The world of investments

It has been couple of years that I am observing stock markets. Over a period of years I have invested, lost and made lot of money. While the impacts can be easily quantified, I am more thrilled by the qualitative part viz. the experience that I have gained out of my trades. That just can't be quantified. As I get deeper into this, I am learning newer & newer aspects of the investments.

Completing the basic needs of Roti, Kapda & Makan first and then starting with the asset allocation. How much should one invest in equity? Experts have done PhD equivalent of work here but I have known a very simple rule. 100 - Your age is the equity compoent. Rest can be a mix of Debt and cash !!! Think ahead and plan your cash flows. How much you can afford to keep aside every month? What is the known event in near future that will require cash flow? Marriage? Down payment for house? Kids admissions? In general, if one can be patient for say 3 years at least, the equity MFs have an excellent track record of at least doubling the investment.

Currently I am half the way thru the Peter Lynch's famous book - One up on the wallstreet. Though it has been written in the US context, the principles are very simple to follow. Simplicity of Peter Lynch's underlying approach is visible in each and every page. So far i was a strong advocate of investments thru mutual funds but Peter's book is re-shaping my thoughts. You don't need to be an investment banker to pick up the ten baggers. Look around for opportunities & you will find many. Look around where you have an edge for e.g. the industry you work in. More on the Peter's book to come soon.

I have seen a number of experts talking about when & how to invest. What I think is also important is when to liquidate the investments? It's surprising to see that most of the articles that talk about systematic investments in detail do not even mention about systematic withdrawl plans. My current experience has thrown a very simple rule of thumb. Equity investments reward very richly over a period of long term and that can be classified as 3 to 5 years in a growth oriented economy like India. So one way is to match the withdrawls to known outflows like downpayment for house etc. falling into this timeframe. Other option is to set up a systematic withdrawl plan to get the best out of market, assuming there is no pressing need of the funds. By the way, Peter quotes that Warren Buffet's average investment holding period is about 11 to 12 years !!! Quite long:)

Another recent reading is Dhirendra Kumar's Value Research monthly magazine. While I have been hooked on to this website, I only recently managed to buy the magazine and dig deeper. Comparing the ET Quarterly Analysis, Money Control Rankings Vs. Value Research online, I think the value research clearly outscores on presenting the most unbiased & risk adjusted rankings. Another USP of this website is that they are NOT into direct equities. They only deal in mutual fund research. Another good thing which I like about this website is that they do not up-front / directly recommend any MF scheme. You have rankings and the analytical articles to read in between the lines.

More later

Cheers