1 min read.Updated: 19 Aug 2021, 06:11 PM ISTLivemint
Do not buy because someone else has made money on a certain company. Always buy based on your own inherent opinion of the sector and research on the stock, Nikhil Kamath says
Since the pandemic began, many first-time investors have entered the stock markets to take advantage of the never-seen-before rally. As much as it is encouraging, overlooking some basic rules in bid to make some quick gains can result in huge losses.
In a recent interview with Linkedin, Zerodha co-founder Nikhil Kamath points out three mistakes that first-time investors should avoid. Here they are:
Don't fall prey to sentiments. Do not buy just because everybody else is buying, Do not buy because someone else has made money on a certain company. Always buy based on your own inherent opinion of the sector and research on the stock.
Not diversifying enough
The second thing I often find in Indian investors is we do not diversify enough. Not just across asset classes but even between companies. Diversification is extremely important. And I would recommend people to build a more balanced portfolio, it might not outperform everything else in the short run. But over the long run, considering how cyclical different sectors are, having that balance in diversification really helps.
Not hedging the portfolio
Third, this is a bit nuanced, something that I like to do, is having a bit of hedging in every portfolio. It does not have to be a natural hedge on the same sector or same company you are going long in. For example, let say commodity cycle are turning and steel prices are going down, but steel companies valuations has skyrocketed. If you want to be long pharma, take a little bit of short in steel. Try to play that relative strength and weakness among different sectors, rather than just vanilla on what you like.