Spend, Save and Invest Smartly

How to Avoid Common Investing Problems



You must have heard the famous saying “You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right, and that’s the only thing that makes you right.” If you want to make money in the stock markets, you need to avoid mistakes. The lesser mistakes you make, sooner you’ll get rich.

Never invest for the short term

If you want to enjoy the benefits of investing in stocks, you need to stay invested in the stock markets for at least 3-4 years. Stock markets are very volatile (tend to move up and down rapidly), in the short run, because of a number of factors. Recently the Chinese economy had crashed, leading to stock market crashes around the World. The beauty of the stock market is that….Sure it crashes…But it also rises again. If you had invested your money when the stock markets were high and now the market has crashed, your losses would be huge. It would be wise to wait until the stock market rises again..It surely will…and then sell your stocks. If you panic and sell your stocks immediately, you will suffer a huge loss. Have patience…Wait till the time is right (even if it takes 3 years), for your stocks to rise, and sell them at a profit.

Everybody’s talking about stocks

The stock markets rallying. Literally every stock is going up. Your friends and acquaintances are advising you to invest in the stock market. The cab driver, your neighbors, colleagues…well pretty much everybody is telling you to buy stocks. Your friends, who till now were investors, have become day traders. Worse….They are actually making money.
You throw caution to the winds and start buying any stock without even looking at its fundamentals. Retail investors (common investors like you and me), jump into the stock markets, when they are peaking. Most of the time a big fall in the stock market follows.
Remember:
To make money in stocks, buy the right stocks (stocks with good fundamentals), at the right price at the right time. Buy low…Sell high.

You try to save on short term capital gains

You buy stocks and sell them for a profit within a year. Your Gains/profits are called short term capital gains. You are taxed at the rate of 15% on your short term capital gains. You might have bought stocks, which have given very low returns in the past year. You continue to hold these stocks without selling them, as you do not want to pay tax on your short term capital gains. Normally it is considered bad to sell your stocks before they complete a year. No tax is charged on stocks, held for over a year. However if you have made a bad buy (the stock you have purchased is not good and may fall down), then you must sell this stock. Your stock might have currently made a small profit, but tomorrow it could suffer a loss. If you have reason to believe that the stocks you hold are not good, then sell them in spite of short term capital gains tax, before it is too late.

You invest in a Company of Questionable Reputation

If you invest in a Company whose management has a questionable reputation, it is like giving the keys of your cup board to a thief. Why would the management of a Company known to be dishonest, care about your money? If you invest in a Company where the reputation of the management is questionable, they would most likely disappear with your money.
Remember:
Honesty is a very expensive gift; don’t expect it from a thief.

The turnaround

You must have heard stories of Companies which would soon turnaround. For 2 years XYZ industries is in heavy losses…. No problem…. It is now the next big story. A new management is taking over and is so capable; the Company will turnaround in no time. It is a good deal for you, as its stocks are available for a very cheap price. This is mainly false propaganda, spread by investors stuck in these stocks. Only an exceptional management can turnaround a multi-crore Company .Most of the time such attempts end in failure. Unless you are absolutely confident of the management, do not buy such stocks.
Remember:
Buy stocks on results. Not hope.

You buy stocks of a Company in heavy debt

Buying stocks of a Company in debt, is like trying to run with your legs tied. If a Company has borrowed huge amounts, it will have to pay interest on these borrowed amounts. The stocks of such Companies will be available at very low prices. Do not jump and buy them. If a Company is heavily in debt, the stocks of such Companies are best avoided.Why risk your hard working money on stocks of a Company in heavy debt? Finally, profiting in stocks is not about being lucky. Buying a stock is not like buying a lottery ticket. The lesser mistakes you make, the luckier you get.

Financial Planning
Tax Planning
Investment Planning