Lessons for New Investors

We all need to invest for our future requirements. But like everything investing is also an art cum science and we need to do it carefully so that we get the best of the benefits. There are a few basic things which if we keep them in mind will make our investments more successful. Let’s learn about it in detail.

1. Investing is not risky due to volatility as it is made out to be by jargon-filled analysts, fund managers, and other market experts.

Investing is risky if you don’t understand what you are buying and why. In fact, not investing well is a greater risk.

2. You do not need to be a financial market expert to do well as an investor. In fact, the biggest financial crises have been caused by the so-called experts.

You actually need a good EQ (like behaviour control) so as to minimise the mistakes of bad behaviour that causes investors to make big losses.

3. To become a decently good investor, you don’t need to spend 5-6 or more hours per week watching Finance Market TV channels or worrying about them. There are better things to do in life.

Become well educated about your investments ‘before’ you make them or take a Financial Advisors guidance, and then let the wheel roll.

4. Investing is NOT about beating the market or your friend, neighbour,  colleague, or enemy.

As an investor, you should protect your capital over the long term and beat ‘inflation’, so as to maintain or grow your purchasing power and meet your financial goals.

5. Unlike what stock market folk may have led you to believe, the high risk does not equal high return.

When you buy good investments at reasonable prices – and you know that well – you are taking low risks which may get you reasonably high returns.

6. Legendary investor Sir John Templeton once said, “The four most dangerous words in investing are ‘This time it’s different.’”

It is ‘never’ different. Booms and busts happen in almost the same way, and investors lose money when they start believing that ‘this time it’s different’.

7. Somebody advised me that ‘Diversification is for losers, you must concentrate,’

But I don’t think it’s a good advice for most new investors. Concentration can make you big money, but has huge risks that only unfold with time. Diversify enough. But Not too much.

8. You are likely to succeed as an investor not just by the investments you own, but more importantly by the ones you don’t.

Create portfolios like a museum curator (choose well), not a warehouse manager (choose everything). 4-6 mutual funds are enough. You don’t need more.