Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Discipline - The order of the day - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 3, 2003

    Discipline - The order of the day

    From the lows of 2,904 seen by the BSE-Sensex on April 28, 2003, the index hit a 52-week high of 5,205 yesterday (December 2, 2003). That is an incredible gain of 79% in mere 7 months for the benchmark index! Now, here we are not going to predict what the index will do next or where is it headed. In fact, in this article, we have tried to list down a few points to be remembered by every investor, especially retail, while investing in the stock market - whether bull or bear. Further, we must point out that this is not an exhaustive article and there may be a lot more things that must be kept in mind to be a winner in any stock market over the medium-long term.

    Some of the key points are:

    • Avoid tips / rumours: During any bull run, this is the first thing that gets activated in a rising market. Since, unfortunately, everything and anything goes up in a bull run, markets are always abound with 'tips' and 'rumours'. Some people even claim the news to be directly from the horse's mouth, which is more false than true. Retail investors need to exercise strict caution here and avoid such calls.

    • Avoid illiquid stocks: A direct repercussion of the point above is that investors tend to invest in stocks, which are rather illiquid. This is because the so-called 'tips' generally surround the illiquid stocks. As is noticed during bull runs, that stocks, which probably have never traded for years together, suddenly see a spurt in volumes. And it is not difficult to guess which investor class props up the volumes in these stocks considering that fund houses and foreign money do not have such stocks in their investment radar. And it must be noted that the volumes in these stocks dry up even faster than they have gone up.

    • Mid-cap stocks are not bad: Investing in mid-cap stocks is not a sin if the stock is backed by a fundamental story. However, investing in mid-cap stocks with a view that they are the ones likely to yield extra-ordinary returns is a wrong strategy. Agreed that most of these stocks will unfortunately trade and 'may' even provide some eye-popping returns, but we must point out that when such stocks go back into reverse gear, it will be too late for the investor invested in such stocks. He would then not only burn his fingers but also his hands.

    • Avoid herd mentality: Do not buy a stock just because the whole market is talking about it. Generally when the markets start talking about a stock, they would already have had a handsome run on the bourses. It is precisely when the stock has given huge returns within the shortest time span possible that the stock will come into the limelight. And God forbid, it is quite likely that after you have bought the stock, the only direction it heads to is down.

    • Avoid greed: This is one of the most investment 'practices' one should abide by strictly. Keep strict targets for yourself and do not hesitate to square off positions when the price target is achieved. Beyond the justified (target) price of the stock, it is just expectations and market momentum that takes over the stock. Similarly, to look at the other side of this, do not get emotionally attached to a stock. If the fundamental of the stock has changed due to any unforeseen and unpredictable development, get rid of the stock. There is no dearth of opportunities in the stock market.

    • 'Patience' is the keyword: We are a firm believer of investing for the long-term. Infact, the possibility of you making money is much higher in the long-term vis-a-vis the short-term. It is important to note here that over the long-term, equities have outperformed all other asset investment classes.

    • Do not borrow and invest: Borrowing and investing in the stock markets is not a good strategy to follow. In this case, your stock market earnings will be first used at servicing the debt taken and after that the left over will be your profits. In fact, it is quite possible, in order to increase the returns, since a major chunk goes towards interest payments, the investor might be forced to take higher risk (for higher returns), which could be well over the investors risk appetite.

    • Expert advice - a better option: The help of an expert is always advisable, irrespective of the phase in which the markets are. Since it is not everybody's cup of tea to analyse financial reports/statements, it is best advised to seek professional help in matters of investing. Not only do the experts have a skill to detect fundamental stories, they are also in a better position to read the fine print in financial reports/statements. However, it must be noted that experts are NOT impeccable and uncertainties are beyond anybody's control

    • Valuations are important: Whether expert advice taken or no, whether investing in a bull market or bear and whether investing in penny stocks or stocks with huge market capitalisation, valuations are the most important thing that any investor, big or small, needs to consider while investing in a stock. However, it must be noted that while it is not necessary that a low valued stock is an attractive buy, it should also be noted that it is not necessary that a stock with rich valuations is a bad investment pick.

    • Diversify: It is always advisable to diversify your portfolio not just amongst stocks of a particular sector but also amongst various sectors. Diversification plays a risk mitigation role in one's portfolio. However, at the same time, diversification does not mean that you own beyond your capacity to keep a track of the same.

    • Ability to take risk: Last but not the least, assess your risk profile. Invest in stocks, which suit your risk profile. Risk profile depends on various factors including the age of the investor, his dependants, his financial needs in the near-medium term, etc.

    We must again reiterate the fact here that the above is not an exhaustive list of things of 'to do/not to do things' while investing in stock markets and neither are they a foolproof method of guaranteed returns. However, they will go a long way in mitigating the risk factors considerably. All the above factors (and we are sure there will be many more) are a part and parcel of one big important factor i.e. DISCIPLINE, which holds the ultimate key to success in investing. After all, you don't want to get caught on the wrong foot do you?



    Equitymaster requests your view! Post a comment on "Discipline - The order of the day". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    The Key Factor Pushing Gold Up These Days (Outside View)

    Aug 21, 2017

    PersonalFN explains the chief factor pushing gold prices up of late.

    How Unique Are the Companies You Invest In? (The 5 Minute Wrapup)

    Aug 21, 2017

    One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 21, 2017 (Close)