Where and How to Invest?
Choose Your Investment Strategies
We have handpicked time tested investing ideas. Trustworthy helps you select strategies most suitable for your financial goals and risk profile. This will change the way you think to invest.
Here are a few of them:
Focus on investment, not speculation
Don’t make any investment decision based on rumors, gossips or short-term market movements’ predictions.
Don’t follow the crowd.
Be fearful when others are greedy. Don’t buy just because others are buying. Control emotions.
The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.
Control temptations to book profit on every rally.
Patience is the key to investments. When you invest in shares, think for long term and not quick gain through trading. Hold your shares and allow them to grow.
Don’t sell your best performing shares.
Set investing rules for yourself.
Frame simple rules for your buy and sell and stick to them. This will help you control your emotional behaviour.
Don’t take impulsive decisions in the market.
Avoid complex financial product
Many funds and companies come out with innovative financial products which are too complex structured to understand. Be selective. Go far investments which are simple to understand.
Don’t mix insurance with investment
The basic objectives of insurance are different from that of investing. Take term insurance policies to provide financial protection to your family’s future for a higher value at a small premium. Keep investments separate for better return. Avoid hybrid products.
You need only five-six high-quality stocks to create wealth
So devote time and do some homework selecting companies. Place great emphasis on the quality of company’s management and its proven track record.
Pick up consistently high performing growth companies that offer strong brand names with competitive advantages.
Invest in Equity through SIP
Once you have selected a few good companies, buy small quantities regularly over a period of time through SIP (Systematic Investment Plan).
Like a Recurring Deposit, SIP is a disciplined approach towards savings and investments.
Don’t invest large amount all at a time.
Diversify to different assets
Invest in different assets classes such as stocks, bonds, mutual funds, bank deposits, gold, forex, real estate and others. Different classes of assets behave differently in different economic scenarios and move even in opposite direction. This reduces volatility and risk of your portfolio.
Understand companies before you invest in
There is no difference between buying a business and shares in a business. Buying a company without having sufficient knowledge of it is dangerous. All successful investors spend time doing research.
Do basic homework before you part with your hard earned money.
Focus on investment, not speculation
Don’t make aThumb Rule of 72
Like plants, money grows with time. Your savings grow with the power of compounding.
The Thumb rule says divide 72 by interest rate and you get number of years to double your money. For example, at 8% interest rate, your money doubles in 9 years (72/8 = 9).
Allow your investments time to grow.ny investment decision based on rumors, gossips or short-term market movements’ predictions.
Don’t over diversify
Diversification helps, but too much diversification usually cancels out all potential gains. Over diversification doesn’t reduce your risk. Select a mix of a few but outstanding investments. Stay focused. A large portfolio is difficult to monitor.
Over diversification dilutes your return.
Pick up companies that pay a higher dividend consistently
If you need regular and steady tax-free income, look at the companies’ dividend history for the past 10 years and select companies that pay consistent dividends with an increasing trend.
Prefer large companies that distribute a major portion of their earnings as the dividend.
Keep patience during crises. The market crashes but ultimately recovers and continues to move on the growth path. History shows that the market recovered after the dot-com bubble, 9/11 or 2008 crisis. The US market index moved on from the pre-dotcom level of 7500 to 25,000 today. Sensex which started its journey with 100 in 1979 crossed 25,000 in 2015. The long term trend for share-index remains upward. Don’t sell in a bear market.
Don’t invest in Speculative Stocks
Speculators trade in speculative shares to make quick money. Though these stocks have the potential for a huge profit, they are risky and you may lose capital substantially. Speculative stocks are driven more by rumors or unconfirmed news. Avoid a company wherein speculators are more active.
Invest. Don’t speculate.
Inculcate successful investors’ traits within yourself.
Great investors have a long-term vision. They do in-depth extensive studies, remain focus on a few high-quality stocks and keep themselves away from emotions like greed and fear while making investment decisions.
Adopt and practice the investing strategies consistent with their traits to be a successful investor in the long run.
‘Keep Market Leaders, Not Laggards in your portfolio.’
Review your portfolio. Prune nonperforming assets and don’t get emotionally attached to your shares. Add companies that are #1 in their fields, they are really the market leaders.
Build your portfolio with companies having strong sales, earnings, and growth.
‘Use both Fundamental Analysis and Technical Analysis together.’ First, identify five-six outstanding companies using the rules of Fundamental Analysis. Second, look at the behavior of the price movement of these selected companies’ stocks in Technical Analysis charts and determine a suitable price range to buy. Finally, wait for opportunities presented by the market and buy at your price.
Stay away when the market is volatile.
As you stay indoors during strong winds, don’t enter a volatile market. An unexpected event or news may change the market sentiment overnight. Like winds, volatility remains for a short period. Wait and let the market stabilize. It is unsafe to buy or sell in volatile markets.
‘Control your emotional behavior in the stock market.’
Greed, fear, excitement, and frustration are your enemies in the stock market. Don’t allow the emotions to take your investing decisions. You should not be guided by the impulse to buy or sell stocks. Always follow rules to make rational choices.
This is especially more important when the market is volatile, or is under bull or bear phase.
‘Invest in Bonds but with AAA/Aaa Ratings only.’
Corporate Bonds are rated by Moody’s, Standard & Poor’s, Fitch, Crisil, and other rating agencies. The ratings depend on the company’s credibility, stability, and financial health.
To attract investors companies with lower grade ratings offer higher interest rates. The general rule is ‘lower rating means higher risk though with a higher promised return’.
Don’t be lured by high returns promised, you may lose even your capital.
‘Protect your retirement corpus from inflation.’
Fixed Deposits with banks are safe but your purchasing power gets eroded due to inflation. Add some good quality growth or defensive stocks. Select companies that have good dividend history with an increasing trend.
Keep some investments also in inflation-linked government bonds, gold, dollars and real estate to hedge inflation.
‘Don’t speculate in a bull market.’
When the bull phase begins, your neighbor will make fast money. Control your temptation. Every big bull market ultimately crashes and wipes out speculators. Initial gain turns into a big loss. A financial market is not a casino and does not give free money.
Be an investor, not a speculator.
‘Build a portfolio with higher equity investment.’
Start investing a portion of your savings in quality stocks in small lots. Gradually increase your stock allocation. Target to build your portfolio with shares constituting almost half of the financial asset values in the next 5-10 years.
Portfolio predominantly of equities is relatively more inflation-proof and tax-efficient over the long term.
‘Don’t select a stock, select a company.’
Choosing an outstanding company is the key to creating long-term wealth. Long term investment needs detailed home-work. Think you are buying a company’s business, not its stock. Your job is over once you have chosen an outstanding company properly. Your money will grow as the company grows.
Avoid making investment decisions sitting in front of a television. It is primarily for trading, not investing.
‘Pick up a company with a strong brand name and competitive advantage.’
Competitive advantage gives a company an edge over its rivals. The stronger the brand, the tougher it is for the competitors to challenge its market share. The sustainable competitive advantage protects the company’s profits and long-term growth. Such a company generates greater value for its shareholders.
‘Save and invest early.’
The sooner you start to save and invest, the better off you will be. Your wealth gets more time to grow. By investing regularly, you get the advantages of averaging; your portfolio turns more rewarding and less risky. Money gets re-invested and grows faster with the power of compounding.
Don’t wait and start investing today.
‘Don’t ever buy penny stocks.’ It is a misconception that investment in a low-priced stock can multiply quickly and there is not much to lose. But in reality, a penny stock carries high risk; its price-movement is managed through rumors and gossips. Control temptation to invest penny stocks. In investing, it is the quality and not quantity that matters.
Don’t discontinue SIP in a bear market.
The bearmarket gives your money an opportunity to add good stocks at a low price. Continued investment through SIP (Systematic Investment Plan) builds a sound portfolio of outstanding companies at a lower average cost per share.
Don’t panic and remain committed to your long term financial plans.
Avoid companies that have defaulted on bank loans.
Some companies depend on excessive borrowings for their business expansion and raise even additional loans to meet their commitments on previous borrowings. Don’t invest in companies that do not have the ability to repay principal and interest on borrowings out of their earnings. Look for financially sound companies only.
Be selective while investing in Mutual Funds
In the wonderland of investment, you will find a wide variety of mutual funds, such as equity funds, debt funds, liquid funds and mixed funds. And within each broad category, there is a bewildering choice of funds available. For example, within equity fund category you have index funds, growth funds, value funds, sector funds, large, medium and small-cap funds. Each fund has different risk and reward levels.
Select two or three mutual funds that suit your financial goals and risk profile.
‘Protect your savings and investments from inflation.’
Inflation erodes the purchasing power of your money. Investing in equities provide some protection against inflation over the long run. Good quality stocks generally beat inflation. Reduce the proportion of Fixed Deposits and Bonds in your portfolio and add some good quality growth or defensive stocks, or good dividend-paying companies.
Keep some investments also in gold, dollars and real estate to hedge inflation.
When to sell shares?
Never. You must not sell when the market is in bear phase or when any bad news has pulled down stocks. These are momentum reaction. Have patience and remain invested.
Sell only if you need money for education, medical, marriage or other planned goals. No one likes pre-mature encashment of fixed deposit. In the same way, avoid encashing long term investment in shares.
Don’t short sell shares.
In short selling, you sell the stocks you don’t own with the intention to repurchase them when the price declines within the delivery date. The objective is to make profits through trading. But in the long run, it does not give a satisfactory return.
Avoid short selling. It is not an investment; it is trading.
Avoid Insider Trading Investment or Trading in shares based on ‘unpublished price sensitive information’ leaked by the Company’s insiders is illegal and prohibited. It is an offense. If caught, you may be put behind bar. Never contact Company employees, management, its auditors or its consultants for getting any information not available in public domain. Follow ethics.
Don’t Do Day Trading. If you are an investor, the day trading is not for you. Day Trading, also known as intra-day trading, requires almost full-time involvement and a different set of skills compared to Investing.
In the long run, Investing in shares gives a better return than the Day Trading.
Keep a separate fund with Bank Fixed Deposit for Contingencies.
Choose a long-term FD scheme of a Bank that allows you to withdraw before maturity with minimum penalty. Don’t invest your emergency fund in the stock market.
The stock market is unpredictable. In case of urgency, you may be forced to sell investments even if the market is low.
Be selective while investing in shares through IPOs
During a bull phase of the market, the promoters and PEs have a tendency to come out with IPOs selling shares at a high price. Unlike listed shares, the price is not market-driven and is determined by them. Many stocks take a steep down within a few months of their listing.
Look for IPOs by well-performing companies only.
Don’t invest all your savings at a time.
When the market is at the peak, you may be attracted by the high return generated by the share market in a short period. Control temptations to invest all your savings in the bull phase of the market. Follow a consistent pattern of adding new money to your investments over long periods of time.
Remember both bull and bear phases are temporary. Hold your cash for investment during the bear phase.
Don’t invest in a falling market to make short-term or quick gains.
Making investments in a falling market is risky. If you are considering investing, be selective. Do homework. Select four-five companies known for high ethics and strong brand. Invest in small lots, spread over the next three to six months. Invest only for the long term, say three to five years or more.
A kite rises against the wind.
A contrarian investor invests against prevailing market sentiments. When the market sells, the contrarian buys fundamentally good companies.
Use this strategy to buy, but only fundamentally good companies. Don’t trade, retain them.
A contrarian investing strategy brings long term appreciation.
How to protect your money during COVID-19
The share market has crashed. The falling and volatile market is generally risky.
Like social distancing, just remain away from the share market, your money (invested in the past) will remain safe in the long term.
The graph below depicts how the Sensex moved during various crises in the last 25-year. History shows the market crashes but recovers and ultimately continues to move on the growth path.
The safest path for the common investors is to neither purchase nor sell shares until the Coronavirus crisis ends.
The present financial crisis reemphasizes need to relook and realign your portfolio after COVID-19 ends as under:
1. High returns carry hidden high risk. This surfaces above when it is too late, you may lose even your capital. Don’t be greedy.
2. Remain satisfied with a return which is one and half times the return on safe instruments like the National Savings Certificates.
3. Diversify in different asset classes such as FD, NSC, PF, High Rated Bonds, Shares, Gold, Currencies, Real Estate, and Insurance. They generally move in different directions and provides a steady average return even during the economic crisis.
4. Don’t invest in complex financial instruments that are difficult to understand.
5. Don’t make any investment decisions based on tips, gossips, promises, rumors, or market predictions. Do your homework.