Points to be noted before investing
Rome was not built in a day
This
adage perfectly tells the story of investors who bought shares of
Eicher MotorsBSE -1.32 % in 2010 in anticipation of robust gains. Those
who sold the stock in the interim have definitely missed the bus. Eicher
Motors is one of the companies that have witnessed tremendous growth in
market capitalisation since FY11.
On April 1,
2010, the company commanded a market capitalisation of Rs 1,759 crore,
which was 4.52 per cent of Hero MotoCorp’s total market-cap of Rs 38,897
crore. At present, Eicher Motors’ market capitalisation is around 104
per cent of that of Hero MotoCorp. The share price of Eicher Motor has
surged 3,590 per cent since the beginning of FY10, rising from Rs 659 to
Rs 24,333 at the end of Monday’s trade. The Hero MotoCorpBSE 1.68 %
stock has rallied 62 per cent to Rs 3,168 on February 27 from Rs 1,947
on April 1, 2010.
There are several examples
that have created wealth for investors who gave time to their
investment. Another example is SymphonyBSE -1.50 %, which surged 3,835
per cent to trade at Rs 1,337 on February 27, 2016 from Rs 34 on April
1, 2010.
“Three years is the minimum time one
should give to a quality stock to grow. If business or industry dynamics
looks in favour of a stock, then one can stay invested even longer,”
said Anil Rego, CEO, Right Horizons.
Don’t depend on stock trading for daily need
Market
experts say a big no to first-time or novice investors who are planning
to totally depend on stock trading to meet their day-to-day needs. This
is not going to work, as the pressure of your daily requirement is
going to take precedence over the fundamental principle of stock
investment, which is that you cannot make the market dance to your tune.
It’s always the other way around. Expect the market to always go the
other way when you need it to behave in a particular manner.
Your risk profile is of paramount importance
Don’t
invest in stocks beyond your capacity. You should always check your
risk appetite before putting money in equity. Your risk profile is
dependent on your day-to-day requirements, number of dependants and your
age. “Proper financial planning can help you to check your risk
profile. There are online tools that can help you check and understand
your risk profile,” Rego said.
Also, there are
some thumb rules like the 100 minus age formula, which can tell you how
much risk can you take in equities. Going with that rule, if your age is
35, you can allocate 65 per cent of funds into equities. In case of a
conservative investor, the rule can be changed to 80 minus age.
Don’t trade with borrowed funds
Market
experts believe the domestic market is highly volatile, so investing
borrowed money in equity is not a wise idea. However, some professionals
at certain point do go for leverage when they are bullish on market
conditions and when they understand a business cycle.
Booking profit is important
Many
people do not understand the selling part. “It is not possible to get
the right price all the time for your holdings. Broadly, the right time
to book profit is when the overall dynamics of the industry and a
company does not look in favour of the stock. If you want to be a
disciplined investor, you should set a target and exit when it is
achieved,” Rego said.
Courtesy: The Economic Times
