Wednesday, August 27, 2008

Do You Jump And Buy Stocks?

The other day I was speaking to someone who told me how he bought stocks of companies he liked immediately at one go. I know several people do this. After maybe reading the balance sheet and financial statements, they immediately go and buy in full swing. So if they have decided to allocate 10% of their capital towards a particular stock - they immediately go and buy it all. I usually like buying 1%, ten times over a period of time.

Many of you might think, that it doesn't really matter if you put Rs. 10,000 now in a good company or you put Rs. 1,000 ten times over a period of ten months. However I have learnt, that putting Rs. 1,000 ten times works out to be a much safer strategy and also a much more rewarding one in most cases. Earlier I too would go out an buy stocks at one go, but later realized that most of the time the stock I bought would go lower down. I also learnt that my strategy wasn't balanced and if the stock went any lower, I wouldn't have cash to buy more. This month for instance I gradually bought a bit more of shovels having high growth and another healthy investment.

Over a period of time, I would get a more balanced stock price and would also minimize my risk. Several times people worry if the stock price rises and curse their luck for not having bought more - however at such times we aren't really thinking about the risks associated.

Before you listen to me and follow me. Just do something simple. Look back at stocks you might have bought in the past in one go and think about what your purchase price could have been had you bought small amounts over a period of say ten months. I am curious to know your views on this and want to learn from your experiences.

Another issue of not buying at one go - is that usually investors research a company more when they have invested and the stock price is going down. If you invest a small amount and the stock falls 20%, you will go and do more research. You might find out that the company is still very good and might decide to invest more or alternatively you might decide that the company isn't too good and decide not to invest any more money.

Usually when the stock price is shooting up very few people do any research as everything is good and rosy. These are all human qualities and we all learn with experience.

The mistakes we make on the stock market are the fees we all pay to get this experience. However we can minimize these fees by learning, reading and interacting with people who have already paid these fees to learn. In fact this applies not just to the stock market, but also to life.

My above rule mainly applies to 'investments' and not maybe buying into special situations or trying to buy into a company because it is about to be taken over at a higher price. There my view is more short term and the reason I'm entering it is to benefit from the information I have.

Lately I have also got to meet some very interesting people playing extremely important roles in new growth sectors of the economy. Every time I learn something new, I find out how little I know and how there is an infinite sea of knowledge out there.

Keep smiling!

Yogesh Chabria


How Much Money Do You Put In Stocks?

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8 comments:

jasmit said...

This is a mistake I used to make also. Just jump and buy a stock because it looks good. But now after reading your post have realized how for me too it wasn't the best strategy. Now will try to buy in a staggered way over time.

These are all so easy to follow but we sometimes fail the courage or patience or discipline to do so.

kajal said...

I've done the same thing as you Jasmit. But now have decided to be patient and learn. I've read ITHW Yogesh and am very eagerly waiting for the next books under The Happionaire series like tons of other people!

Am sure you must be very very very busy with all that you are doing - but do take some time and get us our next book so we can learn much more. You have spoilt us so much that no other author or book is as easy and simple to understand. I could barely understand anything in the Intellgent Investor.

:-)

Sunil said...

We all make such mistakes intially, but the trick is to learn from them ... Yogesh I too made similar mistakes when i was new in market, but with time i learned from the concept of AVERGAING and benefited from it.

Hypocrite said...

I agree with your strategy...another thing i would try is not really invest 10 times but use my judgement - which cannot be trained obviously but learnt from experience.

So when i say judgement - for eg: If i have to invest on XYZ company and my capital is 10000 i will start investing very slowly like you said invest 1000 at a time and look at the market swing. if its going up then i will sit tight and queit without investing and wait till i get an oppurtunity. not many would agree to this strategy as they would say what if you miss the bus. if you look at the markets for the past 5 years there have been sharp declines every year atleast twice and you get stocks at throw away prices.

We shpuld wait for this oppurtunity and buy for like 3000 or more or whatever your judgement says. This way your long term will fetch you good returns - you may even cut short your investment horizon by achieving your return targets much earlier than you really would have waited otherwise!

This is something i have seen and experienced in real life, if you watch the markets from a distance you will see clear oppurtunities, only thing is you shouldnt give into your fears and greed when your money is in the market.

All the best guys!

Shirish said...

Hi Yogesh,
Thanks for the suggestion.
I think you are right. Buying stocks in a distrubuted manner helps averaging out the risks that are involved as well as ensure moderate gains/loss. The concept is similar to SIP in MFs where the difference is the time frame, portfolio and ofcourse the fund manager (which is YOU in this case). SIP is supposed to be most risk free investment in MFs

Prashant Desai said...

Hi Yogesh,
I use to have strategy of buying in staggered way as you suggested. I also use the same strategy in case of selling also. I sell also generally 25% of stocks 4 times or 50% of stocks 2 times.

Thanks for your valued guidance on invesment from time to time and more importantly when the markets are looking to be not so promising. The analysts on financial TV channels are behaving with double standards. When the markets have good run, they all speaks about positives like fundamentals, global cues and when the markets are going in red, they used to discover all negative factors.

sabir said...

Firstly let me congratulate you from my side for the success of one of the best and simplest books ever written in the world on investing truly meant to be read by every man and woman.

It is a pleasure to discover your blog and interact so easily and openly with you here. I must also compliment you for your open, humble and down to earth style. Something which is very appealing.

I just have one request - please bring out the next book under the Happionaire series fast so we can learn more about higher level concepts.

Thanks to you and all the other people here who make things interesting. I am spending a lot of time and enjoying what people ahve to say)

rajeev mehra said...

Just had the opportunity to take time to share my thoughts here. I had the pleasure to find a copy of ITHW sometime ago while flying on Spice Jet and I really enjoyed reading the book.

It is the only book I have ever read that makes investing so practical and as well as written for Indians by a fellow Indian. I also looked at Intelligent Investor, but to be honest even though yo suggest it to us Yogesh, a person like me from IT can not understand it. Also the language is not what we Indians speak and can not connect to it.

For instance we can all connect to Nimbu Paani and a movie like Guru.

I would love to learn more and am looking forward like all the others to the next innovation from the wonderful world of Happionaire.

God bless everybody and keep smiling!

P.S: Can we have an event in Delhi? I'm sure lots of people would like to learn more and interact in person with you!