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Sri Lanka Equity Forum » Stock Market Talk » Expert Chamber » Here Are The Ground Rules For Successful Investing

Here Are The Ground Rules For Successful Investing

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sriranga

sriranga
Co-Admin
Not long ago investing was easy. There were few places you could invest and if you had money you wanted to invest, you left it to the professional stock brokers. However, deregulation of the financial markets has changed all this. In the past 20 years new investment products have been launched, changes have been made to the tax systems and retirement plans which have altered the attractiveness of many investment products.

Up to about 20 years ago, share investing was purely in the domain of the wealthy. For most people it was difficult to trade in overseas stock exchanges, there were no such thing as cash management trusts, installment warrants, exchange traded options, dividend imputation, reset preference shares and endowment warrants - to name a few. Now about 50% of investors are "mums and dads" investors who either own shares directly or in managed funds. Unfortunately, in recent years many investors have been "burnt" because they did not understand the risks of investing in financial markets.

Governments around the world have made it clear that it is important for people to take control of their own financial futures. The sustainability of government funded pensions is under pressure. If you do not save and invest, you will suffer a significant decline in your retirement living standard. The average life expectancy is about 80 years, so if you retire at 60 years of age, the savings you have accumulated in the 40 years of your working life will need to fund your retirement of 20 years or more.

Deregulation of financial markets, interest rates and currencies means that the market determines the value of investments and not government decree. This provides opportunities for educated investors to build wealth and for unwary investors to lose wealth. You must understand the opportunities and risks.

The ground rule is that if you want to be a successful investor in financial markets, you must educate yourself about investing. Even if you put your faith in a licensed investment advisor, not all are competent. It is essential that you understand how the financial markets work so that you do not put your hard earned money in the hands of an incompetent advisor who is only interested in the commissions available. How can you tell whether a particular investment is right for you? The only sure way is to become familiar with the language used in the financial industry and to have a sound investment strategy. Does this mean that you should keep you money safe by putting it under the bed or keeping it in the bank? No - but you do need to understand the risks involved and set ground rules for successful investing.

There are a number of ground rules in investing that haves stood the test of time. With time, patience and effort you can become a successful investor in all the areas that are open to you. This will not come overnight and you will have to be prepared for that fact there will be times you lose money. However,perseverance is a virtue above all others. The road is not always easy, but nothing worthwhile is.

Here are the ground rules for successful investing:

1. Be your own investment manager. No advisor or stockbroker should do it for you. Only you know what your real needs are, what your temperament is - and only you are motivated by your own best interests, not sales commissions. It is also more fun to do it yourself.

2. Confront risk and then reduce it through spreading your investments.

3. Take a contrarians view to investment markets. That is, look for opportunities and do the opposite of what everyone else is doing.

If your investing facts are out-of-date, how will that affect your actions and decisions? Make certain you don't let important investing information slip by you.

4. Do not be put off by investment jargon. Master it instead.

5. NOW is the best time to start investing. Do not wait for the markets to improve. If the share market is filled with gloom, that is the time to buy.

6. Make good quality shares the core of your investment strategy. Then you can rest easy when you invest in more speculative areas.

7. Always consider tax implications of making investments but never let tax minimization be the main objective. The fundamental rule is to think in terms of after-tax returns.

8. Keep up to date through reading the financial papers and searching independent investment research websites.

9. Discussing investments is stimulating. Condition your mind to talk to others about investing, especially people who are more experienced and knowledgeable than you are.

10. Do not be greedy. Discipline yourself to cut your losses with bad investments and cash in when you have made a reasonable profit.

11. Be patient. Rome was not built in a day. Similarly, you may not become wealthy overnight, but you will over time.

12. Never invest in anything you do not understand. If a particular investment sounds too good to be true, it usually is.

13. Pay yourself first. Most people invest money they have left over after paying the bills. Allocate yourself the first 10% of your monthly income to build up your investment capital. By doing this you will force yourself to become an investor and the long term benefits will be enormous.

If you master these 13 ground rules, you will be a successful investor. You will rival so-called professionals and will sleep easily at night knowing that money is the least of your worries.

Have a good trade.

Source: Investing

http://sharemarket-srilanka.blogspot.co.uk/

Antonym

Antonym
Vice President - Equity Analytics
Vice President - Equity Analytics
Another excellent post by sriranga!

I find Rule No. 10 the most difficult to follow because -
(1) I am never willing to admit that I have made a 'bad investment'. How do you define a bad investment?
(2) I can never decide what is a 'reasonable profit'. Is 20% per annum adequate? Why not 50%? Or 100%?

Any advice on these points?

sriranga

sriranga
Co-Admin
@ Antonym
Thanks a lot for your valuable feed back.
In my humble opinion towards bad investment is
" Bad investments come in many forms. Sometimes because of unscrupulous sales people; other times because of our own ignorance or naivety".In the long term they will all result in poor performance or loss of money.May be I'm wrong please advice.
For me personally if I get on my investment (not trading) around 25% return per annum at this present state of economy, I'll be happy.
All of us know very well, more than that make as more happy no?
Comments appreciated.

http://sharemarket-srilanka.blogspot.co.uk/

NimeshaJK

NimeshaJK
Manager - Equity Analytics
Manager - Equity Analytics
WOW.. great piece of advice... I specially love rule no. 01.. Smile

http://njkentertainment.freeforums.org/index.php

bakapandithaya

bakapandithaya
Vice President - Equity Analytics
Vice President - Equity Analytics
Thx for good advice sriranga

pathum


Equity Analytic
Equity Analytic
Nice read bro!!! Thanks for the share!

gajaman pro


Manager - Equity Analytics
Manager - Equity Analytics
Laughing sup!

Investor99


Manager - Equity Analytics
Manager - Equity Analytics
@Antonym wrote:Another excellent post by sriranga!

(2) I can never decide what is a 'reasonable profit'. Is 20% per annum adequate? Why not 50%? Or 100%?
Any advice on these points?

Sorry to say this but I would look at this as greed this were most investors make the mistake of trying to make a lot of money.

Kithsiri

Kithsiri
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Yet again an excellent one & thanks for you efforts.
I like most is the point No 13 (though many consider number 13 as an inauspicious number) Pay You First. Very Happy

swan03


Vice President - Equity Analytics
Vice President - Equity Analytics
Good article! +1 rep from me.

Ajith Rajapakse


Equity Analytic
Equity Analytic
Sriranga,
Once again you have posted a very good article. Thank you very much for sharing with all of us,

Antonym

Antonym
Vice President - Equity Analytics
Vice President - Equity Analytics
@Investor99 wrote:
@Antonym wrote:Another excellent post by sriranga!

(2) I can never decide what is a 'reasonable profit'. Is 20% per annum adequate? Why not 50%? Or 100%?
Any advice on these points?

Sorry to say this but I would look at this as greed this were most investors make the mistake of trying to make a lot of money.
I agree that too much greed is dangerous.
But my question was: How do you decide what is a reasonable profit?

Quibit

Quibit
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Article moved to Expert Chamber

smallville

smallville
Associate Director - Equity Analytics
Associate Director - Equity Analytics
@Antonym wrote:Another excellent post by sriranga!

I find Rule No. 10 the most difficult to follow because -
(1) I am never willing to admit that I have made a 'bad investment'. How do you define a bad investment?
(2) I can never decide what is a 'reasonable profit'. Is 20% per annum adequate? Why not 50%? Or 100%?

Any advice on these points?

If we're simply looking for an investment, my definition of bad investment would be like this;

1) Invest in Illiquid shares where you cannot sell in a hurry.
2) Investing in a business that is alien to your apetite.. which means you dont understand what is going on.
3) Getting married to a particular sector or zero diversification. Any business can go wrong, diversify your investment to 2-3 sectors or shares at least would save your initial objective.
4) Invest 90% your money in CSE. Stocks it self is a bad investment if you dont mitigate the risks properly, so the max your should invest in here is 50% of your hard earned money.
5) Invest in companies for share price appreciation without studying their business model at all. share prices can fall at anytime if financials are weak.

Further, I define reasonable profit as the capital gains compared to an alternative investment;
Suppose a FD or any other investment oppertunity gives u a 12% return annualy, 15% from stocks is a reasonable profit for the risks that you take in.

Kumar

Kumar
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Thanks a lot sharing a valuable article.
Keep it up.

cseguide

cseguide
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Thanks lot

CSE.SAS

CSE.SAS
Global Moderator
Very good one.
Covering all the basic needs to be an investor.
Thanks.

Light of Hope


Vice President - Equity Analytics
Vice President - Equity Analytics
good one, thanks

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
Good one to read.

rmark

rmark
Manager - Equity Analytics
Manager - Equity Analytics
Sriranga, thank you for sharing a very good article.

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