Repost: How not to fail in stock markets – 11 lessons from Rakesh Jhunjhunwala

Rakesh Jhunjhunwala is widely referred to as the Indian Warren Buffett. The investment maestro is very popular for picking up stocks that could turn into multibaggers, based on his own study of fundamentals and research models. Rakesh Jhunjhunwala is a Chartered Accountant by qualification and a trader by profession.

With the stock markets on fire of late, many investors who could not invest before the bull run began must be wondering if they have missed the rally, for the benchmark indices Sensex and Nifty have already returned about 20% each so far this year. But worry they must not, for, here we take a look at 11 key lessons on the stock market from the big bull investor himself, which may help investors to stop failing in the stock markets, cut losses, and turn profits.

• I have learned two things about the press and wives. When they say something – don’t react.
  • Investors often go by stock recommendations in the newspapers and media all across but they seldom study the fundamentals of the business concerned. Such investors often end up making losses, as they are unable to gauge the factors which may hit a particular stock.
• Anticipate trend and benefit from it. Traders should go against human nature.
  • Many-a-times, traders or investors follow the herd mentality by buying the stocks in which most of the other people are buying. This is not a good practice as the objective of investment may vary from person to person and from time to time. So do ask yourself why you are buying a particular stock.
• Invest in a business, not a company.
  • Generally, investors do the opposite, that is, if a stock of a particular company excites them they buy it without knowing the details of the business and without studying the nature of the business.
• Make the investment when the stock is not popular.
  • Most investors lack this acumen because often they do not want to examine or investigate a business before buying shares. People buy shares of a company when it becomes as popular — when the street vendors also start talking about it.
• If you see an opportunity, grab it today!
  • Don’t wait too much for the right time. If there is an opportunity where money can be made then grab it immediately before it is gone. But this doesn’t actually mean that buying a bread without looking on its expiry date.
• Learn from mistakes. Learn to take a loss.
  • Investors should always make a deliberate attempt to learn from the mistakes which they make in stock markets as every mistake will be a lesson in itself. Investors should also learn to digest losses because one’s profit is a loss to other and vice-versa.
• Always go against the tide. Buy when others are selling and sell when others are buying.
  • Try to buy on dips at the time when market are correcting. Through this, you will end up buying more quantity against the people who buy when the market rallies. When most people are selling, then you may get a stock at cheap prices!
• Emotional investment is a sure way to make a loss in stock markets.
  • Don’t stick to a company on the emotional front for silly reasons such as: “this was my father’s favourite company”, or other such reasons. Always fall in love with the business which has potential to grow and make your money grow. Try to keep your emotional quotient away and proceed as a rational person.
• Blindly following stock picks by big investors is not a wise thing to do.
  • Investors habitually get into following the rumors of investment by big names, for instance deciding to buy a stock if a big investor has bought it. This doesn’t necessarily guarantee a good return. Most often the news stories of a big name buying into a specific stock breaks out after their exit or when they are nearing selling the stock.
• Give your investments time to mature. Be patient for the world to discover your gems.
  • People usually buy and sell stocks in quick succession. Investors do practice this for short-term gains but end up making losses. Seek an investment for a longer time horizon and let your investment mature.
• Have some cash in hand so that you can grab the opportunity when it occurs.
  • Always have some spare cash in hand in order to grab an opportunity as and when it arrives. Very often, investors put all of their money in the stock market, which is a bad practice as the history suggests that flexible returns are always cyclical in nature.

The original article appears in the Financial Express and is available here.