There are two kinds of people: Those who wish they had invested in the stock market and those who wish they hadn't. Do you regret not investing when the Sensex fell to 8,800? Do you wish you had booked profits on those dicey small-cap stocks? Wonder why you did not listen to all the advice on prudent investing that experts spell out on TV and the papers ad nauseum? With the New Year just a few winks away, it's time to stop torturing ourselves about what we did and did not do. How about resolving to be wiser, savvier investors in 2007 instead? Here is a list of seven investment resolutions for 2007.
Resolution 1: I will invest only in sound stocks
How hard is it to resist the voice in your head (the broker's, that is) telling you that there is a fortune waiting to be unearthed in an unheard of penny stock? Very hard, we agree. But an 80-90 per cent drop in the stock price might just give us a little more perspective. That is how much one could lose if one does not know how to play the penny stock game. The odds of winning are almost always against you.
Forget penny stocks. There are several purported real-estate plays, turnaround stories, acquisition candidates and `proxies' that promise to be tomorrow's bluechip stock, with not an ounce of fundamentals to back them up. Remember how they sank when the market corrected? That memory is enough to ensure that we keep this resolution.
Resolution 2: I will do my own research
Now who has the time to do research except those who make a living out of it? True, but a weak argument. Nobody cares for money that is not theirs, so it is each one for herself when it comes to investing in the market. A quick glance through the annual report and recent earnings and steadily tracking news developments pertaining to the company are necessary at the most basic level. But if you have ambitions of beating the market, you will have to do more than that, which means more time, effort and resolve.
Resolution 3: I will stick to stocks that I understand
Even legendary investor Warren Buffett does not claim to understand everything. He stayed away from tech stocks during the bubble. We know how well that worked out for him!
So lets make things easy for us. Doing the spadework is much easier when we understand the industry. If you already work for the software industry, pick up some software stocks, even if it means buying shares of your employer's competitor. Think how well you would come off sounding if you ever were to go for a job interview with that company!
In the long term, buying stocks we understand will help us make good investment decisions. We probably will know when to buy or sell a stock ahead of the market and will not give in to temporary panic (or temporary insanity) and dump a good company when the market crashes due to some extraordinary event.
Resolution 4: I will not be influenced by market rumours
Buy the rumour and sell the news is the popular market adage. But fall for a baseless rumour and you could get burned. The worst of the market buzz these days are the absurd price targets. "Psst, the stock of ABC is trading at 50. The three-month price target is Rs 1,500. It is the next Unitech". If you have heard that, remember that there are vested interests behind these rumours and you could end up holding a lemon.
Resolution 5: I will not fret over my investments
Ever kept willing a stock to go up, only to find that the stock had a mind of its own and refused to budge from your buy price? Once you buy or sell a stock, stop fretting over your decision. Be clear on your investment rationale and objective. If you have invested on the basis of fundamentals, for instance, do not get influenced by a contrary technical view. Fundamental and technical analysis can be at odds from time to time. Similarly, if you decide to invest with a one-year perspective and are convinced about the fundamentals, stick to your guns. If the company performs contrary to your expectations, then you can review your decision.
Resolution 6: I shall cut my losses
A lesson we all would have learned from this year's market correction is to cut positions before we slip even further into losses. If you follow technical analysis, resolve this year to adhere strictly to your stop-losses. If you follow fundamentals and find you have gone wrong in your estimates, remember that it is impossible to be right every time. In a market such as ours, there are plenty of investment opportunities. When the market falls steeply, we are better off booking losses on momentum stocks and buying bluechips that are available for a song.
Resolution 7: I will stop procrastinating
"I spotted the stock at Rs 30 and thought of buying it but did not. The next time I saw it, it was at Rs 60". Sometimes, we experience a rare moment in the market when we actually know what to do. Then, we spoil it by not acting on our instinct. To succeed in the market, we need to be actively involved.
Sceptics among you may wonder if anyone will abide by these resolutions for more than a couple of months. But let's sharpen our pencils in all earnestness anyway and put down these promises. Keeping them could ensure that we all have a "happy and prosperous" new year indeed.