It was in January 2013 that I had said that the next Bull market is round the corner. In January 2014 we got the confirmation and the minimum possible target declared was 40000 on the BSE Sensex. The reasons for this bull run is recorded on You tube dated 30th Jan 2014 – https://www.youtube.com/watch?v=HN-0n2DAcLM Since this was a known feature to the charts we had a plan for the calendar year 2013. This plan gave our investors a return of around 38% when the Nifty or the Sensex delivered a return of just over 1%. This proves planning helps.
Now that we are in a clear bull market, investors should have a concrete plan. The confirmation of the bull rally technically came when the Nifty cleared the multiple tops which acted as major hurdle for the last 6 years. The formation on the charts suggests that we are in the midst of the “Mother of all Bull Markets”. This wave would be the steepest and fastest. The returns that investors would get because of this great bull run would be many times of that of the last 3 bull runs that investors have ever seen. If investors miss this opportunity then I don’t see similar returns being made in the remaining life time. Hence I urge all investors to judiciously start investing wisely.
The most common mistakes made by investors are –
1) Indulge in trading activity. This will ensure that the trader will get a small pie of the rally, whereas he will lose out heavily when the markets would correct which is a natural phenomenon. If traders would have made money the large FII’s, the MF’s and HNI’s would have indulged in trading rather than investing.
2) Exiting the stocks which are giving profits and holding to the loss making stocks. (Remember, you should be the “Farmer” of the stock markets).
3) Forget the news remember the chart. The charts know the news in advance. Always remember that the Markets are never wrong, opinions often are.
4) Investors have always longed for wishful thinking. Has this made money for you?
5) Investors indulge in the concept of averaging. This means you are buying a stock which is in a down trend. This is a serious crime I say.
6) Investors search for stocks which are low priced. If these stocks had the great potential, they would not have languished at these pathetic levels.
7) If stop losses are hit, exit. Don’t watch the price after you exit. Because many a times the price moves up after you exit which is due to the overall market trend. This teaches the wrong experience. Later in a bear market this experience leaves you with dirty stocks purchased at the highest rates. This ensures you take the mother of all losses.
8) Since you cannot control the environment & external factors that control the share price movements, you need to control yourself by following simple Portfolio Management, Risk Management , Money Management rules. This is what investors forget.
9) The Bull market presents us “Problem of Plenty” opportunities. Always remain contended since we have limited capital.
10) Having the approach to investing as a “learn as you trade” – Big mistake. “Learn as you trade” = losing money. Losing money can lead to emotional and financial stress and may even create enough fear in you making it hard to trade. Make sure you come prepared to the battlefield. Be a strategist. As it is said, “The battle is won before it is fought.” Think about it.
11) Investing as a hobby – Take a look at your hobbies. Do they make money? Hobbies in general are entertainment that cost money. Do not approach trading as a hobby. Treat it like a business. Develop a business plan, have goals, and understand what you want out of investments.
12) Thinking that you know it all – The moment one thinks he knows it all is the moment he has become a fool. Its impossible to know everything about the markets. This is a lifetime learning process. Learn n Define your strategy and follow it. Learn from the experts. One thing I learned in investing is that niche = money.
13) Investing without a plan – One of the worst things you can do as an Investor is to trade without a plan. Trading without a plan is like driving in a new area without a map or a navigation system. You are lost.
14) Wanting to be right – Are you trying to be right? Or are you trying to make money? This is a hard one… I personally have to battle myself to avoid this bad habit. Our egos interrupt and we tend to want to prove something to our self or someone else. The markets do not care what you think. You are in it to make money.
15) Have realistic goals – Too many Investors come into this arena without unrealistic goals. Questions like “Can I make a million my first year with Rs.10k account?” Sure you can, but is that really realistic? Focus on crafting. When you know how to invest the money will flow naturally. Market out performance should be your goal.
For the current bull market we should have a plan with a 3+ year horizon. We suggest 40% of your saving in direct equity and 20% in MF.
Now, the 40% which is going to be allocated to direct equity should be invested wisely. Wisely means the stocks that give breakouts. Normally investors are hooked up by big names which necessarily do not give returns. The best examples are – Reliance Ind. In January 2010 it was trading at around Rs.1100 levels and today after 4 years its trading at sub Rs.1100 levels. This means destruction of your wealth. Infosys which was priced at Rs.2600 in 2010 is now quoting at Rs.3200 which gives a return of 25% over 4.5 years. There are many such stocks. This means a return of a saving bank!!!
On the other hand look at the returns that have been delivered by stocks like Aurobindo Pharma, Mahindra ugine, Amtek Auto, Sintex, Dhanuka, KEC, VST Tillers, BEML, Motherson sumi, Finolex cable, Cox and Kings, Shakti pumps to name a few.
Hence the best tool is Technical analysis. Why technical analysis will be discussed in my next write up.