My mistakes in the Market.

My mistakes in the Market.

This is probably the best part of this long article cum tutorial because it comes straight from my hands-on experience. I will list them in the order of their importance. I used to wonder why even after the doctor warned an individual about his level of liquor intake, he continues to drink? The person is aware of the dangers and he tries to stop himaself from abusing his system; but invariably fails. Lack of will power to blame I suppose.
In much the same way, we are all human beings and it will not be easy to have such will power that is needed to take the right path. Human beings are easily overcome with emotions like greed and make mistakes.
However it is those individuals with clarity of thought, perseverance, single minded focus, and those who are not easily overcome with emotions no matter what happens around them, who eventually succeed.
Hence my advise is, follow the advice from reliable sources and do learn from your mistakes.
Anyway, onto my mistakes - I am a bit embarrassed but hope you benefit from my revelations.
1. Having invested all my savings in equity.
My first mistake was putting all my savings in equity. It sent shivers down my spine at one point when market was crashing relentlessly in a free fall. When the market goes down and if some part of your savings is safe in the bank account, it will be a great relief that you haven't put all eggs in one basket.
When the crash is strong and you are making loss, it is hard to even sell your shares. Now, the thing is whether you need money at all in hand. If you don't, your battered shares will eventually recover (provided your purchase was of good companies). However it is a deadly thing to do by putting all your money in equity alone. When it is shooting up, you would feel vindicated. However share market is such that it can go down with the same speed.
Hence the advice is "never invest all your money in equity". Some advisors say put only 30%. That may be the wisest thing to do. However a 40 or 50% may not be a bad idea depending upon your risk appetite.
2. Selling.
Why should one sell? when one scrip is not moving, or when a company performs badly in two quarters in a row?.
The right answer should be the latter but most people follow the former. Like them, I often made the mistake of selling and going after a new scrip that's 'hot'. By the time I sell, the cold one becomes hot and the hot one becomes cold. Because by the time you read a news item that makes sense enough to go after a scrip, or hear a hot tip and follow the scrip, it would have very often, lost all its steam and stopped appreciating.
Now, I have almost fully learnt to trust and stay with my scrip, my company, no matter what buzz goes around. I do move to a new scrip but much more cautiously and prudently than I used to. An advice to my readers: If one scrip is so compelling and forcing you to sell your holding, do that selling slowly (over a week or a month) by selling part by part. Because you never know! The moment you sell your favourite one, it could start shooting up. That's the market; no one knows that a storm is brewing in your own tea cup. But people often look into others tea cup's. Stop doing that, please, for your own good.
Also, remember the broker commission and other associated expenses for the selling and buying transaction. No matter whether you made money or not, through your transaction of buying and selling, your broker makes money and the government through TAX makes money too.
Look at the one year charts through www.nepalstock.com. You can see that there are many good scrips rise substantially once in an year and for a brief period. How would you possibly catch that rise even if you stayed for 11 months; the ascent may come in the 12th month. There are also those which climb incessantly upwards and for longer periods, but how would you know? Also, there is nothing like it - what goes up will come down.
So learn to stay, not sell. Selling is surely not important. One word about buying - follow that 'part by part' policy while buying scrips too. A scrip wont disappear but your money will.
3. Panicking and booking loss.
I trusted my selections of stocks. I studied them however briefly, before I invested, I decided never to sell for a loss. Yet when I saw the heavy crash in May 2006, I started selling and booking loss. By July, Market was undergoing a nice recovery. Yet in May, I failed to pursue my decision 'never to sell for a loss'.
4. Not having chosen only the best.
As a beginner, I must have chosen only the fundamentally strong companies. Only few companies I have chosen, is performing poorly today. However I haven't restricted myself only to the fundamentally strong companies. For example STC, , NABIL, EBL, to name a few.
Problem is that in a bull market almost all good companies will be on an uptrend. Everything will look good. It is when a serious crash starts, many that went up fastest are likely to loose out first. Also, their recovery is very likely to be slow. However the blue-chip companies such as STC or NABIL rebound faster and enjoy a good level of insulation from a crash.