9/11/2017 7 bad habits that can ruin your entire equity portfolio - The Economic Times

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7 bad habits that can ruin your entire

equity portfolio
By Rahul Oberoi, ETMarkets.com | Sep 07, 2017, 02.59 PM IST

Making big money is different from making

quick money: the first requires patience, the
second plenty of luck.

If you have opted for the first option, your

patience is already being put to test. If it’s about
0 quick money, run from stocks and look for other
Comments
If you have opted for the first option, options.
your patience is already being put to
test.
Serious wealth creation in stocks requires a
little bit more than money. In
Company Summary NSE BSE contrast, bad manners can put
you on the highway to hell, so to
Pyramid … speak.

Financial …
So, what are those bad
manners?

Man in a hurry
The power of compounding is magical. However, its effects get visible only over
time. At 15 per cent compounding, you can grow your capital 8 times in 10
years and 16 times in 20 years. One of the common traits of most successful
stock investors is their ability to invest with a long-term perspective. For such
investors, such a period could be easily 10 years or more. Most Read Most Shared Most Commented

“It is impossible to predict short-term market movements. The stock market is 3 factors slowing the economy down when rest of
the world is growing: Raghuram Rajan
best suited for long-term investing, but less than 1 per cent of investors seem to
be successful in creating serious wealth,” said Ramesh Bukka, Co-founder and 7 bad habits that can ruin your entire equity portfolio

Director, Entrust Family Office Investment Advisors. Whoever won in Doklam, India has lost equity edge
to China, and how!

Ignoring fundamentals 700% return in 5 years, but down lately, this

Fundamentals are the bedrock of investing. Unlike in 2013, when equity multibagger is set to look up again

investing was pariah, investors have got enamoured by the equity rally in recent Grey market premiums soar for current IPOs even
times and are ignoring fundamentals in order to make quick profits. In heady before close

times like now, investors do not seem to be focused on a company’s More »

operational and financial performance and, most importantly, valuations.

“There are quite a few pockets in the market where business prospects look
bright, but fundamentally, valuations are way ahead discounting returns many
years ahead. If you get this wrong, be prepared for long periods of zero or even
negative returns,” said Bukka.
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9/11/2017 7 bad habits that can ruin your entire equity portfolio - The Economic Times
negative returns,” said Bukka.

Markets are never efficient and will run ahead of fundamentals in euphoric
times or undervalued in bad times. Most stocks tend to exhibit high volatility and
significant short term price fluctuations are here to stay. While there may be
setbacks, stock prices will align to business fundamentals in the long run.

Unnecessary risk taking

The stock market is seeing a plethora of ‘compelling’ stories with investors
salivating at the prospect of multibagger returns. Stocks tend to run up
significantly on announcements of high-profile investors making an entry.
Investors need to exercise caution and study the fundamentals and prospects
before taking the plunge. Following a market expert without knowing the
fundamentals of a company could be a mistake.

Also, often investors get carried away by free advisory from news channels or
word-of-mouth recommendations from friends and take investment calls with
utmost faith. Such information without authentication can lead to wrong decision
making, if it turns out other way. Investors should remain cautious towards
market sentiment of fear & greed, as it leads in the wrong direction in most
cases. “Any related market news or tips shouldn’t be on standalone basis but
rather it has to be followed with diligent research. Further the investor should
capitalise on a basic phenomenon of fear and greed when market provides with
an opportunity,” said Dinesh Rohira, Founder & CEO, 5nance.com.

Can’t sell my dad’s gift

Anchoring is when you have an emotional attachment to a particular
investment, in this case a stock. It happens to the most of us, especially if the
stock has given a lot of returns or has been part of the portfolio for umpteen
years. Perhaps your dad bought some shares with his first earnings. Or, this
was the first stock investment you and your wife made. Such reasons make you
unwilling to sell them.

“When your investment strategy is based on emotion, you are not making
sound investment decisions. It might feel like that particular stock is safe
because you’ve owned it so long, but let’s remember the fate of stocks like
Satyam, Pyramid Saimira, Financial Technologies, Unitech,” said Anil Rego,
CEO & Founder, Right Horizons.

Up 300%; this stock will rise more

We often come across investors who are extremely greedy. Greed is good in
only small measures. A year back, a farm equipment related stock hit extremely
low level. Pretty soon, it rebounded as the consumption theme kicked in and
gave 200 per cent returns in a year’s times. Investors started believing that the
stock will take rest only after hitting life-time highs. It has started correcting
again.

“In stock market, when you make out-sized gains, always book profit. In the
dotcom boom in 1999-2000, there were many examples where stocks tripled or
quadrupled in months. Investors were waiting for the investment to be tax-free.
When the fizz ran out, they tumbled like a stone and profits vanished faster than
they were made,” said Rego.

Value in the garbage

In a bull market, value stocks are rare. It requires hard work to discover them.
Some new investors have a simple formula – they look for the stocks that have
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9/11/2017 7 bad habits that can ruin your entire equity portfolio - The Economic Times
Some new investors have a simple formula – they look for the stocks that have
hit 52-week lows or all-time lows. If only making money was that simple! Some
stocks trade at extremely cheap valuations because they deserve to be so. So,
more often investors buy a stock that has hit lows. The stock keeps falling, and
they keep buying, and pretty soon double their position. These trades are often
one-way highways to hell.

“It’s only very late that the investor realises this folly, and ends up losing a lot of
money. Garbage is for throwing the trash. Don’t start looking for gems in trash!”
said Rego.

Failing to exit
The greatest challenge investors often face is to exit from his current portfolio. It
becomes even more difficult for investors to exit a portfolio when it is in the
negative zone. This further erodes wealth if the same strategy is continued.
One fails to accept that there are stocks which are fundamentally weak with
lower probability of improving anytime soon. This undermines the overall
portfolio, where an investor beholds with expectation of recovery. Thus, one
should be aware of such fundamental changes where the upside remains
unstable. “Remember real money is made only when you exit a profit-making
portfolio,” said Rohira.

READ MORE ON » Wealth Volatility Stock Market Pyramid Saimira Multibagger

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9/11/2017 7 bad habits that can ruin your entire equity portfolio - The Economic Times

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