One good question on Quora that interested me and for which I wrote a lengthy answer, it can be helpful to many small investors who think Mutual funds are not good investment assets.
Venkat Chitteti
Hi Deiva Ramesh, Today you answer my question 25 years IT employee from middle class family investment. One of my friend suggest me this, Kotak Mahindra Bank (3 in one) Savings Account cum Trading Account. It has a good research team. Every month save some amount from your salary and deposit in Kotak Mahindra Bank. Slowly buy 4 SBI shares every month. Later if you get a promotion you can start investing in Mindtree and ITC. L&T is also a good stock. Do not invest in Mutual Funds.
Answer
Deiva Ramesh
Mr. Venkat,
At first, thank you very much for your compliments.
Why do we invest, any investment for that matter?
To grow our money right?
We go to stocks assuming that we will be able to grow it much faster and know that there is a little higher risk involved to attain this goal.
Now comes the quantification of the risk. How much risk you are willing to take?
At the most about 10% of your capital or a little stretched up to 15%. Assume that you have invested 25k on a slow process and you find your investment value is 20k, will you still have the same enthusiasm to put the next month’s investment into the same stocks?
I doubt.
Mind will naturally check to see other alternatives, probably another stock or maybe even other asset class. Once a person reaches this stage, his tracking of the previous investments will fade and over a period, it will be junk investments.
And in case of employed people, no one can guarantee that they can give the same attention to the events in their life as they give at any particular period.
Again even this is pretty much natural for any human being.
After a certain period, you will lose interest and the investment will be losing more due to loss of time value.
One can just not park money into something without knowing how it will be 6 months down the line, a year from now etc., if there is no clarity, he will end up losing the investment.
I have a client of mine; he is emotionally connected to investing in L&T and SBI. For the past 8 months, he has been buying both these stocks; L&T from it was 1850, now it is 1450. SBI from 280 and now it is 240.
Of all the stocks why these two?
On the back of the mind, there is a thought, these are pretty good companies, even if India has to collapse, these companies won/t collapse.
He used to regularly put 10K each month, now he has slowed down.
Having investment in few companies is more higher risk, and in today’s context there are retail investors coming to the markets to buy large cap stocks, just because they feel that the valuation is pretty low than what they had seen just a few months ago.
For some companies that have good fundamental strength it is true, they are available cheap now. While it is not the same for many front line companies.
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