Profit fundamentals for the new investor.

Ground rules of the 'money' game.

By the law of averages, for most people the share-market is like Diagon Alley in Rowling’s Harry Potter series, attractive with its sinewy twists and turns and promises of unforeseen treasures, but accessible only to ‘others’ (read ‘wizards’). For some, it is like a slippery slope that discourages subsequent attempts after the first failed one. Blessed are the few that have been there and remained steadfast over time. Gratefully, I count myself in this last group.

I ventured in quite by accident, out of having nothing much to do at the time (intellectually, that is! every mother goes through those child-rearing years wherein it becomes imperative to find pursuits that would help maintain sanity). A decade ago, with a meager 15 thousand rupees in hand and zero internet connectivity it might have appeared sheer madness, had I been in a balanced state of mind to consider the odds. Thank God I wasn't. Providence works in mysterious ways, offering you opportunities where you would expect none.



It's a good idea to have a fund manager, but an even better idea to learn the ropes yourself. 



Since I had strayed in out of sheer curiosity, it was but natural that I would be clueless and directionless. The one thing that probably differentiated me from other such curious visitors was that I had already heard that some perceive the share-market as a place to make a quick buck, while others stick around for years studying it as if it were something alive-with a mind of its own. This second aspect caught my fancy as I saw in it an opportunity to stay engrossed for hours at a stretch while at the same time baby-sitting a toddler.

I entered, I ventured and I faltered. My roller-coaster ride had begun!! I made my share of mistakes over the next couple of years, but ultimately found my footing. Ever since, I have not left. Although that does not make me a “Guru” of the market, here I humbly share with all who are today as naïve and new as I was then, the wisdom that I have gleaned from my journey so far.

Ø      Define short and long term priorities: think about and define your short and long term financial goals; would you like to buy a fancy car in two years’ time? Would you like to be able fund your child’s education abroad 10 years down the line?

Ø      Start with a Mutual Fund: this is a safe ‘option’ as part of the returns are guaranteed. Besides a fund manager is there beside you at all times guiding your investment options.

Ø      Before every decision, take time to weigh options: for every small or big investment you make in the share market, there are multiple options. Do not look at too many options in order not to get confused. Select a few, study them, then invest in the most promising.

Ø      Do not operate out of greed or fear: these two emotions will cloud your judgment.

Ø      Listen to advice from all and sundry; then use your own judgment: it is very important to pay heed to dissenting voices in the market who regularly speak on television channels.

Ø      Study balance sheets of companies: while doing this, it is important to feel and operate as an insider, an ‘owner’ or ‘potential owner’ of the company.

Ø      Alternatively, look closely at what people are buying in Supermarkets: if you absolutely cannot study balance sheets and business reports, people’s buying preferences can give you a clue about the general ‘goodwill’ factor of a company or the lack of it.

Ø      Know when to enter a space; exiting will become easier: one of Warren Buffet’s simplest tenets has been to buy into established companies (that he calls the “Coca Colas” of the world), but at low prices. What is a low price? Look at 52 week prices, or over even longer periods, if required.

Ø      Restrict your portfolio: the magic number here is eight; keep the number of companies you are investing in, in control. Do not crowd your portfolio- it will become unmanageable.

Ø      Never speculate: Many a time I have been tempted to speculate, but did not. I recalled the “greed and fear” principle just in time to be able to resist.

Ø      Do not hesitate to cut losses: if after investing in a scrip, you realize after a reasonable period of time, that you have made a mistake, have the sense to exit and cut losses. Always remember, there are alternative deployments possible for your money at any given time. At all cost, avoid taking a 'mistake' made as a 'personal failure'. You have not failed until you have given up trying.

Now you are ready
to start milking the cash cow!

  I sincerely hope these points benefit at least a few people who are looking at opportunities to invest. As this piece is meant for the young investor (‘new’ to the market, that is), I am abstaining from more detailed discussions about different types of operations possible, and their pros and cons.

If anyone has queries, I request you to post those as comments. I promise to address each to the best of my ability. Better still, if you have suggestions for me, I will be very grateful if you leave them here.