Warren Buffett once said that serious investors should not believe on all those talking heads coming on CNBC or other business news channels frequently giving out recommendation on stocks you should buy. I spotted a very interesting instance which will make you understand why Mr. Buffett said so.
In the following snapshot, if you look at the encircled area you would notice that there are two recommendations on Hindalco both given on 7th June 2012 at a difference of just 1.5 hours. The target prices given are poles apart. Now the question is whom to believe and whom to leave. The chances of success and failure are equal. So even if you succeed once there is no guarantee that you will succeed next time again. That is why for a layman who just buy/sell stocks based on analysts recommendation it is impossible to make money consistently in the long run.
Hence if you want to invest in the markets directly then the best way is to educate yourself first and then take calls based on your own analysis. The best way is to write at least three strong reasons before you make a buying or selling decision. Learn from your mistakes and move on. Take my words you will soon become a much better investor and analyst than those appearing on your favouitre business channel.
If you don't have time and patience to learn the art and science of stock picking then the best option is to go the mutual fund route. Invest in SIPs in any of the top three diversified equity funds available. It must be noted that analysts are paid to recommend and their job is to recommend ideas even if there is none.
Mutual Funds are a fantastic way to invest for the long term (5 years or more). For those that don't already know, Mutual Funds are a great way to have a 100 or more diversified stocks with a single purchase.
ReplyDeleteMany of them can be opened with as little as $500.00. Don't let the simplicity throw you off. Serious fortunes can be made as long as you're willing to leave you money in for the long haul.
If you're up to your eyeballs in debt, you won't have any exta money to invest, so live within your means and and start buyin in to a Mutual Fund.