Eight Tips on How Not to Invest

Despite loads of information available, investors often jump into the stock market without much of an idea on what lies ahead. Here are a few tips on how not to invest.

1.       Not Knowing Why to Invest: Is it for capital protection, capital appreciation, returns, risk diversification, hedging or pure safety?

2.       Avoid DIY Investing: Investing requires being alert about the state of your investments and calls for active participation - a feat which not many can achieve.

3.       Not Actually Investing: Most of us begin investing with a long-term view, expect returns in the medium term, and end up trading in the short term. So, the grand goal of investing practically gets reduced to trading and speculating.

4.       Stock Tips: It's not the tips that are the problem, it's from whom and how you take them. However, any tip actually means that you don't invest without doing your own research.

5.       Not Asking the Right Questions: Why should I invest in the stock? Is it the right asset to invest? Do I know enough about the company to remain invested? These are worryingly missing from the popular narrative.

6.       What Looks Cheap may Not Be: A stock priced at Rs. 20 doesn't necessarily make it cheap to buy. Price-to-earnings, price-to-book, and price-to-sales ratios will help you judge the true value of a stock.

7.       Succumbing to Hype: Consulting financial advisors, investing in time-tested companies or investing based on personal experience as a customer are more effective ways.

8.       Repeating Mistakes: Time-tested classic principles of investing, such as not to follow the herd, buying low and selling high, are forgotten in the rush to make a quick buck.