General Advice

Are you baffled by various tips and suggestions doled out by so-called market experts? Don't worry. Just follow these simple strategies by renowned investment gurus to reap the rewards of your equity investments

DURING A stock market gloom, it becomes rather difficult for retail investors to formulate an investment strategy. The job becomes even more confusing, thanks to advice and suggestions from various market experts that clutter the media space. If you feel flummoxed by these tips, follow these simple strategies outlined by renowned investment gurus to guide you out of the mire:

DO YOUR HOMEWORK:

Will you ever buy a house without ascertaining the prevailing market rate in the area, or doing a background check on the builder? Obviously, the answer is 'no'. Then why shouldn't you follow the same procedure while investing in a stock or mutual fund (MF)?
As Fidelity Investment's Peter Lynch - revered by many as one of the greatest investors of all time - once said, “Investing without research is like playing stud poker and never looking at the cards.” After all, you are putting your hard-earned money into the capital market, just like you invest money to buy a car or property. So, it makes sense to thoroughly scrutinise the track record of the stock or MF you wish to buy into, and also analyse its future prospects.
"I don't want a lot of good investments; I want a few outstanding ones," the late Philip Fisher, founder of Fisher & Company and a pioneer of the growth investing strategy, is known to have said. And a meticulous study of your portfolio will help you to achieve just this. Simply identify a small bunch of stocks or MFs on the basis of your scrutiny and analysis; thus doing away with the need for putting your money in several stocks in the hope that at least some of them will perform well.

DO NOT OVER-ANALYSE:

You need to guard against the tendency to micromanage your portfolio. Every minute variation in the market’s fortunes and forecasts should not make you alter your portfolio's composition. To quote Mr Lynch again, "If you spend more than 13 minutes analysing economic and market forecasts, you've wasted 10 minutes." Like him, almost all investment gurus believe that the focus should be on the intrinsic value of individual stocks, rather than market developments.
As late John Templeton, the legendary investor and founder of Templeton Investment had stated, "A wise investor knows that the stock market is really a market of stocks. While the stocks may be pulled along momentarily by a strong bull market, ultimately, it is the individual stock that determines the market, not vice versa. While investors focus on the market trend or economic outlook, individual stocks can rise in a bear market and fall in a bull market."

SHORT CUTS CAN OFTEN DECEIVE:

Any guesses as to how the chief executive officer (CEO) of Berkshire Hathaway, Warren Buffet, became the best-known money manager and the richest man in the world? Well, definitely not by indulging in speculation and trying to time the market, but by holding on to the stocks in whose fundamentals he strongly believed in.
"If, while making a stock investment, you're not considering holding it for at least 10 years, don't waste more than 10 minutes considering it," is one of his famous quotes. If you can resist the temptation of quick, short-term gains, you will be saved the trouble of worrying about market fluctuations.
Sharing his viewpoint, Mr Lynch has noted, "Absent a lot of surprises, stocks are relatively predictable over 20 years. As to whether they're going to be higher or lower in two to three years, you might as well flip a coin to decide." Hence, the message that these gurus clearly convey is that the only method of getting assured returns is by thinking from a long-term perspective.

DON’T FOLLOW THE HERD:

Market movements are like contagious diseases — if they affect one, many others are likely to fall sick. If you want your investments to bear fruit, you would do well to stay away from what others think is or isn't in vogue. "Most people get interested in stocks when everyone else is. But the time to get interested is when no one else is. You can’t buy what is popular and still do well," says Mr Buffet. His opinion has been seconded by Mr Templeton: "Invest at the point of maximum pessimism."

DON’T RELY ON TIPS:

Never invest solely on the basis of a tip. Why not, you may well ask. Don't these tips glorify the market movements? Most investors across the globe are guided by these tips while making their investment decisions. As Mr Templeton has rightly said, “Unfortunately, there is something psychologically compelling about a tip. Its very nature suggests inside information, a way to turn a fast profit.
However, it is rather naïve to believe that the 'market experts' are better informed about market conditions and hence, their tips carry the right weightage. Benjamin Graham, who is known for influencing Mr Buffet's philosophy towards investing, is said to have remarked, "It is absurd to think that the general public can ever make money out of market forecasts."
Thus, the key to reaping rewards out of equity investments is not by trying to outwit the market merely on the basis of some so-called ‘exclusive’ tips, but by studying the fundamentals of the desired stocks or MFs and staying put with a long-term view, notwithstanding the market fluctuations in the short term.

----- With due apologies and full credits to Economic Times