"Peaceful Investing": RA Stock Investing Approach...
“Peaceful Investing” is the result of my experience of more than 18 years in stock markets. It aims to find such stocks, where after investing, an investor may sleep peacefully. If later on, the stock prices increase, then the investor is happy as he or she is now wealthier. If the stock prices decline, even then the investor is happy as he or she can now buy more quantity of the selected fundamentally good stocks.
What is needed to be a Good Stock Investor?
Reading:
It is the single most important quality required in a person who wants to be a successful stock market investor. Many successful investors like Benjamin Graham, Peter Lynch etc. have written books sharing their knowledge about stock investments. They have explained the stock-picking process in a very simplified manner. Reading these books is the first step in this journey of stock investments.
Patience & Emotional Control:This is another very important quality needed for a good stock market investor. The role of emotions in investments has assumed such significance that a separate field called “Behavioral Finance” has been created for it. Stock market investing requires a long-term approach and you have to stay invested in the market for a long time to reap the benefits. Investors face many emotions during their stay in the stock market. Emotions like fear, greed and frustration make investors take impulsive decisions of entry and exits during short phases of market ups & downs. When stock prices go up, the investors try to make short-term profits and thus sell their investments early. Many times, after investors sell, stock markets keep on rising further and investors are not able to reinvest their money and market runs away from them. Market movements are highly unpredictable. Investors need to stay invested in stocks of good companies for long periods to make significant wealth.
RA Investor 5 Golden Rules of Stock Investing
1.Go against what the market is doing:-This style of investing is called contrarian investing. It is an investment strategy that investors use to make buying and selling decisions that are contrary to what most people in the market do. It means you buy stocks when others are selling and vice versa.
logic?In a bull market, there are more buyers of stocks than sellers. This increases the price of individual stocks. Overbuying makes good stocks overvalued. Therefore, during such times, it is better to book profits by selling the weak, overvalued stocks of the portfolio.
In a bear market, the general market sentiment is cautious or negative. More people are selling stocks than are buying them. As sales increase, prices fall to lower value levels. Therefore, during such times, an educated investor will buy quality blue chip stocks.
Prepare a watchlist of stocks included in the indices of Sensex, Nifty 50 and Nifty Next 50. The objective should be to buy those stocks from this list when the index is improving or crashing.
2.Buy and hold for the long term:-The stocks you bought in step #1 are the best quality stocks in the stock market. It is not necessary to buy them today and sell them later for a profit of 15-20%. These stocks have potential to compound at the rate of 15%+ per annum. For example, the price of TCS has increased at an average rate of 25% per year over the last 18 years.
3. Keep a diversified portfolio:-Spreading your money across multiple unrelated assets is essential. For retail investors, there are four main types of assets in which one can invest. They are equity, debt, gold and real estate. Each time you buy an equity, simultaneously add another asset type to the portfolio. Being too heavy in just one asset type is very dangerous.
4.Actual return expected:-When people first explore the stock market, their return expectations can be distorted. The stock market is not a place where you come to double your money quickly. It is a place where professionals invest and invest for decades. The real return one can expect from the stock market is around 10-20% per annum.
5.Sell of stocks of weak companies [Early]:-No matter how carefully the stocks are selected, some weak stocks will creep into the portfolio. The first step is to realize that holdings have some weaknesses. Once such stocks are identified, the idea should be to sell them at the earliest. Delaying the decision to sell will lead to more downside risk in the future.