Vijay Kishanlal Kedia is a trader turned into a fundamental investor. He took good bets in Punjab tractors, ACC, etc… when they were still unknown stocks. He has been a trader for the first part of his life and struggled to make a living and learnt to become and fundamental investor since them he has made a fortune.
Here is his advice to anyone who want to become a fundamental investor. These are the rules he applies to his investments.
- Create a fixed income from outside the market for your livelihood.
- Be informed and read a lot.
- Invest your saving and not the earning in the stock market. Don’t trade.
- Don’t invest from borrowed money
- Invest for a minimum of 5 years (Go long).
- Invest only in companies with the best management and let the worry about running the company.
- Your investments belong to the market and the profit belong’s to you. Book your profit and invest in a house.
- Keep a balanced mind. Do not be very optimistic in uptrends or very pessimistic in downtrends.
- Better to invest in Good Management in bad business(Sector) than Bad management in good business
- Don’t invest in IPO’s
An explanation is due for some of the topics.
Invest your saving and not the earning in the stock market
What is Saving? The book Richest Man of Babylon talks about keeping 10% of what you earn to yourself and investing it in for the future, the next 70% for leading a good life and the rest of the 20% for paying of debt (Could also be used for investing if you have no debt). This is your saving, that 10% of your earning.
Now that we have defined saving, Let us explain the principle with an eample.
Let us assume, after researching you plan to invest Rs. 1 Lakh in stock A which is currently @ Rs.100 and you find out from a friend that stock B which is at Rs.50 has a habit of continous hitting Rs.55 and comming back to Rs.50 and never seen it breaching Rs.50
You are thinking, “Hey! this is a chance to make a quick captial appriciation before investing in Stock A. You are confident and are convinced that Rs.50 is the bottom and it is simple to convert you 1 Lakh to 1.1 Lakh.”
Wait ! But the market has other Ideas. You make your invest and suddenly over a period of time Stock B has fallen to Rs.40 and is not going above Rs.45. What to do? This is not the stock you wanted to invest in.
You decided to cut your loses, But at the meantime, Stock A on which you have researched has gone up from Rs.100 to RS.117. Therefore by trading for quick cash you have put your savings at risk and now instead of getting more shares of Stock A you got even less shares.
You might argue that as betted (Never make bets, only fundamentally sound decisions.), Stock B could have increase 10% you would have made a handsome profit (But this is often not the case). But at the same time, Stock A has gone up 11.7% therefore you are getting a lot few shares than you would had if you had the conviction to stay with your investment.
Your investments belong to the market and the profit belong’s to you.
Here what Kedia means is that till your investments are in the market, there is always an risk of losing. Your investments might simply disappear, if the business does something drastic. Therefore the money belongs to the market.
The money only belongs to you when you convert it to cash by books profits. He advices you to cash out periodically and invest in a house of property.