Murphy's Law states "If anything can go wrong it will". O'Brien's Law says " Murphy is an optimist"! But when you are beyond Murphy and O'Brien and things are so bad that you are really really scared, that is the time to buy.
I use a "gut-feeling" indicator to adding net money to my portfolio. When my gut says that I should sell everything and put the cash in fixed deposits, I brace myself and buy stocks! Usually, it is when the markets are in very bad condition and over the last 12 years that I have been investing, it has given me decent returns. As J. Paul Getty once famously said, No one can possibly achieve any real and lasting success or get rich in business by being a conformist.
Another aspect which is healthy to inculcate is skepticism. When everyone thinks alike, everyone is likely to be wrong. These days investors seek the comfort of the herd from online forums and mailing lists. These forums tend to have some darling stocks against which it is sacrilegious to voice a negative opinion. Every one is comfortable that a vast majority of "similar" investors are doing what they are doing. The problem with such herd thinking is people tend to suspend their natural skepticism and stop questioning the basics. Most of the time, if basic common sense is applied, you can stay away from problematic stocks.
So, the advice I give myself, is 1) never to take someone else's stock tips and 2) buy stock when I want to invest only in Fixed Deposits and vice versa.
I use a "gut-feeling" indicator to adding net money to my portfolio. When my gut says that I should sell everything and put the cash in fixed deposits, I brace myself and buy stocks! Usually, it is when the markets are in very bad condition and over the last 12 years that I have been investing, it has given me decent returns. As J. Paul Getty once famously said, No one can possibly achieve any real and lasting success or get rich in business by being a conformist.
Another aspect which is healthy to inculcate is skepticism. When everyone thinks alike, everyone is likely to be wrong. These days investors seek the comfort of the herd from online forums and mailing lists. These forums tend to have some darling stocks against which it is sacrilegious to voice a negative opinion. Every one is comfortable that a vast majority of "similar" investors are doing what they are doing. The problem with such herd thinking is people tend to suspend their natural skepticism and stop questioning the basics. Most of the time, if basic common sense is applied, you can stay away from problematic stocks.
So, the advice I give myself, is 1) never to take someone else's stock tips and 2) buy stock when I want to invest only in Fixed Deposits and vice versa.
I am probably playing this over a little, but it's absolutely fascinating how I think exactly on your lines (and this has happened multiple times, including the conviction and position size of Mayur).
ReplyDeleteI always remember this scene from Seinfeld as my risk management tool in investing -
http://www.youtube.com/watch?v=RerJWv5vwxc
Do have a watch!
Also, if you could, can you elaborate a bit on allocating a small % of money towards calls/puts in your portfolio. I was thinking on similar lines (again), but was wondering if I was trying to manage portfolio volatility than anything else through that strategy. Would be interested to know your thoughts.