I would also like add few don’ts based on my experience of over 10 years:
- Aim to undestand fundamanetal concepts like Debt/Equity ratio, ROE, ROCE, OPM, NPM. This will help you to avoid poor quality businesses.
- Take exposure to business slowly and steadily, so that you have an advantage of buying in staggered manner. This will increase understanding of business over a period.
- Focus more on Large Caps and Mid Caps during initial years of your investment career. You can then venture into Small caps. Experience of investing will make you understand your risk appetite.
- Prefer buying stocks which have higher competitive advantage.
- Buy the stock when you are fully convinced that it is undervalued or if it can maintain the current high growth rate for prolonged period of time if it is having high P/E or P/B than most of its competitors.
- Don’t watch business channels for any recommendations. You may watch those for genreal knowledge and business concepts.
- Ignore Buy reports by business channels, brokerage houses, as most of those do not often tell you what to do with the stock if you are in huge loss, after buying.
- Have a portfolio of 15-20 stocks only so that you can keep improving understanding of these selected businesses, rather than expanding the list to more than 20.
- Keep tracking your performance on yearly basis, as that would give you an idea whether your investment efforts are worth it.
- You need to have lot of patience and be prepared to keep improving understanding of various businesses, and market cycles. Your aim should be to minimise losses to succeed in equity investing.
Disclaimer : I am not a registered financial advisor. Above list is based on my short experience. Also this is not an exhaustive list.