Investment Strategies To Learn Before Trading

The best thing about investment strategies is that they’re flexible. If you choose one and it doesn’t suit your risk tolerance or schedule, you can certainly make changes. 

But be forewarned: doing so can be expensive. Every purchase carries a fee. More importantly, selling assets can create a realized capital gain. These gains are taxable and therefore expensive.

Here, we look at four common investing strategies that suit most investors.

Read more at:
https://www.investopedia.com/investing/investing-strategies/

Six Asset Allocation Strategies That Work

Asset allocation is a very important part of creating and balancing your investment portfolio. After all, it is one of the main factors that leads to your overall returns—even more than choosing individual stocks.

Establishing an appropriate asset mix of stocks, bonds, cash, and real estate in your portfolio is a dynamic process. As such, the asset mix should reflect your goals at any point in time.

Read more at:
https://www.investopedia.com/investing/6-asset-allocation-strategies-work/

How to make a winning long-term stock pick

Many investors are confused when it comes to the stock market; they have trouble figuring out which stocks are good long term buys and which ones aren't. 

To invest for the long-term, not only do you have to look at certain indicators, you also have to remain focused on your long-term goals, be disciplined and understand your overall investment objectives.

Read more at:

https://www.investopedia.com/articles/fundamental-analysis/09/long-term-stock-pick.asp

Concentrated Vs. Diversified Portfolios: Comparing the Pros and Cons

Most articles on investing advise having a diversified investment portfolio. Diversifying investments is touted as reducing both risk and volatility. 

... One of the advantages of a more concentrated portfolio is that while it does increase risk, it also increases potential reward.

Read more at:

https://www.investopedia.com/articles/investing/030916/concentrated-vs-diversified-portfolios-comparing-pros-and-cons.asp

How to Evaluate a Company's Balance Sheet

For stock investors, the balance sheet is an important financial statement that should be interpreted when considering an investment in a company. 

The balance sheet is a reflection of the assets and the liabilities owned by the company at a certain point in time. 

The strength of a company's balance sheet can be evaluated by three broad categories of investment-quality measurements: working capital adequacy, asset performance and capitalisation structure.

Read more at:
https://www.investopedia.com/articles/basics/06/assetperformance.asp

7 Simple Strategies for Growing Your Portfolio

"Growth is usually defined more specifically in the investment arena as capital appreciation, where the price or value of the investment increases over time.

Growth can take place over both the short and long term, but substantial growth in the short term generally carries a much higher degree of risk. 

There are several ways to make a portfolio grow in value. Some take more time or have more risk than others, but the following is a list of tried-and-true methods that investors of all stripes have used to grow their money."

Read more at:
https://www.investopedia.com/articles/basics/13/portfolio-growth-strategies.asp

Why Understanding Asset Allocation Is Key

Most investors are extremely diligent in determining what investments should be a part of their portfolios. Certainly, you want to make sure that any specific security or fund is serving a purpose and is chosen because it has the potential to meet your needs and goals.

However, what investors often overlook or neglect is their specific asset allocation. The truth is that the combination of investments in your portfolio can actually be more important to achieving your goals than the specific investments selected.

Read more at:
https://www.investopedia.com/advisor-network/articles/why-understanding-asset-allocation-key/

A Beginner's Guide to Growth Investing

"People have many different styles and tastes when it comes to money, but making your money grow is typically considered the most fundamental investment objective.

The best way to accomplish this goal will vary according to factors such as the investor's risk tolerance and time horizon.

However, there are some key principles and techniques that are applicable for many different types of investors and growth strategies."

Read more at:
https://www.investopedia.com/articles/basics/13/introduction-to-growth-investing.asp

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Market Timing Tips Every Investor Should Know

It's a long-held belief that market timing and investing are mutually exclusive, but the two strategies work well together in producing solid returns over a number of years. 

The effort requires a step back from the buy-and-hold mindset that characterizes modern investing and adding technical principles that assist entry timing, position management and, if needed, early profit taking.

This set of technical tips can guide your investments through a gauntlet of modern market dangers:

https://www.investopedia.com/articles/active-trading/043015/market-timing-tips-rules-every-investor-should-know.asp

How ROA and ROE give a clear picture of corporate health

With all the ratios that investors toss around, it's easy to get confused. Consider return on equity (ROE) and return on assets. (ROA). Because they both measure a kind of return, at first glance these two metrics seem pretty similar. 

Both gauge a company's ability to generate earnings from its investments. But they don't exactly represent the same thing. A closer look at these two ratios reveals some key differences.

Together, however, they provide a clearer representation of a company's performance. Here we look at each ratio and what separates them.

Read more at:
https://www.investopedia.com/investing/roa-and-roe-give-clear-picture-corporate-health/ 

Warren Buffett and Ray Dalio agree on what to do when the stock market tanks

"The money is made in investments by investing and by owning good companies for long periods of time." - Warren Buffett

"It's when you're not scared you probably want to sell, and when you are scared, you probably want to buy." - Ray Dalio

Read more from this recent cnbc.com article.

Portfolio Management Tips For Young Investors

Too many young people rarely, or never, invest for their retirement years. Some distant date, 40 or so years in the future, is hard to imagine. However, without investments to supplement retirement income, if any, retirees will have a difficult time paying for life's necessities.

Smart, disciplined, regular investment in a portfolio of diverse holdings, can yield good long-term returns for retirement and provide additional income throughout an investor's working life.

Read more at: 

https://www.investopedia.com/articles/younginvestors/12/portfolio-management-tips-young-investors.asp

Does large debt on the Balance Sheet make a company's stock a risky investment?

It is that time of the year when Annual Reports of companies will be hitting mailboxes. Instead of just checking the dividend amount and tossing the report in the recycle bin, it may be worthwhile to go through the report.

At the very least, the balance sheet, P&L, cash flow statement and the notes to accounts should be studied. These will reveal the financial health of a company.

One of the things that get many companies into trouble is trying to grow too fast, too soon. Many tech companies had fallen prey to the syndrome of 'grabbing eyeballs' instead of having a solid business plan that would lead to cash generation.

They had taken on a huge amount of debt to gain market share quickly by expanding globally or by acquiring competitors. Their subsequent bankruptcies were caused by the inability to service their debts.

Even the well-established houses of Tatas and Birlas made gross errors of judgement by financing their acquisitions of overseas competitor companies through large debt.

But what if taking on large debt to buy out a competitor actually results in increasing market share and enabling a move up the value chain? Tata Motors did that successfully by acquiring Jaguar-Land Rover from Ford.

So, how does a small investor decide if large debt on the Balance Sheet of a company makes investment in its stock risky or not? 

One way is to look at the Interest Coverage ratio. Another is to look at the Return on Capital Employed (RoCE) ratio. The higher the ratios the better. Both these ratios should be compared with other companies in the same sector.

Read more. 

10 Books Every Investor Should Read

When it comes to learning about investment, the internet is one of the fastest, most up-to-date ways to make your way through the jungle of information out there. 

But if you're looking for a historical perspective on investing or a more detailed analysis of a certain topic, there are several classic books on investing that make for great reading. 

Here we give you a brief overview of our favorite investing books of all time and set you on the path to investing enlightenment. (To find more recommended books, see Investing Books It Pays To Read.)

Read more here.

Digitised India - a massive Investment Opportunity

Every investor - wherever he or she may reside - should read this article:

http://www.mauldineconomics.com/outsidethebox/raoul-pal-paying-attention#

Do you have the personality to be a good investor?

Anyone who is reasonably fit and has good hand-eye coordination should be able to pick up a tennis racket and start hitting balls over the net with very little effort. 

Does that mean s/he will become the next Serena Williams or Roger Federer? 
Obviously not! It has taken both those living legends many thousands of hours of coaching, practice and perseverance to be counted among the all-time greats.

Like tennis (or painting or playing the violin), investing is a skill that requires some talent but a lot more practice and experience to become really good. 

You won't become the next Warren Buffett just by opening a demat account and buying a few shares.

Buffett had a well-known 'guru' in Benjamin Graham - from whom he learned the ins and outs of the investment business. Then he put that learning into years of practice.

Can you still become a successful investor without aspiring to be a Warren Buffett? Sure you can!

But first you will need to learn some of the common behavioural traits that lead to sensible decision making which result in investment gains.

It always helps to have a 'guru' who can guide you in the initial stages. Even without one it is possible to learn and hone the skills that will enable you to make steady and consistent returns from your investments.

So, what are the personality traits that will make you a good investor?

In a recent article in investopedia.com, Lisa Smith discusses five 'money personalities'. Find out which one is the closest to yours, and then make the suggested changes.

Why you should Invest in Stocks of Companies that pay regular Dividends

Most people who prefer investing in debt instruments or real estate do so because such investments are 'safer' compared to stocks. Stock prices tend to fluctuate wildly and are considered to be more 'risky'.

That logic reminds me of a departed uncle who refused to stir out of his home. He thought his home was 'safer' because it had less pollution and germs. Plus city roads were too 'risky' because of unruly traffic.

Debt instruments like bonds and bank fixed deposits may appear 'safer' but they carry risks too - from fluctuating inflation and interest rates. Real estate prices fluctuate also, putting your investment at risk.

One of the best reasons given by financial experts for investing in stocks is that they provide capital appreciation that can beat inflation. Younger people often flock towards growth stocks in the hope of quick 'multibagger' returns.

More experienced investors - who are in the game for the long haul - include stocks of dividend paying companies in their portfolios. But aren't such companies stodgy, slow-growth ones?

They often are. But not only do they pay regular dividends, such dividends tend to grow over time. Why? Because with lower growth opportunities, there is less need for capital expenditure.

So, the cash these companies keep generating through well-known branded products or services are distributed to shareholders. 

Those investors who are working regularly or earning from their business or profession may not really need the dividend income. But they can very well reinvest the dividend amounts in buying more stocks.

Over the years, 'dividend compounding' can lead to a substantial addition to your stock portfolio - leading to even more dividends that will become useful when you retire and are no longer earning a regular income.

To diversify, or not to diversify? That is the question.

Diversifying - in the context of business and investments - means hedging your bets, instead of putting all your eggs in one basket.

What is the main benefit of diversifying? Reduction of risk. Say, you are supplying large plastic containers to domestic paint manufacturers and have built up a reasonably good clientele.

Out of the blue, demonetisation of bank notes is announced by the government. The real estate sector goes for a toss and paint manufacturers curtail production. A big supply order of containers that you were negotiating gets cancelled.

What will you do? Shout from the rooftops about what an ill-planned disaster demonetisation has been? Or, realise the need of ridding the financial system of large amounts of untaxed cash and look for alternatives?

One alternative is to look for opportunities at other organisations in the domestic market with a need for large plastic containers - like Edible oil manufacturers. That would be a diversification.

Another alternative is to look for opportunities in the export market. A third alternative may be to make small plastic containers - used by shampoo and hair-oil makers.

Without making too many changes to your expertise and production capabilities, you now have more opportunities of growing your business and reducing risk by operating in different markets and product categories.

Peter Lynch coined the term "di'worse'ification" for companies that diversify into unrelated businesses that destroy rather than create shareholder value. A classic example?  Reliance entering the telecom services business. 

As if one brother's disastrous foray into telecom services was not enough. Now, big brother is throwing more money into the same business. The result is likely to be equally disastrous.

What about diversifying in the investment arena? Should you, or shouldn't you? Most financial experts will recommend diversification for reducing risk. That doesn't mean you buy 20 equity funds or 50 stocks.

Real diversification means investing in different asset classes after making a financial plan and an asset allocation plan depending on your goals and risk profile. 

Investing partly in equity, partly in fixed income, partly in gold, partly in a liquid fund will provide a well-rounded portfolio across different market and interest cycles.

When the stock market is booming, stocks will provide huge returns. What if the market crashes - as it often does? Fixed income instruments will continue to provide lower but steady returns, and liquid funds can be transferred to buy equity funds at lower NAVs.

Is there a downside to a planned and well-diversified portfolio? Unfortunately, yes. You will generate steady, average returns, but are unlikely to get filthy rich.

How can you get filthy rich? By becoming the next Bill Gates. Gates stuck to a single line of business, and made sure the whole world will use his company's software through shrewd negotiations with computer makers. (His di'worse'ification efforts into electronic products haven't borne fruit.)

Moral of the story? For mere mortals - like you and me - a planned and well-diversified portfolio that reduces risk and provides steady returns over many years is the route to financial freedom.

Learn more: 
What Does Investment Diversification Really Mean?

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3 Things All Self-Directed Investors Should Know

There are two ways you can invest your monthly/quarterly/annual savings - the easy way and the hard way.

The easy way is to get hold of an experienced financial adviser and follow his investment advice. The hard way is to take charge of your own financial future and do the investing on your own.

Many small investors skip the easy way because they think that investing for the long term is a trivial activity, and not worth the fees a good financial adviser will charge. No wonder they end up with poor returns or losses.

Common sense suggests that you follow the easy way first. Learn the ropes and gain experience about which investment instruments carry what types of risks and give what kind of returns over different time frames.

Once you have followed the advice of a financial adviser you can trust and built up a decent investment portfolio, then you may start thinking about managing your portfolio on your own.

Before you decide to march to the steps of Tagore's well-known song "Ekla Chalo Rey" ("tread your own path"), there are three things you need to remember:

1. You can't be an expert at everything - invest in what you know, and gradually broaden your 'Circle of Competence'

2. Be patient and disciplined - Rome wasn't built in a day. A good investment portfolio requires canny selection, disciplined approach to regular investing and monitoring, and patience to hold for the long term

3. Control your emotions -  be dispassionate about the periodic ups and downs in the economy. Not investing when there is doom and gloom all around is just as bad as investing when there is euphoria and everyone is jumping into the stock market to buy.

Read more

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The Ultimate List of Painful Financial Mistakes

Warren Buffett is arguably the greatest stock investor that ever lived. He didn't become so by chance but by learning the ropes from his guru, Benjamin Graham, and by following a few basic investment rules.

Two of his most famous rules are:-

Rule No. 1: Never lose money
Rule No. 2: Never forget Rule No. 1

Does Buffett practice what he preaches? Of course he does. That is why he is the greatest. But the two rules should not be interpreted literally. If you invest in stocks, you are going to make a few wrong selections that will lead to loss of money.

In fact, 'losing money' can be a great learning experience - as long as you don't turn it into a habit. What Buffett really means by the two rules is that you need to follow a well-planned strategy that reduces the possibility of losses and increases the chances of making money in the long-term in spite of occasional losses.

Even if you make a lot of money from stocks, it can be difficult to manage and grow your portfolio unless you know how to avoid the following financial mistakes listed by Patrick Bourbon in a recent article in investopedia.com:

1. Not diversifying your wealth.

2. Not understanding the risk in your portfolio.
3. Investing in tax-inefficient portfolios.
4. Doing nothing/failing to build a customised financial plan.
5. Not saving enough or saving too late.
6. Overlooking your advisor/broker fees.
7. Failing to rebalance your portfolio.
8. Not having a sufficient emergency cash reserve.
9. Being overconfident in your own abilities.
10. Chasing past performance.
11. Investing based on news or reacting to short-term returns.
12. Emotionally buying and/or selling.
13. Trying to time the market.
14. Selecting the wrong stock/mutual fund.
15. Not taking into account the effect of inflation.
16. Buying what you don’t understand. 

Read more.