1. Seldom chase a stock. 2. Buy when markets are in the grip of panic. 3. Only buy fundamentally strong stocks, which are undervalued. 4. Buy stocks grown in top line & bottom line over the past years. 5. Invest in companies with proven management. 6. Avoid loss-making companies. 7. PE Ratio & Growth in earnings per share are the key. 8. Look for the dividend paying record. 9. Invest in stocks for definite returns. 10. Stocks have been the high yielding asset class over the past. 11. Stocks are an asset class. 12. The basic property of any asset class is to grow. 13. Buy when everyone is selling & sell when everyone buys. 14. Invest a fixed amount each month.
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Do & dont’s for stock market investments :
This is the question probably every equity investor would have asked himself a number of times in the past few months,With the stock market moving to dizzying heights before succumbing to gravity, it’s easy to get nervous or over-excited. Here’s what we suggest you do when the bulls and bears kick up a lot of dust.
WHAT YOU MUST NOT DO :
1. Don’t panic The market is volatile. Accept that. It will keep fluctuating. Don’t panic. If the prices of your shares have plummeted, there is no reason to want to get rid of them in a hurry. Stay invested if nothing fundamental about your company has changed. Ditto with your mutual fund. Does the Net Asset Value deep dipping and then rising slightly? Hold on. Don’t sell unnecessarily. 2. Don’t make huge investments When the market dips, go ahead and buy some stocks. But don’t invest huge amounts. Pick up the shares in stages. Keep some money aside and zero in on a few companies you believe in. When the market dips –buy them. When the market dips again, , you can pick up some more. Keep buying the shares periodically. Everyone knows that they should buy when the market has reached its lowest and sell the shares when the market peaks. But the fact remains, no one can time the market. It is impossible for an individual to state when the share price has reached rock bottom. Instead, buy shares over a period of time; this way, you will average your costs. Pick a few stocks and invest in them gradually. Ditto with a mutual fund. Invest small amounts gradually via a Systematic Investment Plan. Here, you invest a fixed amount every month into your fund and you get units allocated to you. 3. Don’t chase performance A stock does not become a good buy simply because its price has been rising phenomenally. Once investors start selling, the price will drop drastically. Ditto with a mutual fund. Every fund will show a great return in the current bull run. That does not make it a good fund. Track the performance of the fund over a bull and bear market; only then make your choice. 4. Don’t ignore expenses When you buy and sell shares, you will have to pay a brokerage fee and a Securities Transaction Tax. This could nip into your profits specially if you are selling for small gains (where the price of stock has risen by a few rupees). With mutual funds, if you have already paid an entry load, then you most probably won’t have to pay an exit load. Entry loads and exit loads are fees levied on the Net Asset Value (price of a unit of a fund). Entry load is levied when you buy units and an exit load when you sell them. If you sell your shares of equity funds within a year of buying, you end up paying a short-term capital gains tax of 10% on your profit. If you sell after a year, you pay no tax (long-term capital gains tax is nil).
WHAT YOU MUST DO :
1. Get rid of the junk Any shares you bought but no longer need to keep? In the event that they are showing a profit, you could think about selling them. Even in the event that they are not going to give you a substantial profit, it is time to dump them and utilise the money elsewhere in case you no longer think in them. Similarly with a dud fund; sell the units and deploy the money in a more fruitful investment. 2. Diversify Don’t buy stocks in one sector. Make sure you are invested in stocks of various sectors. Also, when you look at your total equity investments, don’t look at stocks. Look at equity money as well. To balance your equity investments, put a portion of your investments in fixed income instruments like the Public Provident Fund, post office deposits, bonds and National Savings Certificates. In case you have none of these or small investment in these, think about a balanced fund or a debt fund. 3. Think in your investment Don’t invest in shares based on a tip, no matter who gives it to you. Tread cautiously. Invest in stocks you truly think in. Look at the basics. Analyse the company and ask yourself in case you need to be part of it. Are you happy with the way a specific fund manager manages his fund and the aim of the fund? If yes, think about investing in it. 4. Stick to your strategy In case you decided you only need 60% of all of your investments in equity, don’t over-exceed that limit because the stock market has been delivering great returns. Stick to your allocation.
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