Investing in Share Markets

My colleague and I were discussing some investment options. He is just venturing into stock market and was asking some advice on ‘which’ stocks to invest. Incidentally, my brother and I were discussing on the technical analysis, and how they predict the support levels and resistance levels etc. In this blog, I am just mixing up both the conversation so that it might be helpful for the readers.

At the outset, I am not an expert in investment / share markets. However, I do frequently invest in the equity. And the first advice is not to get advice on ‘which’ one to invest, but to do a research and make an informed decision.

I started trading a decade ago and realized that whatever theory I learnt about fundamental and technical analysis could not be truly depended upon as the markets are not participated only by investment experts but by many who are normally carried away by sentiments.

So the support levels and resistance levels based on the F/T analysis do not hold good as many of the assumptions are either not correct or there some aspects which would never be thought about would have a serious impact. Also, there are some specific software and Big Data analytic tools to perform those Predictive Analytic. It’s pretty hard to do it manually as well.

Funny part is my research paper for my master degree was about predicting the reactive support and resistance levels using swing lows / highs, candlepatterns, volume analysis, and thereby analysing the volatility. At the hindsight, I can only smile at my findings in the research paper.

While I started trading initially I bet on the market sentiments. But it never took me long to realize that to get the intuitive skill to predict the sentiments it would rather need lot of trial and error with real money over a long period of time—neither of which I have. My speculation based on other people predictions resulted in losing most of my portfolio and it took more than a year of stress full trading to make up the loss.  I quit trading.

Lesson learnt on the predictions is: it’s like Astrology. While astrology can be true, astrologer can be a fake or subject to their limitation.  For any stock predictions there are always 3 types of predictions positive, negative and neutral. For example take gold’s prediction few months back (around Sep 2012) there were predictions that a gram of gold would cost Rs.5000 by this year-end while some predicted it to go as low as Rs.2000 and some said it would stay put in the same Rs.3000 levels. The fact is it is now tanking. So, one can't really believe the predictors except for some movers and shakers in the market  such as George Soros. 

After a brief sabbatical, I returned to share market but this time as investor and not as a trader. I do the fundamental and technical analysis to a limited extent of common sense. For any company you want to invest, the summarized results of these technical analyses are given by ICICI Direct in their Do your research page.  It’s simple and easy to comprehend.

I have read many tips/ rules/ principles but never really practised during my previous stint. But every time I lost, I ended learning the real meaning of some those principles which I currently follow. At least now, if I make loss or profit, I can be either proud of my own decision or learn a costly lesson.

1. I Target a company and start with small and over a period of time build a portfolio.
2. Age old adage- do not put all your eggs in one basket- so I do not invest all my money in single stock
3. In the same way I do not keep more than 6 Industry. I normally keep only in 3 Industry occasionally grow to 6 -Bank, IT, Oil & Energy, Telecom, Retail and Metals. I start with one industry and slowly grow into others. These are some industries which I can comprehend the business.
4. In each Industry I invest only in the top 1 or 2 companies. This will help me to keep track of market movements closely
5. I spread my investments so that I don't invest more than 20% in any one industry
6. I do not get sentimentally attached to the stock. I fix an expected return and stop loss trigger and exit when it hits either of it. I normally keep 20% and 8% stop loss. If I intend to hold for long, then these percentages may vary.
7. Out of my total investments, I keep the equities max of 60%. So remaining 40% I may invest in other investments like FDs, Savings, land.
8. I watch out the news for these companies regularly and watch out for the alternative better investments.
9. I don't panic or excited on the seasonal fluctuations. If I trust the company, I may keep some liquid cash ready to use the opportunity to buy more or sell.

These are some things I follow religiously--I neither loose much nor earn much-- I end up net of 10-15% return-- slightly higher than the FD rates.

Sharing this hoping it would benefit someone. Please share your experience as well as an opportunity for me and the readers to learn. Thanks.