[nukkad] 10 Tips To Get Back To The Market With

["Nelson Fernandes" <>]

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Lost a truck-load of money betting on the markets? Don't fret. And, more
importantly, don't swear off equities either. Business Today  tells you how
to play the winning game and recoup your losses.

By Shilpa Nayak

1. Investing Is No Gamble

Even before you start looking up the back pages of the pink dailies, realise
one thing: investing and gambling are not the same thing. If it's sheer
thrill that you are after, we would recommend the racecourse. The
stockmarkets are for serious-minded investors, who are willing to create a
robust financial market for good companies. We don't know of any horse that
paid a dividend yet. So what about the daily gyrations in stock prices of a
company? you ask. That's the result of a calculated game that the big-guns
in the market play, as they churn their million-dollar portfolios. You, the
small investor, would be ill-advised to ape them. Daily fluctuations are no
indication of the stock's fundamental strength, which is something you
should go by. And once you've bought a good stock, stay invested-unless you
must absolutely sell. Besides, never buy at a stock's peak; snap it up when
the others are hammering it.

2. Don't Trade On The News

Stay a mile away from day trading, especially if all that you are relying on
to buy and sell is reported news or, worse, rumours. Devastated day traders
in the US have been known to take their anger out on their colleagues by
gunning them down. Day trading is a specialised cup of tea, best sipped by a
person who not just understands the stockmarket's mind, but also the
strengths and weaknesses of individual stocks. Day trading is certainly not
meant for bored housewives or executives with time on their hand. The
internet is a great medium for spreading rumours; only believe in credible
sources. Also if it's a great tip that you are getting, there are a million
others who haven't just got it, but acted on it, too. Therefore, by the time
you decide to buy, the stock price has already factored in that bit of news.

3. Spread Your Portfolio Wisely

Don't put all your eggs in one basket. At any stage in life, be it at the
beginning or end of your career, never invest in a single investment
vehicle. Spread your investments over equity and debt. Even if you like the
rush of equity, avoid over exposure to any one stock or sector. Diversify
your mutual fund investments, as also your fixed deposits in banks.
Similarly, even if you are sure that a particular stock will rise 50 per
cent in another six months, don't bet all your chips on it. The risks of it
not appreciating as much are very high, and it will be hard for you to deal
with if the turn of events goes against you.

4. Define Your Risk Appetite

You remember the colleague who bought a Maruti Zen from the profits he made
on Infosys. But you probably don't remember your neighbour who went broke
trading in the Himachals and Global Teles of the world. The point: when you
are dreaming of gains, spare a thought for the potential pain, too. Many
people tend to invest small sums in third-rate companies, justifying it as
an all or nothing play. Beware: there is no such thing as ''money I can
afford to lose''. If you set out willing to lose money, chances are you
will. Treat your money with more respect, and it will treat you well.

5. Set Reasonable Goals

Stockmarkets are full of get-rich-quick tales. What wide-eyed investors
don't realise is that for every one happy story, there are at least a
hundred tragedies. Therefore, while it is good to dream of fantastic returns
(stock doubling every six months), live by realistic expectations. Set
yourself a cut-off point. Tell yourself, ''if the stock gives me a 20 per
cent return in a year, I will exit. I don't care if it soars to new highs
thereafter''. What you will end up realising is that modest gains (although
we dare say 20 per cent is quite immodest) across the portfolio add up to
big numbers, whereas a huge drop in a top stock could potentially wipe out
your gains. Greed is good, but excessive greed is evil.

6. Know The Company You Keep

All of us pick our friends with care; we want to know where he or she works,
where they went to college, whether they are respected at workplace, and
whether knowing them will help us professionally or personally. You should
treat your portfolio similarly. Investigate your stocks. Start with the
management executives: are they people with outstanding trackrecord? Are
they known to follow transparent practices? What about the industry it
operates in... marketshare? What do customers say about the company? Knowing
these will minimise chances of your investment souring.

7. Keep An Eye On Investments

Don't get paranoid, but keep track of your investments at regular intervals.
Quarterly results are a good time to take stock of your investments. The
company's results should be as projected; if there's a short-fall, find out
why. If the reason is minor, don't worry. But if the fall is due to a major
product failure, or loss of clients/markets, exit while you still can
profitably. Waiting in the hope that things will look up may prove costly.
Besides, keeping track helps you figure out if you've reached your earnings
goal (remember Tip #5?). These days there are several investment portals,
where you can create an online portfolio. You can even get email alerts if
the key stocks in your portfolio touch new intra-day lows. There's a ton of
information out there; make effective use of it.

8. Don't Cling To Losers

You'd probably earn kudos if you helped a friend through a trough. But
there's no medal to be won by staying invested in loser stocks. Which means
even if you bought a lousy stock at its peak and it is now quoting way below
par, don't hesitate: sell it. If the company shows no signs of a turnaround,
then it is better to sell early and minimise the loss. Your money is better
off invested elsewhere. You may be able to do little about your nagging
spouse; but luckily you can boot a weepy stock whenever you want.

9. Fads Are Fickle

Fashion never lasts for long (dotcommers don't need any reminding). Ask your
wife. She reworks her wardrobe according to the latest fashion. That's a
great strategy to follow, particularly in investment. Finance and
agri-business were in vogue in the early 90s, but then software came and
swept investors off their feet. And when the dotmania hit Wall Street,
people were bowled over by the promise of the internet. Now that biotech is
the buzz, investors are scrambling to get a piece of this sector. Broad
industry-linked investment fashions are easy to spot. What's harder to do is
pick a winner within a broad industry such as infotech. If you think you
don't understand a particular sector or sequence of events, don't hesitate
to ask for professional help.

10. When In Doubt, Leave It Out

Despite all the brain-racking, equities still scare the living day lights
out of you? Then may be the stockmarket isn't meant for you. Smartness lies
in realising that. But if you are reading this magazine, then understanding
the nuances of business-or smartness, for that matter-isn't one of your
problems. All you probably needed help with is the preceding nine tips. A
final word: your long-term goals should determine your investment decisions.
For long-term investors, it is always a good time to buy.




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