Let me share with you the investment techniques and methods that I follow for self discipline in equity investment. It is not possible to time the market as we cannot say how far it will go up before it crashes, and how far it will go down before it bounces back. It is also necessary to avoid over exposure to a single company or sector. Diversification in sector and companies is also important, as the investment is made with a long term objectives and based on the estimate and expectation of future performance of the company and sector which may go wrong! For a disciplined investment, I set following limits and restrictions in my portfolio.
- I do not invest more in any company which comes in my top 5 holding in terms of current market value. (It means to add these shares again, it should come out of my top 5)
- I do not invest more in any company which comes in top 10 holding if the total current market value of top 10 holding is more than 70%. (you may set your own, 50%-80% would be appropriate)
- I do not invest in a sector which is more than 20% of total market value of my holding. (I have different percentage for different sector, but on an average take it as 20%. You may set your own limit also)
- Each buy is in small lot. (If you have lump sum cash to invest, spread it to invest over a number of weeks or months especially when market is high. You can adjust the pace according to the availability of good buys. For example, if you have 100,000 right now, invest 5,000-10,000 every week).
These tips are not for traders in shares. These are appropriate for people who want to invest their money for long-term in the good business to create wealth slow and steady! Over the years, you build up a portfolio of good businesses!