Saturday, November 04, 2006

Creating an Investment Game Plan

P.S: If you find this blog useful, please share the link with your friends, colleagues. It would be also be helpful to them and I would get some good readers. This would be an encouragement for me to continue posting.

Whenever we people (in our twenties) hear about the word "Investment", we relate it to Mutual Funds and Shares. In some places, discussing about Shares and Mutual Funds are taboo. Its not discussed and the children are not made aware of these wonderful instruments. I have been in this same environment. But slowly my family is changing and the young people of my family have taken the baton to bring about change in attitude. This was not easy either. So it was simple that my father was sceptic earlier. Me and my brother had some setbacks, really speaking many. First my brother started with the IPO process. It was giving some healthy returns but not all IPOs were great. So slowly as all investors, we moved to Penny Stocks. We were warned that its not good to dabble in Penny Stocks.

Yet we did and learnt our first lesson on "Liquidity". The lesson was that for some stocks like Penny stocks, you dont have sufficient liquidity i.e. you wont have immediate buyers, when you want to buy. There are also some B-group shares which you can sell only after 3 days of buying. We were professional in our approach to it. We did bought recommendation service from 10paisa.com but later learnt that it was all on momentum generation!! Anyway we learnt our lessons.

Slowly we moved to stocks in the range of 100 Rs and then moved to midcaps and then slowly to largecaps. During the begining we started with 50,000 INR capital. After all this dabling in the shares we had around 10% loss, i.e. the capital reduced to 45,000. Not a big amount for the lessons which we learnt!! ;)

As all investors we leanrt about the Derivative market i.e. Futures and Options. We learnt the basics of that. I would rather say that I was only a passive contributor. My brother was blazing all the way. We increased the capital to 1 Lakh and started dabling in futures. You people wont believe, but we converted this 1 Lakh capital to 3 Lakhs in 2 months time. It was during April - May. And due to over confidence, we took a wrong position in Reliance options and Indian Hotel futures and came the May meltdown of sensex and our capital was reduced to around 55,000. Again some lessons learnt. After that again, I lost some 23,000 in some wrong decision.

I would tell you the safeguards we used. We used to read many books, ask many people and read, read and read all the way. This was because, we both wanted to be sure that we made informed decision.

I am telling this story not to eulagise myself. But to tell you about the process which we both, me and my brother went through. This process has been quite worthy because we both leanrt our lessons fast and since we both are young, the money we lost can be got back. So you can see we lost a real worthy amount. But there are as such no qualms. I know that some people would call us fools. Its very easy to say that we should maintain discipline and control our mind, when you come on line of fire, when you have placed your money on the market, then greed and fear forces take over your mind. Then you cannot control your emotions. We have experienced this personally. After having greed and fear in your mind, you cannot take rational decision. This was the biggest lesson learnt.

So people, as some one said, "Stock market is a gold mine, it opens in the morning and allows people to collect as many gold as possible. Its upto the person to make full use of the oppurtunity!!".

Many of my friends ask me about the shares market, derivatives and all these things. I know that not all people can handle the loss which share market can give. So I ask my friends one question, "Can you afford to lose 50,000 or more?" This is for futures market. But my advice is, Invest the amount which you can afford to lose.

Sorry for no post during this week. I am reading a book titled "Creating an Investment Game Plan". Its a good read. It gives a holistic view of the investing process. Hence investing is not just buying some shares and stuff like that. Its a plan, which we need to make. I will shortly post a link to the pdf version of this book. People investing is a big process where we take small steps to achieve our target. Sorry for the long post, this I made because at time I receive some absurd request. To quote one, once my friend told that he will give me 1000 Rs a month and I have to give him 1100 Rs at the end of the month. This amounts to 10% returns per month and 120% per year!!! My friend was just thinking that share market is an easy place where we mint money!!. People who have such a high kind of return expectation should also be prepared to lose the same kind of money.

Do join me in the journey, which I would be starting in some time. I have been receiveing some good traffic. Please leave a comment saying, whether you found the content useful, useless, some corrections or any advice! I would be glad to receive it all and implement it.

3 comments:

Anonymous said...

Hi

Nice reading your post.Plain english lot of gyan.Keep up good work pal.

Why dont u throw some light on F&O ?

Not much useful info available on net as of now.

Karthi

RupeeManager said...

Hi Karthi,

Thanks. I would surely put something on F&O, but I think people should know a little more about the functioning of the stock market or else F&O will be a bouncer for them. If you dont know the cons of F&O then you may loose much of your money in just some minutes. I have seen it happening to me and dont want it to happen to you all...

I am planning to have a series of posts in the coming week.. I was a little busy with work, so was not able to add anything...

RupeeManager

share said...

Hi,

Once again after crash Nifty has started going up. Now we suggest all rises should be used as an opportunity to exit old long positions.
This bull run will continue for few more days. Overall market is in bearish mood as in medium term its just a small rally due to short covering
and result season.


Happy Trading,

ShareGyan