Sunday, August 23, 2009

Stocks my only Asset Class in future



Ever since I have started controlling my finances I have been actively studying various types of investments. I began working in March and now that 6 months are over I am taking a hard look at all my investments so far. I had a decent amount in my savings account which I took charge of when I began working. Being a non- finance student I had no idea about taxes, investment options, stocks, PPF,NSC the list goes on. To add to it I moved out of my house to learn how to control all my expenses.

Now that 6 months have gone by it feels like a lifetime. As my mentor told me the other day time is just the difference between 2 events. When your involved in tons of things you feel a lot of time has gone by.Reading,studying, surfing the net, discussing with a number of experienced people has been an eye opener for me.

Lessons learned -

  • Money management is a dedicated job. Not necessarily full time but everybody should spend some time managing their money. As I look around me most of the people are working really hard to make money, but very few people are being smart enough to simultaneously allow their earned money to work for them. People complain about lack of time, lack of knowledge and all possible excuses to avoid managing their own money.I have learned this lesson pretty early in my career and I plan to spend a dedicated amount each week planning my investments.

  • When I first invested my money I divided it into fixed deposits, stocks, some high risk instruments, PPF and ELSS. I have decided to change this decision. I think this allocation is highly customized for each individual and their goals. I am planning to consolidate most of my investments into stocks. I feel value investing practiced with discipline is indeed the best form of investment. I constantly evaluate my decisions on each investment. To justify any of my stock investments I feel if I can invest 'X' amount in this stock then I should be able to invest '1000X'amount also into the same stock or not invest at all. The first Rule which I like to follow in stock investing is to buy a stock in a company I would like to completely own.Besides I feel that I if I plan to be in the stock market I should at least aim to beat the Fixed Deposits 9-10% p.a. I also feel that only when you have big money at stake do you really learn and take sensible decisions.

So since I am deciding to break my Fixed Deposits and invest in stocks I felt it is a good idea to write about it so that I can remember my thought process at this time.

I would love to hear inputs from all the experienced investors, people who have been in the market much longer than me and have different views on the subject of investing.

Reblog this post [with Zemanta]

13 comments:

Manish Chauhan said...

@Sumi

Nice to hear that you have realised managing your Money early in your life .

I would like to put my views from Financial Planning perspective . Investing in stocks for long term is a wise decision . But what about your short term financial goals ?

If you dont have any short term financial goals which needs to be acheived before 1-2 yrs , I would say its fine to invest in stocks by breaking your FD's . But if there are any short term goals , I am not sure if you should break them .

It might happen that you are very confident that your money will grow and you will be able to meet your short term goals using money from stocks only , but are you also accepting that there is a risk that your money can deplete and there are chances that you wont be able to meet your short term goals .

My 2 cents on your post . overall it was good .

Manish

Puneet said...

Great clarity of thought there. I wish I could come across more investors like you. Most people I interact with want to make a quick buck in the market. You however have realised early on the key to making money work for you.

Keep it up.

shaq said...

equities are proven high return instruments in long run...maybe you can wait for a decent correction after this monstrous rally...and stay away from trading in FandO (atleast in a big way) unless you know what you are getting into...
nice blog btw...
Saif

Daniel M. Ryan said...

It's a real step you're taking. Best of luck, and don't be surprised if you start to get anxious. Even investors turn into worriers.

sumi said...

Thank you for all the nice replies.

@Manish I don't have any short term requirements financially. The amount I had put in fixed deposits was anyways locked away so it would not have served the purpose of meeting short term requirements for me. I just feel that I should be able to beat the 9-10% of a fixed deposit provided I maintain discipline.

@Puneet always nice to read your blogs and your replies.

@shaq Thanks for stopping by. I don't concern myself with market correction as such. I track companies and their valuation if they are available at sufficient discount then I will go ahead and buy regardless of market correction. I do not plan to get into F and O I have not studied them so no idea.

@Daniel Thanks for stopping by and reassuring, anxiety is a given when you invest in stocks been watching my portfolio bouncing a lot with the existing volatility. Its all part of the thrill I guess :)

khalid said...

Smart girl
just six months working life and you are planning so smartly that I feel hats off to you. Breaking FD is advisable only if dont have any short term liabilities.
good luck
khalid

Srinath said...

@Sumi,

I agree with you. Since you are just 24 , I feel investing in stocks is the best option. But i suggest not to go for a 100% allocation towards stocks. I prefer a 80:20 approach ie 80% towards stocks and 20% towards fixed income. The reason why I am telling you this is because I invested heavily in the markets when the markets were at 21k and i regret why I had invested 100% in it. But i still hold those stocks in my portfolio since there are value buys and not speculative ones.

Sumit Goel said...

Liked reading ur blog very much!!! I too have great interest in Stock Market and managing money in efficient manner..Nice Work...

My blog : http://www.zoomtosumit.blogspot.com/

Hope u like it ...

jb said...

Came across your blog today and I hate to proffer advice but I can't help myself. Its this stupid Indian genetic thing I suppose!

- Its great to get one's hands dirty as early as possible, its the best way to learn.
- You may want to consider finding a mentor and/or a group of experienced people to work with as far as methodology goes. At the same time question everything and be independent with your decisions. There are lots of ways to execute value investing ideas.
- Its more fruitful to read about investing after having some experience since you can relate much better.
- Investing amount should be a function of how many opportunities you find and how confident you are in them.
- I'm not sure I would agree with your 1x, 1000x point initially unless 1000x in one stock is still a fraction of the total (<10-20%). On the flip side, one usually has beginner's luck and you have time on your side so...
- The key difference between 1x and 1000x is emotional state. Your emotions will undoubtedly waver far more with a 1000x position as compared to a 1x position. I believe emotional control is an important thing you will learn as you practice.
- One should look to beat FDs under most conditions sure but you should also compare against the NIFTY/SENSEX indexes as well - index investing is a passive option that is advisable under many circumstances. Most funds do not outperform the index over long periods of time.
- Value investing can be applied to any asset class including business ventures, real estate, commodities. So, the asset class you pick (equities as you say) is one part of the equation. While focusing on stocks, be open to value propositions in other asset classes especially as other markets develop further in India.
- Value investing requires a lot of patience.

You seem to have your head in the right place anyway so much of the above is unnecessary. Good luck with your investing!

sumi said...

Hi jb,

thanks for writing such a long reply.I am a part of a group of experienced people each one following different strategies.I completely agree with the 1000x point as far as emotions wavering are concerned. That is the reason why I need to put big bucks early and get past that phase. I am not yet investing in mutual funds so not judging their performance.
It is true that value investing can be applied to other asset classes as well such as real estate commodities etc. I have selected equities because I have an advantage in this class I get data I want to study stocks and I am surrounded by analysts. It is also simpler to manage compared to real estate which needs huge investments and many processes. Maybe couple of years down the line I will have a look at these classes.

masterandstudent.com said...

@Sumi,
Though your interest in stocks is encouraging, you would be better off if you have diversification of asset classes.
Well ! nice blog, keep it going !

sumi said...

@masterandstudent.com

Its a nice suggestion. I have diversified a bit with PPF for tax saving. Will look at other options once I study more. So far stocks seem to be suiting me really well :)

Anonymous said...

Hi Sumi,

Nice Post. However, as many others have already commented, 100% allocation to equity is questionable in the best of times.

My own suggestion will be to modify your allocation into "100% Available for equity" - ie., Money will be waiting patiently and idling away in your Savings Bank account, just for the specific stock to emerge at the right price. (Like Tata Steel at 150/= or Unitech at sub-30 levels, Satyam at sub-25 levels, etc.)

Once your targeted stock reaches your "Buy price", go ahead and aggressively buy it up.

Keep up your good work.

And, most importantly, enjoy yourself.

Mr. N (of financialviewsofmrn.blogpspot.com)