AVOIDING DEADLY INDISCRETIONS WHILE INVESTING

AVOIDING DEADLY INDISCRETIONS WHILE INVESTING
·      Other people do illogical things because self-interest is involved.
·      But why does an investor behave so irrationally when it is his own money at stake?
·      The answer could be laziness or ignorance or certain behavior traits.

1. Trading in the name of investing
·      People buy and sell shares or mutual funds at a pace which only helps the broker make money.
·      The more you churn portfolios, the more you are paying commissions to your broker.

2. Maintaining an extreme view, too conservative or too aggressive
·      Some people don’t think beyond government bonds, provident fund and bank fixed deposits.
·      As a result, their portfolio grows at a rate which is not even above the headline inflation rate.
·      Then there are investors who keep pumping money into direct equity without understanding the basics of portfolio construction.

3. Refusing course correction
·      People can be bull-headed about their investments and refuse to sell because they have been told that equities are the best bet.
·      They do not even stop to know about the companies in which they are investing.

4. Trying to time the market
·      Even smart, intelligent people believe they can time the market.
·      The probability that you will get it right is very, very low.

5. Following ‘uncle’s’ advice
·      People buy shares because an aunt or an uncle told them to.
·      They invest in some other stocks because a friend or colleague recommended it.
·      Slowly, they build a ‘list of stocks’ that they call a portfolio.
·      They overlook the crucial fact that friends and relatives are not market gurus.

6. Choosing the wrong advisor
·      Most investors ignore the conflict of interest with brokers, agents, even financial planners.
·      These people always want more of your money invested in different places, even if it is not required.
·      As you do not ask your barber whether you need a haircut, the same holds true for finances.

7. Using one strategy for all investments
·      Investment strategies for short-term and long-term goals are not the same.
·      Similarly, there is no fixed pattern to investing in equities or debt.
·      But investors seek refuge in the one strategy that gave great returns once upon a time.
·      It is immaterial that since then it has done nothing significant for their money.
·      No one formula is guaranteed to give good returns all the time.