Today, the meanings of a trader and an investor has converged to great extent. After looking at the historical price chart, a typical middle-class Indian enters the stock market with the illusion of earning a lot more than MFs (even knowing that he is not allowed to go back in history and trade at those prices) and eventually ends up day trading and loosing a lot of money. Probably, the only gain s/he makes is in the knowledge of financial terminology to impress uninitiated. In such a scenario, this thread is being initiated to bring back the idea of investing for long term (and that's not 1 year) and sitting back relaxed probably enjoying "sas bhi kabhi bahu the" rather than ogling at some odd ndtv profits and likes and checking where the hell Sensex is every 10 minutes.
I know there are people here at traderji with immense knowledge and are involved in active trading. This strategy may not be for them, but I request them to contribute their opinion and suggestions in order to make life easy for many people (including me) who have confused investing with trading.
I will keep on editing the first post as per the recommendations and suggestions so that we have a complete system for long-term investment.
Subsections Of This Strategy:
1. Money Management.
2. Stock Selection For Buying.
3. Stock Selection For Selling (From The Portfolio, Not Short Selling).
4. Timing The Market.
Money Management:
A typical portfolio should contain about 20 stocks from different sectors.
Stock Selection For Buying
More weightage should be given to sectors which are beaten down by factors which are of temporary nature (contrarian approach) since they will be available cheap compared to the market and in long term that anomaly will correct. However, much thought must be given before buying cheap stock (not sector) among peers since there must be reasons for its low valuation which must be known and understood before buying it. Such stock may very well continue to be cheap forever.
Stock Selection For Selling
If one decides to sell a stock giving losses, then that sale should be done before 1 year so as to book short-term capital loss which can be set off against short term capital gain.
Timing The Market
Timing the market does not mean predicting the future trend of the market or procrastinating about how much your net worth would have been had you invested in x company on y date. Let the newspapers do all that calculation and increase their circulation. Timing essentially means deciding whether the "present" time, neither tomorrow nor yesterday, is perfect for investment or not. In general, when the market (not a particular stock) trades below its long-term EMA (100-day EMA is good enough to qualify for long term in Indian market) on the "monthly" chart, then its the "best" time to enter the market; when it does the same on "weekly" chart, then its "better" time to enter the market; and finally when the same happens on "daily" chart, its a "good" time.
I know there are people here at traderji with immense knowledge and are involved in active trading. This strategy may not be for them, but I request them to contribute their opinion and suggestions in order to make life easy for many people (including me) who have confused investing with trading.
I will keep on editing the first post as per the recommendations and suggestions so that we have a complete system for long-term investment.
Subsections Of This Strategy:
1. Money Management.
2. Stock Selection For Buying.
3. Stock Selection For Selling (From The Portfolio, Not Short Selling).
4. Timing The Market.
Money Management:
A typical portfolio should contain about 20 stocks from different sectors.
Stock Selection For Buying
More weightage should be given to sectors which are beaten down by factors which are of temporary nature (contrarian approach) since they will be available cheap compared to the market and in long term that anomaly will correct. However, much thought must be given before buying cheap stock (not sector) among peers since there must be reasons for its low valuation which must be known and understood before buying it. Such stock may very well continue to be cheap forever.
Stock Selection For Selling
If one decides to sell a stock giving losses, then that sale should be done before 1 year so as to book short-term capital loss which can be set off against short term capital gain.
Timing The Market
Timing the market does not mean predicting the future trend of the market or procrastinating about how much your net worth would have been had you invested in x company on y date. Let the newspapers do all that calculation and increase their circulation. Timing essentially means deciding whether the "present" time, neither tomorrow nor yesterday, is perfect for investment or not. In general, when the market (not a particular stock) trades below its long-term EMA (100-day EMA is good enough to qualify for long term in Indian market) on the "monthly" chart, then its the "best" time to enter the market; when it does the same on "weekly" chart, then its "better" time to enter the market; and finally when the same happens on "daily" chart, its a "good" time.
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