Personal goals are often ignored while discussing investing strategies. Few of us invest for the sake of investing. We invest because we have certain personal goals: to retire rich, to lead a more comfortable life, for our children’s education, to travel the world, and so on. Investment is a vehicle to take you to your dream path. Before you plan your investment, know yourself well: what your present station in life is, where you want to be 10 or 20 years from now. If your day-to-day life depends upon the money you are investing, equity is not the right investment for you. Equity investment must be nurtured to grow. You should understand several points.

1. Have a firm belief in your investment philosophy
Your shares may decline by 50% after you buy them. The hedge fund investor Ray Dalio, who had predicted the 2008 recession, cautions you to prepare yourself for big corrections. In a recent interview, he said there is a 70% chance that the USA will get into a severe recession before the 2020 elections. If your current lifestyle depends upon your investments, you may find yourself in a soup if it comes true. If you depend on the investment, you will be under considerable stress and may not make a logical decision and may end up doing the worst: selling in panic when the market is low.
This also explains why you need to understand the right investment principles. Many a time, you need to be a contrarian in approach. One should see the intelligent investor at the buy counter rather than the sell counter when the prices see a sharp fall. This does not happen unless he has a full conviction of his investment strategy.
Investment needs time to mature, and only after you have invested for a long period will you generate sufficient reserves to depend upon your investments for your lifestyle requirements. A rule of thumb: if you might need the money in less than five years, it would be unwise to invest in stocks. Stock market success comes after you have invested for 10, 15, or 20 years or beyond.

2. In a bull market, people may think you are a fool
Frenzy and irrational exuberance drive the bull market. The price rise has nothing to do with fundamentals and is a pure demand-supply situation, a voting machine rather than a weighing machine. The panwallah who overhears the conversation between traders becomes an expert, and people seek his tips because they work. In a bull market, the value investor doubts his own competence because the rise in his shares is lower than the surge in some shares with doubtful credentials. In the peak of the 2007–08 boom, newspapers carried the articles that value investing was dead, that the old medicine worked no longer. After the bubble burst, the value investors had the last laugh.

3. Be fearful when others are greedy and be greedy when others are fearful
This principle should be at the back of the mind of every investor at every stage of his investing career. Though I have no interest (or competence) in predicting the market, I can often see the fall coming. When I see experts on TV debating if the Sensex at the end of next year would be 100,000 or 150,000 and there are no dissenting voices, I know too much air has filled the bubble.
We do not recommend market timing since our approach to investing is bottom up. Yet with sufficient experience in the market, you will gain insight into exuberances and excesses built into the system, and it may be unwise to buy at those levels. We also know some prudent investors can find great value buys at all market conditions.
Learn to swim against the current. The crowd behaviour is often illogical. In the book The Art of Contrary Thinking, author Humphrey B. Neill states: ‘The crowd is most enthusiastic and optimistic when it should be cautious and prudent; and is most fearful when it should be bold.’ Money is made by following your own investment creed and sticking to it in the face of adverse weather. Those who develop that discipline alone succeed.

4. Ignore action
We are not here to provide you with the thrill. Value investing is unglamorous. It requires a lot of hard work, reading, understanding, and analysing financial statements and other information. Then you buy your shares and hold them for a long time. You don’t have to sit on the computer screen every day at nine o’clock in the morning. If the stock markets closed for three years after you bought your shares, you will stay contented, because you are not looking for day-to-day price fluctuations and have no intention of selling your investment soon. Nobel laureate Paul Samuelson puts it aptly: ‘Investing should be like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas.’
If you find this boring, intelligent investing is not for you. But this is the surest way of making money in the long run, minimising risk at the same time.

5. Speculation and investment cannot go together
If you are a speculator, you cannot be an investor and vice versa. There are notable exceptions to this, but let me caution you against such a tendency. Either you speculate or you invest. Period.

6. The most important trait of an intelligent investor is the mindset
The investor remains unperturbed in the face of adversities. He remains unemotional even when he is ‘in the money’.
Detachment is the key; an investor who can control his emotions in all situations rises up the ladder faster than someone with a high IQ who cannot control his emotions.

7. Knowing what you don’t know is more useful than being brilliant
We should know what we don’t know and either learn it or stay away from things beyond our circle of competence. The greatest investment folly is to get into an area of which you have no knowledge. It surprises me to see many people plunge in deeper water without learning to swim.

(Dr Tejinder Singh Rawal is the author of Loads of Money: Guide to Intelligent Stock Market Investing: Common Sense Strategies for Wealth Creation)