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Monday, March 20, 2017

Investment mistakes I made and how I corrected it

I was a Doordarshan guy, ummm ... rather, I am still a Doordarshan guy. Since my childhood whenever I used to see news there was stock news on a daily basis. I couldn't understand how it worked. But, the only thing I knew that we gamble in it and we can earn or lose the money quickly there.

But anyway, I was curious about it and I was sure I will enter into it someday. When I started or rather before starting I made some big mistakes, like

  1. I was sure I will start investing in it, but when ? This was not decided, this is where I failed miserably. I should have started just after job joining i.e. Nov 2011. Rather I started in July 2015. I have taken some sample stocks I invested in 6 months after July 2015. So, I have taken an example of average price from May 2012(which I missed) and Jan 2016 after 6 months from July 2016. So if you notice due to delay, I have to spend almost 70% more on same stocks. If I factor inflation and my stock weightage, I have paid around 80% more money for the same stocks. In reverse way you can think that if I would have started investing around Dec 2011. My profit would have been more than 80% till Jan 2016. Moral: Start as early as possible and invest regularly.

    May 2012
    Jan 2016
    Increased Cost
    Adani 46 85 84.78
    Apollo 67 140 108.96
    Arvind Mills 75 313 317.33
    boi 300 100 -66.67
    CG 130 130 0.00
    cipla 300 600 100.00
    grasim 500 734 46.80
    HDFC Bank 500 1050 110.00
    IndiaBulls 200 720 260.00
    Infosys 600 1150 91.67
    ITC 160 203 26.88
    JP Associate 70 9 -87.14
    JK Tyre 15 120 700.00
    Mohit Indus 40 60 50.00
    MOIL 271 217 -19.93
    Morepen 3 37 1133.33
    Muthoot 123 193 56.91
    NMDC 164 93 -43.29
    Pidilite 171 555 224.56
    Powergrid 100 140 40.00
    Rallis 113 172 52.21
    REC 108 92 -14.81
    SCI 58 91 56.90
    SIB 22.1 19.1 -13.57
    SBI 190 209 10.00
    TataMo 301 370 22.92
    TVS 39 281 620.51
    Total 4666.1 7883.1 68.94
  2. Not having financial knowledge before investing. If you want to invest in equities for long term then you must have some knowledge beforehand. This was my second biggest mistake. If you analyse the above portfolio the P/E is close to 25. This is what exactly Benjamin Graham is put as a upper level. So I am still at high risk. And all this happened because the book "The Intelligent Investor" was sitting idle on shelf when I started investing. Moral: If you want to invest in equity by yourself read some investment books and do some dummy trading/investment. See the graph what happens when you invest without knowledge. More down than up. 
  3. Ignored the value of SIP and mutual funds. I knew that I am not good enough to know market. Despite this fact I didn't go SIP route initially. This was because I never had someone who recommended it and those quick ads like "Mutual Funds are subjected to market risk and blah blah. " This kept me away from it till long time and missed golden opportunity to make some money. Moral:  Start investing in mutual funds through if you are not an expert.
  4. Going after quantity instead of quality. Although this point can be covered under point No. 2. But I find it a separate issue. There may be chances that you can find a great stock with high price tag and low P/E and a good enough stock at pretty low price per stock but at high P/E. Moral: Don't go after quantity rather invest in quality but make sure you don't pay a premium price i.e. higher P/E. Like if I would have invested in MRF in Mar2012 @10k.  Today's value is close to 56k and at this price P/E is still under 16. Having lots of penny stocks is no good.
  5. This 5th point is actually the first point, the mistake I made was - purchasing an endowment life insurance plan, in which I was able to get double the return in 15 years which was accumulated in those 15 years. This sounded reasonable at that time whereas I was not able to calculate the return percentage for the same. Let's talk about the figures- I paid around 260000  and returned the policy in 4 years, if I had done some SIPs or even bank's RD it would become 4 lakh and 3.5 lakhs respectively. But I returned the policy and got only 160000. My overall loss is around 200000. Again around 80%  of loss :( . Moral: Don't go for endowment insurance plan, its returns are pretty poor and your money remains stuck with your insurer. Keep an SIP or RD for investments.
  6. Not having stop loss on my investments. This was one of the early days mistakes for which my portfolio is showing losses. Always put stop loss according to your risk appetite and companies fundamentals so that your hard earned money doesn't go waste.
These are a few mistakes made till date, however I tried to correct it one by one as soon as I realised them. Here are course correction steps:
  1. Completed reading few investment books before investing much. ("The Little Book That Beats the Market" and "The Intelligent Investor"). See my portfolio vs benchmark report as of now. 
  2. Started few SIPs.
  3. Invested in quality stocks. (Read large cap and Companies with strong fundamentals).
  4. I keep buying stocks at regular interval (averaging) and especially at dips like Brexit and Demonetization.
  5. Tried to lower brokerage charge by buying in bulk.
  6. If  you have quality share, don't book profit from selling all the it. Book only to take out the 50-60% of capital invested in that particular share . 
  7. Booked profit in the Bulls run. When market gives you profit of 30-40% in a month or two. 
  8. Keep listening some market experts and matched their suggestions with my existing knowledge and then deciding what to do.
  9. Diversified my portfolio through investing in different sectors.
Learn here ..how to start investing 

declaimer : "I am a fairly new investor(less than 2 years old in market), so my view will be fairly limited to my experience of market as well as studies done by me. 

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