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Investing in Equities Dollar Cost Averaging
Investing in Equities
Expert Articles    

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Set yourself some ground rules
  Ignore hot tips.
You spend 15 minutes choosing a shirt you like. However, you decide to buy a stock (probably worth 60 shirts) in less than two minutes, and that too because someone else says so (probably not knowing why himself). If hot tips really worked, we'd all be millionaires. Ignore them, please.
  Tax counts, but don't let it override an investment decision.
If you have decided to sell, it must be for a good reason. While tax is an important consideration, it is incidental to the investment decision, and not the objective. If the tax aspect overrules the investment decision, you could run the risk of ending up penny-wise and pound-foolish. Accept taxes as a given cost such as brokerage costs, the newspaper bill, or maybe the cost of internet time spent on reading this article. And thankfully, the new long-term capital gains tax rates make it so much easier to do exactly that.
  Resist the temptation to buy more only because you want to average your cost
Every decision that you take with respect to your portfolio should be treated as an independent (new) investment decision. Typically, you would have bought as many shares of a company as you wanted to within your overall asset allocation plan. So there is no logic in buying more shares of a company just because the price has gone down, unless it were part of your Dollar Cost Averaging approach.
Correct a mistake, even if it means booking a loss
'I should sell this stock, but the price will come back to my cost and then I'll sell/ I can't sell now because the price has gone down too much/ How much lower can the price go from here?' We all fall into this trap. Making an error is fine, sticking with it is compounding the problem. Sticking with the wrong stock means not only can you lose more but you also miss out on alternate investment opportunities. And the earlier you sell and re-invest, the more you will benefit from the Power of Compounding.

Monitor and Review
Monitoring your equity investments regularly is recommended. Keep in touch with the quarterly-results announcements and update the prices on your portfolio worksheet atleast once a week. You can use moneycontrol's My Stock Tracker (on the home page) to update the prices of your equity holdings.

Also, review the reasons you earlier identified for buying a stock and check whether they are still valid or there have been significant changes in your earlier assumptions and expectations. And use an annual review process to review your exposure to equity shares within your overall asset allocation and rebalance, if necessary. Ideally, revisit the RiskAnalyser at every such review because your risk capacity and risk profile could have undergone a change over a 12-month period.
Learn from your mistakes
If you regularly undertake a review process, you should as a corollary, learn from your mistakes. And no matter how much you may be advised, nothing beats first-hand experience. So, let these experiences register as `pearls of wisdom' and help you emerge a smarter equity investor.

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