20 Mantras to Wise Investing

Mantra 1
Invest only in fundamentally strong companies
• Do not go for momentum or penny stocks.
• Invest only in companies with strong fundamentals; these are the ones that will withstand market pressures, and perform well in the long term.
• Equity investments cannot be sold back to the company/promoters.
• Strong stocks are also liquid stocks

Mantra 2
Read carefully
• Do not gamble away your hard earned money.
• Due diligence is a must.
• Read about the offer. This is an advice difficult to practice with offer documents now running into more than 1000 pages; abridged prospectus too is difficult to read. Yet, read you must, at least sections on risk factors, litigations, promoters, company history, project, objects of the issue and key financial data.

Mantra 3
Follow life-cycle investing
• You can afford to take greater risks when you are young.
• As you cross 50, start getting out of risky instruments.
• By 55/60, you should be totally out of equity. (You can’t afford to lose your capital when you have stopped earning new money). There are better things in life at that age than watch the price ticker on TV

Mantra 4
Invest in IPOs
• IPOs are a good entry point.
During bull runs, almost all IPOs provide positive, and in many cases huge, returns on the listing day. If an investor does not book profit, he is either greedy or takes a wrong call on the company/ industry/ market. He should then not fault the IPO price. Remember that…
• IPOs have to be bought; these are not forced upon the investors.
• The problem is that we put IPOs on a pedestal and expect them to perform forever. An IPO becomes a listed stock on the listing date. It will then behave like that.
• Decide whether you are investing in an IPO or in a company. If as an IPO, then exit on listing date. If as a company, then remain invested as you would in a listed stock. In any case, invest only if the QIB oversubscription is healthy. And use the ASBA process to invest

Mantra 5
Surely invest in every PSU IPO
• IPOs are only from very good and profitable PSUs; also very little risk of fraud.
• There would always be a discount for the retail investors.
• Don’t get bothered by the listing price; stayinvested

Mantra 6
Invest in mutual funds, but select the right fund and scheme
• In India, mutual funds are dominated by corporate money, and have little focus on the small investors.
• Still, mutual funds are a better vehicle for a small investor.
• There are too many mutual funds, too many schemes; select the right one.

Mantra 7
Learn to sell
• Most investors buy and then just hold on (Most advice by experts on the media is also to buy or hold, rarely to sell).
• Profit is profit only when it is in your bank (and not in your register or Excel sheet).
• Remember, you cannot maximize the market’s profits so don’t be greedy.
• Set a profit target, and sell

Mantra 8
Deal only with registered intermediaries
• Many unauthorized operators in the market who will lure you with promises of high returns, and then vanish with your money.
• Dealing with registered intermediaries is safer and allows recourse to regulatory
action.

Mantra 9
Let not greed make you an easy prey!
• Many scamsters are roaming around, to exploit your greed.
• Most scams rob small investors.
• Be careful about the entity seeking your money

Mantra 10
Beware of the media, especially the stockspecific advice on electronic media
• Too many “saints” in the capital market offering free advice!
• In reality, many of these advisors have vested interests.
• Also beware of the get-rich schemes being sold through SMS and email

Mantra 11
Don’t get taken in by advertisements
• The job of an advertisement is to make you feel-good.
• Don’t get carried away by attractive headlines, appealing visuals, catchy messages.

Mantra 12
Beware of fixed/guaranteed returns schemes
• Any one who is offering a return much greater than the bank lending rate is suspicious.
• Remember plantation companies-promised huge returns (in some cases 50% on Day 1)!

Mantra 13
Beware of the grey market premia
• These are artificial and normally created by the promoter himself.

Mantra 14
Don’t get overwhelmed by sectoral frenzies
• The present sectoral frenzy is around Logistics and Infrastructure.
• Remember, all companies in a sector are not good. Each sector will have some very good companies, some reasonably good companies and many bad companies.
• Be also wary about companies that change their names to reflect the current sectoral fancy.

Mantra 15
Don’t over-depend upon ‘comfort’ factors like
• IPO Grading
• Independent Directors