1.Keeping more number of Scrips than one can manage:
One size does not fits all. Always keep stock telly restricted to the numbers which you can track with all business insights, whether it’s about Management, new product launches, earnings etc. Ideally your portfolio should not consist of more than 30 stocks with diversified asset allocation.
2. Too high weightage of Single Scrip or Sector in Portfolio:
“Never put all your eggs in one basket”. Quote defines itself. Diversifying your stock portfolio is as important as keeping money in different pockets while travelling. It is always advisable for an investor not to concentrate their portfolio towards single stock. Weightage of single stock should not exceed 10-15 % of your entire portfolio. This will help investor to safeguard and reduce risk associated to specific company.
3. Buying known company when it starts reducing from its peak:
There’s nothing called bottom in capital markets. The only thing that exits is that at what value you are buying and intention of buying… Investment or Trading? Be a trader when you buy a stock for trading. Avoid becoming an investor when the stock prices are not in your favor. Finally don’t try to catch falling knife, it may hurt you with losses.
4. Buying a Stock on TV Channel News or Rumours:
Chasing market rumors does not work all the time. Avoid making decision on buying stocks relying to someone you don’t know. Significant price spike in illiquid or thinly traded stocks without any justified reason is a red flag, this signals manipulation of stock; may be by operator. So don’t buy stocks based on random tips. Do your own research before investing or get guidance from qualified advisor. Always make an informed decision before taking any position.
5. Not able to book loss when scrip loose its fundamental strength or find some management/corporate governance issue:
In Security Analysis – Book by Benjamin Graham & David Dodd (Both considered as Father of Value Investing) which Warren Buffet follows, describes EFGH Theory.
This theory articulates four things that one should evade while investing.
Four things stands as
E for emotion
F for fear
G for greed
H for hope.
We believe : To be a successful investor / trader, you should avoid EFGH while investing / trading.
And finally, capital markets need discipline, so always stick with rules of investing / trading and evaluate your risk before thinking of return.