WHAT IS THE HEALTH OF YOUR PORTFOLIO
It’s very important to review the portfolio timely I was reviewing portfolio of one of my friend and I was surprised to learn that his most of the stocks were losing everyday. In one year he lost about 30% of his capital which was shocking for me. The further discussions with my friend revealed that he has been investing basis TV shows and few of his friend advice without looking at basics of the stocks.
The further analysis of his portfolio revealed that in his portfolio a few companies had not made any profit in last 6 years and were not under any expansion also. Some of the companies were selling their products in losses and thus were making cash losses and operating basis their debt and finance. Interestingly further discussions with him revealed that he was confident of the growth of his portfolio as market has been growing with the good policies of the governments and global reasons.
I strongly felt that like many other novice or experienced investors must be making a few common mistakes that any one stock investor would make and decided to write an articles to make things easy and better.
When I suggested to book loss for most of the companies we debated for about 30 minutes and finally he was convinced that’s its important to save his capital and recover losses through proper investment in the market.
A. Incorrect understanding of business news channels
We all know the business channels are in itself a profit center many people can’t just resist from investing basis channels advice, whereas channel’s prime job is to catch max number of people getting stuck to their screen and make them number one or two in terms of TRP. Interestingly they keep on airing one and other stock recommendation every few minutes, a few experts also appear on screen and vet the recommendation. These channels have to make news thrilling so that viewers are glued to their screen only and develop addiction. These channels keep on discussing strong buy and strong sell recommendation every day without reviewing past performances. These channels also never discuss the fundamentals of any stocks.
B. Looking guidance and advice from wrong people
We all need some or the other advice to arrive at right decision in the areas some doubts are there or one is not experienced. This is applicable to our personal and professional life too and in money matters specially the stock markets, we all not that competent. When one decides to make money from stock market, one always look forward to news channel and newspaper and also searches for some of the advisors in search of the right media. We also have seen people in our country going and listening to several BABAs in quest of their search for peace and a few BABAs are in jail. Interestingly these TV experts do not give their own holding to viewers except that of disclaimer that too when some question comes in. I have suspicion that these experts may give buy advice even on the stocks they sold from their personal portfolio. Its known that a few experts make more money from TV channels than making money from their own portfolios.
C. Emotions rule the investment decision
Another group of investor is those who know for sure that their investment may not be going towards right side as the companies are not good, despite this knowledge they are led by emotions. Another most difficult task in wealth creation is that when to sell as man has immense greed towards wealth. Averaging is another common mistake made by people in bad companies. Its very important to prevent erosion of capital than making bigger profits. One must decide the selling or profit targets basis studies of the stocks and move forward.
D. No consideration about opportunity cost of money
Many of the person go for bad companies’ basis recommendations from here and there and after a year they sell with reasonable losses meaning that their money lost the bigger opportunity to earn. Its always important to save capital and invest at right place with right time frame to create the wealth.
We must understand that no one should go himself or herself towards the trap of TV recommendations unless some homework has been done. Never be impulsive for immediate investment.
SIMPLE PRINCIPALS TO CREATE WEALTH
I. Before buying do proper homework
Any investor must not act merely on TV business channel advice. One must conduct own study and analysis before buying any stock as they are going to invest their hard earned money, which if not invested correctly may get eroded. I myself did this mistake in couple of stocks and have experienced well. Upon asking the news channel their standard answer comes that we recommended with riders and stop losses which you did not follow. The investment decision is an exercise which everyone can learn easily.
While analysis any stock its important to focus on financials, valuation, management and business and Industry and its future prospects markers.
All of us if do proper due diligence we can save our hard earned money from non performing companies and create wealth.
II Monitoring of the portfolio
If you want to manage anything, you need to monitor and same is true to stocks too, besides investing into good stocks, its equally important to monitor your portfolio every quarter which will get you a very fair idea as to when to sell. Basis this monitoring if company is growing, financials are intact and growing, one may decide to invest further even on higher prices and when some change in the same is coming either due to Govt. policy, company polices, business , financials one can decide to sell. There must be a well defined frame work for monitoring the stocks in terms of analysis not just the daily pricing.
III. Overcome your Emotions, as its money which matters
The emotions do not work out in stock market and there must not be any impulsive buy or sale, one must not have any hitch in selling a loss making company and on the same time basis emotions, must not buy another stock. There must be any impulsive action if there is no reason to buy or sell, one must sit quiet towards the fence. One can create a checklist to take decision and this list needs to be prepared by oneself. Donot look for ready made check list through google as again this may mislead you.
IV. Searching and selecting right adviser
The best thing would be that investor goes for own analysis however should one decide to go for someone to manage their money, they must check their adviser for Competence, their portfolio, records, Conflict of interest and style of functions. One must never transfer money to adviser account, rather investor should operate through their broker or themselves from any of the trading accounts in their own name. Giving your hard earned money to someone else is as good as throwing your own money into waters.
One also must check if anyone is getting any commission for selling any financial products, if this study is done, probably one won’t get even a single adviser as most of the financial agents do have conflict of interests.
If one decides to go for a professional, one must hire a good competent and qualified advisor and ay their fee. Even mutual funds are good investment arena for those who just cant do their own analysis as mutual funds do give good returns subject to right ones.
The investor must avoid such mistakes through their own analysis before any investment in stocks and this will not only ensure healthy growth and wealth creation but also will give peace to investors.
HAPPY INVESTING AND WEALTH CREATION
WHAT IS THE HEALTH OF YOUR PORTFOLIO