According to me investment in itself is so scientific and logical that calls for minimum

possible risks. I have heard of people who consider investment in shares, real estate and
mutual funds as too risky affairs. But in reality the person in specific makes a investment
risky rather than the investment itself. In this article we will discuss some most common
behavioral errors
The timing of your purchase makes an investment risky
Let us take a very simple example. Suppose you heard about a stock X which is trading well
in the market for the last 4 months. You decide to buy this stock on the day you heard the
news at say $20 per share. But soon after you bought the share the share price fell to $16.
I know there will be lot of people whose timing of purchase of a share is so bad that they
eventually always end up in loss. These types of people are always those investors who
have less or no knowledge about ‘value investing’. The principle of value investing is very
simple buy low and sell high. But knowing what is low in stocks calls for some study about
stocks and business. Thumb rule to buy stocks when its market price is close or near to its
book value. But here you will need to know about the past performance of the company and
probable future business prospects like order booking status etc.
Learn to value stocks in terms of its fundamentals
Investors must have at least basic about reading balance sheets and profit & loss accounts.
They must know how the company is generating its funds and where it is spending the
funds. The proportion total share capital and borrowed funds gives a good idea about the
self sufficiency of a company. Reading profit and loss accounts is also very important. How
the company must is generating revenues from sales and how much they have expended to
affect the sales is very valuable information. Tracking Return on Investment (ROI) and
Return on Equity (ROE) is critical for all investors.
Focus more on performance of portfolio instead of on individual stocks.
Portfolio of a good investor must always be well diversified. Try buying value stocks of non
related sectors. Once you have diversified your portfolio with varying stocks try to
accumulate more units in each market falls. Instead of focusing on individual stocks it is
better to focus on performance of total portfolio as a whole.