Staying invested for a long time and making money in the process requires patience, strategy and discipline, says Manikaran Singal.
Rahul is an architect by profession and calls himself a great admirer and follower of Warren Buffet.
Besides Warren Buffet theories, he follows many financial blogs, daily watches business news channels and reads only business newspapers.
He doesn’t have any financial background and doesn’t feel the need of taking anyone’s help in making personal investments.
He started his investments in 2004 in equity markets but withdrew the whole amount with decent gains in 2006 for an international vacation.
This was an achievement for him as almost 70 per cent of his trip’s expenses were borne out of those investment returns.
He re-entered in 2007 and lost almost 50 per cent of his investments by 2009 when he again withdrew his investments with reasoning that “Stock market experts” on television were saying that markets will fall more.
A month later, stock market bounced back, but as he was not invested at that point, he could not take benefit of that bounce.
He again invested in 2010, but became impatient as nothing substantial happened during this period and ultimately sold out all stocks in 2013. He is still waiting for the right time to enter again.
What went wrong in his strategy? When he was so vigilant on financial markets and his habits show that he was having good access to latest market information then how could he make such bad decisions?
Actually, he didn’t have any strategy at all. His admiration of Warren buffet and reading and liking business articles and blogs was limited to the rising market and that too only while investing and not selling.
In hindsight it is very easy for you also to find faults in his decisions, but I am sure many of you will relate to Rahul’s story.
Staying invested for a long time and making money in the process requires patience, strategy and discipline.
Here are few steps which if followed religiously will definitely help you avoid mistakes made by Rahul and make you rich in the process.
Photograph: Reuters
1. Start investing with a proper financial plan
The first and foremost thing to do is start investing rather than just watching and reading the stock market stories. Don’t sit on the fence to wait for right time. This is the right time.
Support your investment plan with a properly laid down financial plan, so you can fix onto some goals be it long term (children education, own retirement) or short term (vacations, buying new car).
Don’t make investments in equities for short term goals. Have diversification and asset allocation strategies in place.
With a financial plan approach you will not be tempted to withdraw your investments with a sudden jump in the returns and also won’t be worried on the fall of the market as you have invested in equity for long term goals which are still far away.
2. Automate the investments
Automating investments is required to keep your behavior biasness at bay.
If you don’t automate investments then surely you would try to time the market and when you don’t find the “right time”, you may miss the regularity cycle.
Go with mutual funds SIP or if you want to get into stocks then many online broking houses offer SIP route in stocks too.
3. Switch off your television
If you really want to get rich, then you should consider a long term strategy, which is possible when you keep yourself away from the noise and concentrate on the important things.
Business channels may sometimes provide relevant information, but becoming habitual to these channels may bring excitement or panic during market movements, and decision making on both are not good for your financial health.
If a personal finance expert comments on a specific case on television it may sometimes not relate to you since your situation is unique and you need personalized advice. How can you make decisions on the advice given to others?
And even if you have adopted the advice given to others, then rather than sticking with it, many times you seek confirmation of your decision, which results in watching more TV shows. This way you cannot focus on what is important.
4. Keep luck by your side
No, its not about wearing some specific brand “vest”, as promoted by one TV commercial saying “ Apna Luck pehanke chalo”. Neither does it mean selecting the next multi bagger or redeeming before market fall.
Luck here means, escaping the situation which could force you to withdraw your savings or investments.
Situations like health problems, unexpected business loss, accidents etc. may sometimes results into withdrawal of personal savings.
But these situations can be managed if acted upon timely by taking care of health, regular exercising, following financial planning in business and maintaining required emergency funding, and insuring yourself and your business from uncalled for accidents.
5. Keep increasing your savings
Your success is a factor of the efforts you put in for how much time and the results you get. Many times people waste their energies on expecting the results or overestimate the results. Please understand that results are in no one’s hand but efforts are.
This applies to personal finance also, the more money you put in for a longer time frame, the more money you generate due to compounding benefits, whatever the returns are.
So rather than focusing on the percentage return you generate, just keep increasing your savings year on year and follow a process. You will surely get the desired results.
In a rising market everyone likes to hear success stories and tries to replicate the same, believing that anyone can get rich by copying their techniques.
To have a proper understanding on investment process one should learn about the failures too so that you don’t those mistakes with your own investments.
The author is the founder of “Good Moneying financial Solutions” and a member of The Financial Planners’ Guild, India (FPGI).
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