Did you get a feeling of deja vu when the Indian stock markets plummeted after the news of the downgrade of the US sovereign rating by S&P? It was compared to the market crash during the Global Liquidity Crisis of 2008.

Did you pressed the panic button following the herd mentality and exited your investments at deep losses? If the answer is yes, then it is likely that you will lose your shirt often or make sub-optimal returns even in a fundamentally strong fast growing company.

Remember, the only losers in the 2008 market crash were those who did not buy companies at attractive valuations and the ones who stopped their SIPs in equity mutual funds.

The monsters of inflation, corruption, political turmoil will continue to cause heavy market fluctuations. Let us accept the fact that they will rear their ugly heads time and again in a country of billion plus population.

Whatever macro problems India faces, internal or external, it will continue to remain one of the fastest growing economies in the world.There are several businesses which have the scope to grow exponentially and reward investors.

With opportunities galore for investing over the next decade, make sure you do not repeat the same mistakes. Here are some guidelines on successful investing:

1. Do I Have Surplus Money:

Before you put your hard earned money into equities, ask yourself where is the money for investment going to come from? If it is from salary income, make sure you have already budgeted for your home loan EMI, insurance and contingency expenses.

Also, if there is a going to be a huge cash outflow like child education or marriage or down payment for a property over the next 2 years, then invest the necessary funds in some safe fixed income instrument and not stocks.

The bottom line is allocate your funds as per priorities and then invest the surplus money in stocks. Investing surplus funds not required for a long period of time will help you to ride the downturn in the markets better.

2. Equities Are Risky:

During the market upswing of 2004-2007, every second or third company yielded at least a 50-100 per cent return. Valuations of even penny stocks doubled or tripled making many a tom, dick and harry feel smart and rich. Investors forgot the basic fact that equities as an asset class are riskier compared to other short and medium term investment options.

So bear this in mind and determine your risk appetite. Ask yourself how much downside you are comfortable with in your portfolio – 10 per cent or 15 per cent or less? If fluctuations in the stock market are giving you sleepless nights, then equity markets are not meant for you.

3. Do Your Homework:

You need not be an expert like the professional research analysts and fund managers to make money in the markets. Equity investing is not rocket science. With a little common sense and sharp observation skills, you can look around for growth stories yourself.

For instance, products or services we consume in daily life. Some latest mobile or computer or technology becomes talk of the town.All you need to do is find out the company which manufactures a successful product and makes millions and billions out of it. It is fine if you take inputs from your broker but the final decision of buying stocks should rest with you.

4. Buy Not Just A Good Company, Buy At The Right Price:

You may have a company with good fundamentals in your portfolio but if bought at the wrong price is unlikely to yield the desired return.  You can invest small amounts regularly in a stock rather than buying lump sum. This will average out your cost and give you a purchase price which is at least close to the intrinsic value of the company.

5. Be Confident And Make Your Independent Decisions:

You need to have the conviction in companies you are investing. If a company reports a bad earnings quarter due to temporary slack business conditions or its stock price plummets due to a general downturn in the market, do not panic.

Instead, you can perceive it as a good opportunity to accumulate the scrip more. If you have the confidence that there will be good potential demand for the company’s products/services and it will grow, then eventually, the right valuations will be reflected in its stock price. Take your own independent decisions and do not follow the herd mentality.

6. Remain Detached:

Do not get carried away by looking at robust growth numbers of a company.You also need to consistently analyse the drawbacks and risks of the company which may affect its earnings potential. For instance, raw material price fluctuations, foreign exchange volatility, market competition, etc.

7. Be Disciplined And Patient:  

Be it an amateur in the stock market or smart alec, the question of when to buy and sell plagues every individual investor. No one can time the market. So, do not trade in shares, invest in them. Maintain a goal-based investing approach. Knowing your target amount and also the time horizon of investment will inculcate discipline.

For instance, you need some amount of money for your child’s education after five years. Keep that as your target and invest some amount regularly and during exceptional downturns. If your portfolio yields the desired return before the end of five years, do not become greedy and wait for it to go up further. Book profits and invest that amount in fixed deposits.

8. Be Humble To Admit Mistakes:

If your call goes wrong on an investment, acknowledge that you have made a mistake and move on. Do not get stuck on it and wait indefinitely for your investment to turn profitable.

If you are of the view that the company’s fundamentals have changed for the worse or you later found out that the management is unscrupulous, book losses. You can more than make up for the losses by investing in better companies with robust growth prospects.

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