3 Deadly Sins of Stock Market.

Have you ever think why new investors most of time failed in market.  ? Why only few make real money in stock market? What new person in stock market should do or should not do?  If yes I have answer to the root of this problem.

There 3 common mistakes that most investors do. I call them 3 Sins of Stock Market. 

1.Losing Money:

Most Investor knows this basic rule “Never Lose Money”. But still they end up losing money.  Because they keep holding the looser in hope of recovery. Simply say if you have purchased stock and it went down by 20%. And you wait as you not want to lose money. But this same stock has capability to go more 20% down. Not taking loses in market is biggest mistake most of investors do. Short term downside is normal, but if stock is going down for years or not moving for years then this is also one kind of loss as you are missing opportunity to allocate this money to some other good stock.  Remember there is no Successful investor who didn’t book loses. Taking lose is part of Journey and Investor must accept it.

      2. Buying Quantity then Quality:  

      Every new investor does this mistake.  They like buy 100 stocks of 10 over 1 stock of 1000.  Cost is same but he thinks he will get better chance with 100 stocks then 1. But in market price doesn’t matter.  In both case investment amount is 1000. And in both cases if stock goes up 10% you make 100 profits. So your buying decision should not be just on price factor. I have seen stock worth of 5000 in my career which I didn’t added because of price and same stock is now 22000 in 4 years and still going up. And I also seen stock which was 20 buck 4 years ago and still around 20 odd today also. Yes I am taking about Eicher Motors and Suzlon.

         3. Selling Winners:

       This is where successful investor standout form ordinary investor. Buy Right and Sit Tight. When you get stock which has shown potential to go up, you should not sell it for ordinary profit unless it’s really necessary. Stock which went up 50% has capability to go 100%. Smart Investor is one who adds stock on raise not on fall. Averaging should be done for stock which has shown its potential to go up not for stock which has shown its potential to go down.  Buy correct stock and let compounding do its magic.

     "To make money in stocks you must have the vision to see them, the courage to buy them   and         the patience to hold them. Patience is the rarest of the three." — Thomas Phelps

                                                            Be Smart. Invest Smartly. 

The Warren Buffett Way

Appearing on the PBS show Money World in 1993, Buffett was asked what investment advice he would give a money manager just starting out.  “I’d tell him to do exactly what I did 40- odd year ago, which is to learn about every company in the United State that has publicly traded security. “

Moderator Adam Smith protested,  “But there’s 27,000 public companies”

“Well”, said Buffett, “start with the A’s “

Para above is from the book The Warren Buffett Way. One of the great book of Investment one can have on   his/her Library.  Though book talk about Mr Buffett Investment philosophy which might not suite to many Investors today still I believe the core idea display in book will help individual investor to look the business from eye of Mr Buffett.

We here try to highlight essence of book in few words:

Author has classified Mr Buffett all investment in four core principles:

1. Business
2. Management
3. Financial
4. Value

With above four principle you would find how Mr Buffett has discovered his greatest investments like Coco-Cola, Washington Post  , Gillette, Wells Fargo  etc. The idea of finding successful business is still applicable but after Mr. Buffett no such a great investor came who have applied it with such a ease.

Later part of book displays how to manage portfolio and psychology of money. Robert Hagstrom,the author , did true justice to the idea of Warren Buffett in the book. Writing book on such a topic is not easy. He had kept the thing simple that reader can connect with it. Get your copy today if you have not yet read it from here:   The Warren Buffett Way

“We don’t need to be smarter than rest, we have to be more disciplined than the rest” ~WAAREN BUFFETT

Be Smart. Invest Smartly

Power of Compounding: Investment Magic

Einstein said once “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.” 

Let’s take example of Mr. Early X and Mr. Late Y.

Mr Early X thought to start planning for his retirement on age of 25 and started the 5000/ monthly SIP in Mutual Fund for next 15 years. While Mr Late Y thing 25 is not a age to thing about retirement and its time to enjoy the life but later stage Mr Late Y thing retirement planning is also very important and Mr Late Y started 1000/monthly SIP for next 15 years.

So now here is the comparison between both of our Mr X and Mr Y.

	Mr Early X	Mr Late Y
Amount invested	5000*15*12 =9  lakhs	10000*15*12= 18lakhs
Investment Horizon	60-25= 35 years	60-35=25 years
At age of 60 Retirement Corpus	3.88* Cr	2.09* Cr

(Note* : Assuming the average of 14% return from MF Compounding basis. )

 

At age of 60 Mr Early X has 1.85 times more amount than Mr Late Y with half of investment then Mr Late Y. It’s not how much you invest , it how long you invest make a difference.

Let’s take well known example of Wipro's  10000 to 528Cr Journey. 

Let’s just assume that you bought 100 shares of Wipro each at a face value of Rs.100 in the year 1980. Total investment: Rs.10,000. You don’t touch it at all, no profit booking or buying more shares. Wipro has done various bonuses and stock splits in its history of 1980-2014. Here is the list of all such corporate actions:

Wipro Investment growth
Year	Action	Number of Shares
1980	Initial Investment	100
1981	1:1 Bonus	200
1985	1:1 Bonus	400
1986	Stock split to FV Rs.10	4,000
1987	1:1 Bonus	8,000
1989	1:1 Bonus	16,000
1992	1:1 Bonus	32,000
1995	1:1 Bonus	64,000
1997	2:1 Bonus	1,92,000
1999	Stock split to FV Rs.2	9,60,000
2004	2:1 Bonus	28,80,000
2005	1:1 Bonus	57,60,000
2010	2:3 Bonus	96,00,000

After the year 2010, there were no more bonuses or stock splits. But with just that initial investment of Rs.10,000 (100 shares) you now would end up with 96,00,000 shares of the company because of all the stock splits and bonus shares. Current stock price of wipro is about Rs.550 per share, as of 22 Jan, 2016.

INR 550 × 96,00,000 = Rs.528 Cr. That is a CAGR (Compound Annual Growth Rate) of 47.39%. Does any of your bank FD give you 47% annual interest rate.

And we are not even considering dividend pay-out here. Recent dividend declared was 5 per share which make 4.8 Cr as dividend and we have many dividends like this. 

Just Amazing compounding is !!!

Mr Warren Buffet said it correct “Someone is sitting in the shade today because someone planted a tree a long time ago.”

 Be Smart. Invest Smartly