Saturday, January 12, 2013

New Hope


What does a new year hold for us investors? Nothing much. The market really does not change anything that day nor do the businesses that they represent. It is still a good time to recommit on the way we will invest rather than on what we will invest. It is incidental that it was a great investing year when my portfolio returned 57% and the index itself returned about 25%. Hindsight as they say is the best sight. Not to get carried away, let’s remember how investments are behaving matters less than how we behave. And hence in this New Year blog I would like to remind ourselves on some of the healthy and profitable investing habits.

Never invest at once all the money earmarked for equity. Invest over a period of time.
Never allocate a large portion of cash into a single stock, be diversified (say 10 stocks).
Evaluate the performance of businesses, whose stocks are owned, once in 3 or 4 months
Moderate expectation of returns, do not expect more than 12 to 14% pa and make plans accordingly
Do not invest the money in stocks that you will need back in 3 years - must give time for equity to perform.
Never invest based on tips or rumors- you will win some and loose many- its a zero sum game
If you can't commit time and resources, just invest in a mutual find or an exchange traded fund of the index

I can assure you that you have reasonable chance at investing success.

The booster dose comes from many themes we have discussed earlier; today I am studying the banking and finance space. The opportunity lies with many psu banks that are undervalued due to higher provisions, bad loans and non performing assets. However reasonable valuations and profitability make up for the low asset quality. Make sure to avoid stocks that are popular with analysts as in the long run they tend to under-perform the un-analyzed ones. Analysts avoid stocks with uncertainty that make them undervalued buys today that will go on to outperform in the long run. Remember the  Cera Example
The successful investors put a process in place and stick to them, never investing on news or impulse.
Wishing you the very best in the New Year.

1 comment:

Lakshmi Narasimhan G said...

Naresh,

Nice article on health investing principles, I would like to add a few more to that .

Its important that you follow an asset allocation ( diversification across asset classes) and also a core and Satelite approach .

The core satelite is already covered indirectly in your point about time frame.

You have been writing some good articles keep it up.

Lakshmi Narasimhan