Why people lose money while investing
1. Not knowing the difference between trading and investing:
Investors buy some shares, hope it goes up, when it does not they sell
off. Since they do not know whether they should be averaging (works only
in a portfolio like the Index) or put a stop loss (a typical trading
strategy).
2. Buying on a whim
Buying and holding shares for an uncertain, unplanned period of time, and selling unscientifically will not get you anywhere.
Buying and holding shares for an uncertain, unplanned period of time, and selling unscientifically will not get you anywhere.
3. Buying a big high sounding share holding for say 4 years and then selling off.
One of the kids I know had bought Hindalco at a high price – Rs.
190. Then he did the classic job of ‘averaging’ by buying at 139.
Suddenly when I bought Hindalco (Mid May, 2013 at about 94. I called
him. He had sold the share to buy some real estate; completely
irrational portfolio building.
4. Not knowing what is investing time horizon is.
Recently one girl stopped her SIP saying ‘I invested one year
ago, I have got a return of only 12% p.a.’ She has NO CLUE on what
return she wants, needs or gets from other investments that she has
made. Who is to tell her that if PPF gives her 8% and she gets 12% in
equity, this is a brilliant return.
5. Completely goal less investing, redeeming, and not calculating returns
This means that over a 5 year period if a share has doubled in value, they have no clue that they have got 14% return.
6. Being mathematically challenged
Some investors do not even know how much they have earned in dividends! Innumeracy, is a disease.
Here are nine investment lessons everyone should know
1. The earlier you start the better, but today is surely better than tomorrow.
2. Your total return depends on
how much return you get on each portion of your portfolio. So if 10% of
your money is in equity, it hardly matters whether you get 10%, 12% or
-12% on your equity portfolio. The overall impact of this is, 10% – that
is all.
3. Compounding worked for your
grandfather, father and it will work for you. Do not spend 20 earning
years wondering whether compounding will work. It does. Inflation is
negative compounding, and that works too
4.Compounding makes you rich, but
compounding takes time. Sigh. No easy road to Wealth, immaterial of the
forex trading, commodity trading, real estate ads that you see in the
media. Remember today media means ‘paid media’ – so even the articles
are biased. The current flavor is ‘why real estate is far superior to
equities’ so true!!
5. Your equity returns is the sum of dividend yields (say 3%), future growth (say 10% including inflation), and a future change in the price earning ratio. The first figure is known, the second figure is estimated and the third figure is what people spend their life times guessing. Do not do that. Nobody, nobody, really nobody has been able to say ‘how the public perception of value will change’. Take it as it goes, that is all.
6. Compound interest is better than Simple Interest, but in investing simple ideas are far superior. If you believe that the Indian Real estate story is correct, cement is a better buy than DLF. Kajaria Ceramics is better than cement. These are just examples, I have no idea of the valuation of these shares.
7. Stock market returns are Volatile. I have said this a billion times in my blog. Also the equity returns are superior to other asset classes because of volatility. However at the first signs of the markets jump up or fall down people start asking ‘what is happening in the market’. Hey nothing is happening – that is how the market behaves!!
8. The market is full of experts, charlatans, rocket scientists, astrologers, chartists – all of them are interested in managing your Money for a fee. If you do not know how your financial expert is being compensated, you are paying a much higher price than what you think.
9. The sheer audacity and incompetence – apart from lack of training of course is amazing. Such people can call themselves by any title – containing the words = finance, financial, wealth, charter, certified, registered, adviser, agent, consultant. The Indian Contract Act, 1887 calls them by their Christian name: Agent.
4. Not knowing what is investing time horizon is.
Recently one girl stopped her SIP saying ‘I invested one year
ago, I have got a return of only 12% p.a.’ She has NO CLUE on what
return she wants, needs or gets from other investments that she has
made. Who is to tell her that if PPF gives her 8% and she gets 12% in
equity, this is a brilliant return.
5. Completely goal less investing, redeeming, and not calculating returns Recently one girl stopped her SIP saying ‘I invested one year ago, I have got a return of only 12% p.a.’ She has NO CLUE on what return she wants, needs or gets from other investments that she has made. Who is to tell her that if PPF gives her 8% and she gets 12% in equity, this is a brilliant return.
This means that over a 5 year period if a share has doubled in value, they have no clue that they have got 14% return.
6. Being mathematically challenged
Some investors do not even know how much they have earned in dividends! Innumeracy, is a disease.
Here are nine investment lessons everyone should know
1. The earlier you start the better, but today is surely better than tomorrow.
2. Your total return depends on
how much return you get on each portion of your portfolio. So if 10% of
your money is in equity, it hardly matters whether you get 10%, 12% or
-12% on your equity portfolio. The overall impact of this is, 10% – that
is all.
3. Compounding worked for your
grandfather, father and it will work for you. Do not spend 20 earning
years wondering whether compounding will work. It does. Inflation is
negative compounding, and that works too
4.Compounding makes you rich, but
compounding takes time. Sigh. No easy road to Wealth, immaterial of the
forex trading, commodity trading, real estate ads that you see in the
media. Remember today media means ‘paid media’ – so even the articles
are biased. The current flavor is ‘why real estate is far superior to
equities’ so true!!
5. Your equity returns is the sum of dividend yields (say 3%), future growth (say 10% including inflation), and a future change in the price earning ratio. The first figure is known, the second figure is estimated and the third figure is what people spend their life times guessing. Do not do that. Nobody, nobody, really nobody has been able to say ‘how the public perception of value will change’. Take it as it goes, that is all.
6. Compound interest is better than Simple Interest, but in investing simple ideas are far superior. If you believe that the Indian Real estate story is correct, cement is a better buy than DLF. Kajaria Ceramics is better than cement. These are just examples, I have no idea of the valuation of these shares.
7. Stock market returns are Volatile. I have said this a billion times in my blog. Also the equity returns are superior to other asset classes because of volatility. However at the first signs of the markets jump up or fall down people start asking ‘what is happening in the market’. Hey nothing is happening – that is how the market behaves!!
8. The market is full of experts, charlatans, rocket scientists, astrologers, chartists – all of them are interested in managing your Money for a fee. If you do not know how your financial expert is being compensated, you are paying a much higher price than what you think.
9. The sheer audacity and incompetence – apart from lack of training of course is amazing. Such people can call themselves by any title – containing the words = finance, financial, wealth, charter, certified, registered, adviser, agent, consultant. The Indian Contract Act, 1887 calls them by their Christian name: Agent.
6. Being mathematically challenged
Some investors do not even know how much they have earned in dividends! Innumeracy, is a disease.
Here are nine investment lessons everyone should know
1. The earlier you start the better, but today is surely better than tomorrow.
2. Your total return depends on
how much return you get on each portion of your portfolio. So if 10% of
your money is in equity, it hardly matters whether you get 10%, 12% or
-12% on your equity portfolio. The overall impact of this is, 10% – that
is all.
3. Compounding worked for your
grandfather, father and it will work for you. Do not spend 20 earning
years wondering whether compounding will work. It does. Inflation is
negative compounding, and that works too
4.Compounding makes you rich, but
compounding takes time. Sigh. No easy road to Wealth, immaterial of the
forex trading, commodity trading, real estate ads that you see in the
media. Remember today media means ‘paid media’ – so even the articles
are biased. The current flavor is ‘why real estate is far superior to
equities’ so true!!
5. Your equity returns is the sum of dividend yields (say 3%), future growth (say 10% including inflation), and a future change in the price earning ratio. The first figure is known, the second figure is estimated and the third figure is what people spend their life times guessing. Do not do that. Nobody, nobody, really nobody has been able to say ‘how the public perception of value will change’. Take it as it goes, that is all.
6. Compound interest is better than Simple Interest, but in investing simple ideas are far superior. If you believe that the Indian Real estate story is correct, cement is a better buy than DLF. Kajaria Ceramics is better than cement. These are just examples, I have no idea of the valuation of these shares.
7. Stock market returns are Volatile. I have said this a billion times in my blog. Also the equity returns are superior to other asset classes because of volatility. However at the first signs of the markets jump up or fall down people start asking ‘what is happening in the market’. Hey nothing is happening – that is how the market behaves!!
8. The market is full of experts, charlatans, rocket scientists, astrologers, chartists – all of them are interested in managing your Money for a fee. If you do not know how your financial expert is being compensated, you are paying a much higher price than what you think.
9. The sheer audacity and incompetence – apart from lack of training of course is amazing. Such people can call themselves by any title – containing the words = finance, financial, wealth, charter, certified, registered, adviser, agent, consultant. The Indian Contract Act, 1887 calls them by their Christian name: Agent.
Some investors do not even know how much they have earned in dividends! Innumeracy, is a disease.
Here are nine investment lessons everyone should know
1. The earlier you start the better, but today is surely better than tomorrow.
2. Your total return depends on how much return you get on each portion of your portfolio. So if 10% of your money is in equity, it hardly matters whether you get 10%, 12% or -12% on your equity portfolio. The overall impact of this is, 10% – that is all.
3. Compounding worked for your grandfather, father and it will work for you. Do not spend 20 earning years wondering whether compounding will work. It does. Inflation is negative compounding, and that works too
4.Compounding makes you rich, but compounding takes time. Sigh. No easy road to Wealth, immaterial of the forex trading, commodity trading, real estate ads that you see in the media. Remember today media means ‘paid media’ – so even the articles are biased. The current flavor is ‘why real estate is far superior to equities’ so true!!
5. Your equity returns is the sum of dividend yields (say 3%), future growth (say 10% including inflation), and a future change in the price earning ratio. The first figure is known, the second figure is estimated and the third figure is what people spend their life times guessing. Do not do that. Nobody, nobody, really nobody has been able to say ‘how the public perception of value will change’. Take it as it goes, that is all.
6. Compound interest is better than Simple Interest, but in investing simple ideas are far superior. If you believe that the Indian Real estate story is correct, cement is a better buy than DLF. Kajaria Ceramics is better than cement. These are just examples, I have no idea of the valuation of these shares.
7. Stock market returns are Volatile. I have said this a billion times in my blog. Also the equity returns are superior to other asset classes because of volatility. However at the first signs of the markets jump up or fall down people start asking ‘what is happening in the market’. Hey nothing is happening – that is how the market behaves!!
8. The market is full of experts, charlatans, rocket scientists, astrologers, chartists – all of them are interested in managing your Money for a fee. If you do not know how your financial expert is being compensated, you are paying a much higher price than what you think.
9. The sheer audacity and incompetence – apart from lack of training of course is amazing. Such people can call themselves by any title – containing the words = finance, financial, wealth, charter, certified, registered, adviser, agent, consultant. The Indian Contract Act, 1887 calls them by their Christian name: Agent.
