someone they trust
Buy Stocks: Investors have a long-term view, he analyze the risk before investing his money in riskier investments Investment requires patience and discipline and the investor who keeps patience after investment will be considered as winner in long-run. The vary approach of investor approach change the investment vehicles to two choices: stocks and stock mutual funds.
§ Stocks: 10.2% (and small company stocks were 12.1%)
§ Intermediate term treasury bonds: 5.1%
§ 30-day T-bills: 3.7%
Investigate Before You Invest: Always remain updated with share market prevailing conditions. Investigation needs to be done on particular sectors on which investment is planned. Don’t spoil the hard-earned money. Investors are advised to keep learning from the mistakes from their side and learn from other’s mistakes too. Investor should understand how much investment could be suited according to his portfolio with overall strategy. Gather Accurate and Objective Information related to investment. Investors need to be cautious while evaluating the advice of anyone with vested interest. If an investor is planning to invest in shares of the company, all the information related to the company need to be collected and analyzed properly before investing the hard-earned money. Investor is advised to join the investment club or an organization like American Association of Individual Investors. Investor needs to analyze various strategies before investing money in share market. Try a momentum portfolio, a technical analysis portfolio, a bottom fisher portfolio, a dividend portfolio, a price/earnings growth portfolio, an intuition portfolio, a mega trends portfolio, and any others he thinks of. In this process investor will trace which portfolio fits for him. Investor is always recommended to learn from the mistakes committed from his side and also advised to learn from mistakes committed by others
Develop The Right Attitude: The following personality traits will help you achieve financial success:
· Discipline: Develop a plan, and stick to it. Thus as you continue to learn, you'll be more confident that you're on the right way. Alter your asset allocation based on changes in your personal situation, not because of some short-term market fluctuation.
· Confidence: Let the intelligence of investor make the decision regarding investment. Investor needs to be prepared for losses and bear the loss as sometimes business tycoons also invest and lose their money. Investor are advised to update his strategies according to the prevailing market conditions and don’t even dare to guess the strategies which can lead to their downfall .
· Patience: Investors are advised, not to rule their emotions by current performance Investors doesn’t even watch day-to-day performance, unless he wants to do that. Investors are advised not to get pressurized for investment for which he is not clear with and is not comfortable with investment situations
The following personality traits will hurt your chances of financial success:
· Fear: If investor is not willing to take any risk as he is not prone to risk –bearing, he will stick with those investments which barely beat inflation.
· Greed: As an investment class, 'get rich quick' schemes have the worst returns. If your expectations are unrealistically high, you'll go for the big scores, which usually don't work. For investors ‘'get rich quick' will have worst impact on their financial conditions. Investor’s expectations are unrealistically high, he will directly opt for bigger scores, which don’t work and can have adverse impact on investor’s financial conditions.
It is generally a good idea to avoid making financial decisions based on emotional factors.
Get Help If Needed: Do-it-yourself approach’ does not regularize with every investor. If investor tries to invest and things are not going his way, he would give up and never try to invest again, or it may be possible that he don’t have time to start all over again. Investor is advised to meet any professional and take his assistance and tips related to investment. If investor wants that some other person need to take care of his financial affairs, he also has to be involved up to some extent and remain updated with share market fluctuating conditions Investor has to make sure that his money is being spent wisely
Diversify your investment Portfolio: Manage the investment risk in order to increase the share returns. Investors need not to invest all the money on any one stock. He needs to invest on different stocks in equilibrium manner in order to avoid huge loss. Investors need to avoid investing more than 3-6% on any one stock. Diversification of stocks means investing the money in diversified manner on different assets involving stocks, bonds and real estate, foreign investment involving investment in gold and other valuable stocks. Investors need to examine their investment portfolio on frequent basis. It is up to the investors to have a glance on their investment portfolio, examine them daily, weekly monthly or yearly basis.
There are many online resources, which provide tips for investment and help investors in online investment. Investors need to spend some time to have glance on the investment performance of stock fund and analyze them to generate more returns on stock returns in the near future. Investor should always keep a track on expenses incurred on investment and commission they are paying, as it will have a great impact on overall investment returns on stock.
Advice from Professionals: All the investors should take advice from professionals related to investment at crucial times before investing their hard-earned money on stocks. Tax strategies play an important role in investment planning, as investors need to balance both pre-tax and after tax retirement accounts.
Examine your investment portfolio frequently: It is up to the investor whether she/he will examine his/her investment portfolio several times a day or once a year. There are many online resources that provide information every second one can always do online investment. Every weak you should allocate time to examine the investment performance of your stock funds.
Always track your investment expenses: One should always track all the investment expenses and commissions you are paying, as they will impact the overall investment return on all your stocks.
Take investment and tax advice: Always take the advice of the professional when needed it's essential to ask how any advisor is going to be compensated and what the amount of that compensation will be. Tax strategies should figure prominently into your investment planning, as you want to balance both your pre-tax and after-tax retirement accounts.
Don’t hesitate in replacing stocks or broker. Investors should not hesitate in replacing stocks or broker. Investors need to scrutinize whether the particular investment make the conditions worse of their investment portfolio. If the conditions of stocks are going worse, then they should not waste even a minute in replacing the stock with other stock who is performing well, which can make the conditions worse for their investment portfolio. Investor also needs to take these points into consideration, that if their professional relation with share market broker is going worse or broker is not able to provide them benefits out of stocks, then should not waste a single second in replacing an existing broker with new one.
Always choose safe stock market investment: New Investors are advised to choose safe stock market investment. The secured way to enter the market is by investing in successful companies, those that have great impact in market index. Investors can diversify, after having a clear view of market strategy with some experience. Investors are advised to stick with those companies, which they are aware of. Investors should take the market research report of high profile companies from share brokers itself. Investors are advised to have a glance at the balance sheet and try to understand the concepts of stock market and the profile of companies, which are operating in stock market.
The best investors in the world didn’t figure it all out in one day. Studying the investment strategies, financial market place, figuring out your personality, this all takes time and a lot of patience to do so. Investing can be a very time consuming enterprise. Make yourself well aware of this before you start investing. Where to invest and how to invest is the first step that a beginner should learn. Look at some investment strategies and check out the market report as well as check the market price, a lot of information on this can also be found on the World Wide Web. Once you have established your strategy and feel comfortable using it you must set your trading rules. Trading can be done using fundamental or technical analysis, they can be used together or you can use just one of both. It’s up to investor what will be used but has to be figured out before you start. Place your targets and mark your goals before you take a step ahead.
Friday, June 11, 2010
investhorizons
Bombay Stock Exchange (BSE) is Asia’s oldest share market established in 1875 under the name of “The Native Stock and Share Brokers Association” as non profit organisation and permanent recognised in 1957. National Stock Exchange established in 1994 in Mumbai. Both comprise 95% of the annual business of stock markets in India. According to a survey done at domestic and international level, wealth managers to brokers. After touching a low of 7760 in dec 2008, Sensex 30 will touch 21000, 35000 and 45000 in year 2009 end, 2012 and 2014 respectively. There are number of factors which make this forecasting true like:
1) Indian savers invest only 6% of their entire savings in Equity markets and will touch 15% till 2015 according to survey. Active demat accountholders touched 1 crore in NSDL recently. This indicates that Indian are preferring equity and equity related instruments as best investment options rather than deposits in banks, post offices, etc to grab more returns. It means good percent of savings will start by 400 million active workforce and invest in share market in proportionate way. It will make them wealthier than citizens of U.S.A.
2) After recession, nations like Japan, European Union and U.S.A. are recovering gradually .1600 FII’s have invested 20 Billion US$ Indian Markets. According to SEBI, FII’s OWNED 23 % IN BSE 500 (Which comprises India’s top 500 companies in term of market capitalisation) second to promoters (29.3%) of the company and Indian Government owned only 13% and remaining others. In brief, Indian stock market is the most favourite destination of world for investments due to good economic factors which are utilised and growing every year.
3) Annual GDP of India touched 1 trillion US$ in 2009 end. It took only 5 years in double GDP from 2004 to 2009 according to Economic Survey. Indian economy will continue to grow between 6 to 9 percent till 2014 according to survey and analysis report prepared by CMIE 2009.More savings means more investment and hence Indian Economy will be known as second largest economy till 2040 only next to China.
4) Higher salaries and work curiosity among young generation working force helps them to save more and invest in share either directly by purchase from open market or buy indirectly by way of Mutual Funds, Insurance, ULIP’s etc. Today’s youth are more riskier in case of investments because they have curiosity to get more higher returns in lesser time.
These above mentioned factors will help to touch BSE SENSEX 45000 till 2014.Before investments there are n numbers of factors help us to invest in market. Stock market is volatile market and we have to study fundamental and technical analysis before investing also. There are few examples which reveal that how risky the stock market is? Sensex gained 2020 intraday points on 18 may 2009 and touched high of 14400 and lost close to 800 intraday points on 6 June 2009.Sensex was 2800 points in 2001 and touched all time high of 21206 in 2008.That means buying 1 unit of ICICI BANK share worth Rs.50 in 2001 you can sell at Rs.1400.This is what we call more risk more gain.28 times profit.
Here are some points, which will help you to invest in Indian equity markets and earn better returns beyond your expectations:-
1) Never invest the 100 percent of your investment in one day in market because due to higher volatility, market may give you either positive or negative returns. High risk may ruin your whole investments.
2) Investing in equity markets on monthly or quarterly basis just like Systematic Investment Plan in Investment sector will help you to minimise investment risk and fetch better returns in your life.
3) Have patience while investments because market is fully loaded with risk and may be your purchase of Rs. 100 a share will show you the price of 50 after one month and may be due to impatience you may sell it and after one month the same share will be at 150.Here is your patience level will be tested at acute level. Your patience will fetch you returns.
4) Always cash out your portfolio at right time. The investor who joins the market at right time and exit at right time is known as an Intelligent Investor. Study your stocks at least weekly basis and try to analysis them so you can get higher returns every time on your hard earned money.
5) Never invest that money which you may need in emergency time. For example, you are planning to buy new bike worth Rs. 50000 and have Rs. 20000 in hand and hoping that stock market magic wand will make your money Rs. 60000 in 3 or 4 months. Here is mistake from your side.
Invest that money which you don’t need for at least one year, if you are holding buyer or long term investor.
1) Indian savers invest only 6% of their entire savings in Equity markets and will touch 15% till 2015 according to survey. Active demat accountholders touched 1 crore in NSDL recently. This indicates that Indian are preferring equity and equity related instruments as best investment options rather than deposits in banks, post offices, etc to grab more returns. It means good percent of savings will start by 400 million active workforce and invest in share market in proportionate way. It will make them wealthier than citizens of U.S.A.
2) After recession, nations like Japan, European Union and U.S.A. are recovering gradually .1600 FII’s have invested 20 Billion US$ Indian Markets. According to SEBI, FII’s OWNED 23 % IN BSE 500 (Which comprises India’s top 500 companies in term of market capitalisation) second to promoters (29.3%) of the company and Indian Government owned only 13% and remaining others. In brief, Indian stock market is the most favourite destination of world for investments due to good economic factors which are utilised and growing every year.
3) Annual GDP of India touched 1 trillion US$ in 2009 end. It took only 5 years in double GDP from 2004 to 2009 according to Economic Survey. Indian economy will continue to grow between 6 to 9 percent till 2014 according to survey and analysis report prepared by CMIE 2009.More savings means more investment and hence Indian Economy will be known as second largest economy till 2040 only next to China.
4) Higher salaries and work curiosity among young generation working force helps them to save more and invest in share either directly by purchase from open market or buy indirectly by way of Mutual Funds, Insurance, ULIP’s etc. Today’s youth are more riskier in case of investments because they have curiosity to get more higher returns in lesser time.
These above mentioned factors will help to touch BSE SENSEX 45000 till 2014.Before investments there are n numbers of factors help us to invest in market. Stock market is volatile market and we have to study fundamental and technical analysis before investing also. There are few examples which reveal that how risky the stock market is? Sensex gained 2020 intraday points on 18 may 2009 and touched high of 14400 and lost close to 800 intraday points on 6 June 2009.Sensex was 2800 points in 2001 and touched all time high of 21206 in 2008.That means buying 1 unit of ICICI BANK share worth Rs.50 in 2001 you can sell at Rs.1400.This is what we call more risk more gain.28 times profit.
Here are some points, which will help you to invest in Indian equity markets and earn better returns beyond your expectations:-
1) Never invest the 100 percent of your investment in one day in market because due to higher volatility, market may give you either positive or negative returns. High risk may ruin your whole investments.
2) Investing in equity markets on monthly or quarterly basis just like Systematic Investment Plan in Investment sector will help you to minimise investment risk and fetch better returns in your life.
3) Have patience while investments because market is fully loaded with risk and may be your purchase of Rs. 100 a share will show you the price of 50 after one month and may be due to impatience you may sell it and after one month the same share will be at 150.Here is your patience level will be tested at acute level. Your patience will fetch you returns.
4) Always cash out your portfolio at right time. The investor who joins the market at right time and exit at right time is known as an Intelligent Investor. Study your stocks at least weekly basis and try to analysis them so you can get higher returns every time on your hard earned money.
5) Never invest that money which you may need in emergency time. For example, you are planning to buy new bike worth Rs. 50000 and have Rs. 20000 in hand and hoping that stock market magic wand will make your money Rs. 60000 in 3 or 4 months. Here is mistake from your side.
Invest that money which you don’t need for at least one year, if you are holding buyer or long term investor.
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