How to be successful investor - Part I
There are many types of material available on this subject. Everyone wants success in investment but to get success there is some basic rule. Every investor should follow some basic principles of investing. Today, I am going to share with you some rules of investing which is described by Sir John Templeton (founder and former chairman of The Templeton Funds) and very vital for any type of investors.
1) Understand Real rate of return: It means the return on investment after taxes and inflation. Investors often fail to consider tax and inflation and at last their goal don’t get fulfill. It is vital to protect the purchasing power of your money. Inflation is the biggest enemy for your investment so keep it in mind when you go for investment.
2) Recognize the difference between trader and investor: Do not trade or speculate. Be a sincere and patient investor. Do not treat the stock market as a casino. If you trading frequency high then you will give more brokerages and commissions to the broker and government. Avoid this habit and invest in a company after full information of company. Don’t gamble, buy some good stock and hold it till it goes up. In India there is no long term capital gain on equities so get benefited from this rule.
3) Be open-minded about types of investment: Every asset class give return in cyclical form. It means there is no one kind of investment that is always best. Now a days, in India people are mad about gold investment and real estate investment as it has given decent return from last some year. Keep in mind, if particular industry or type of asset becomes more popular with investors, that popularity will always prove temporary and when lost may not return from many year. There are many times it is better to sit on cash and take advantage of investment opportunities.
4) Buy at low prices: It is very simple concept but difficult in execution. Never follow the crowd. Buy when most people including experts are pessimistic, and sell when they are actively optimistic. It is extremely difficult to go against the crowd- to buy when everyone else is selling and to buy when things look darkest.
5) Buy value, not market trends: As a wise investor, you should find the true value of stock. Ultimately it is individual stocks that determine the market. Individual stock can rise in bear market and fall in bull market. Many investor focus too much on the market trend or market outlook. The stock market and the economy do not always in lock step. Bear markets do not always coincide with recessions, and decline in corporate earnings does not always cause a decline in stock prices. So it is very important to choose a quality company. Quality may be strong management team with proven record, quality may be well capitalized company, quality may be high profit margin consumer product, quality may be famous brand. It is difficult to find 100% perfect quality stock but do your best to find value and quality stocks.
Today we have discussed some rule for success investor. There is many more which we will discuss further. If you have any query about investment and financial planning, feel free to ask.
Regards,
Arvind Trivedi
Certified Financial Planner
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