Investment Lessons for & from a “common (wo)man”

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Keeping up the tradition, we continue to post different varieties of topics under AI Post.  Today, we are publishing investment story of one of our subscribers. He wants to keep his name confidential but agreed to share his investment experience with us. There are plenty of lessons in his story and I am sure at some point of time, all of us have committed to same mistakes during early days of our investment journey. Without wasting more time, over to him.

Hello Ace Investors and thanks to AI Post for giving me an opportunity to narrate down my investment experience. I am a common investor and have learnt my lessons through my own mistakes in the past. These are costly mistakes and I hope you can avoid them after reading my experience. If I have to classify, there are four distinct phases in my investment life.

Phase 1: Ignorance is a bliss!!

I was an engineer employed with Tata Consultancy Services from 2006. Life was pretty simple in 2006 and I was enjoying my campus placement in TCS. I still remember my first salary which I received during my month-long induction training in Trivandrum. My first salary was more than ₹40,000 and I was running short of ideas on how to spend it. Back in college days, I used to get ₹5,000 per month from my parents and that was sufficient for me. In fact I managed birthday parties within that sum. Suddenly 40k seemed too much and then there were another 40k coming in next 30 days. Honestly, I had no clue about saving or even gave a thought about it. So, destiny took me to TCS Gurgaon and next two years just flew off buying gadgets, travelling back home on long weekends, weekend parties and so on. I used to pay full tax without claiming exemptions. I was having a gala time with no responsibilities and living in complete ignorance of savings and any kind of financial planning. Ignorance is really a bliss until it lasts!!

Lessons: With new money in my hand, I bought things which were really not required and burnt money for two years. I still have a few gadgets that I bought but never used until date. All of this with no tax planning. Ah!

Phase 2: Awareness bothers at first, Procrastination rules

Those days all youngsters used to circulate a lot of funny emails on our corporate email IDs. My TCS email ID was part of many such groups and one day, I got a forward on power of compounding and impact of inflation. It was for an ULIP, I believe. It really jolted me to know that I need crores of rupees to manage same lifestyle after retirement. I was bothered since we have no pension in private sector but then I forgot about it and went ahead with my usual life. By now, some of my friends had got into the trap of ULIP and recommended it to me. The sales agent gave me an irresistible offer. He told me that for ₹1.5 Lakhs premium policy, he will payback his commission upfront which was ₹15,000 and I can save tax up to ₹15,000, so effectively I am getting ₹30,000 back while on paper my investment was still ₹1.5 Lakhs. Gains on Day 1!! I fell into the trap and encouraged my friends to buy same ULIP. Because of me, 4-5 friends also bought ULIP. Later I got to know that sales agent got promoted and we asked him to fund one of our weekend party.

Lessons: I relied on agent stories and never ever searched enough on google. This was not expected from an IT employee who googles almost everything.

Phase 3: Equities wow!! Let’s buy some high performing stocks!!

Fast forward to 2013. I was married, bought an under-construction home on loan, expense went higher and salary hike remained paltry for many years after 2008-09 recession. Suddenly, I was barely managing ends with my salary. I consoled myself by thinking that it will get better with time but it never did. On one of the sleepless nights somewhere in Dec 2013, I got hooked to equities and read a lot of independent posts and articles from variuos websites. Finally google was put to use. It was an eye opener for me. I realized, I need to increase my earnings and start equity investment to make up for the lost time. Thankfully, I was posted aboard by TCS and my earnings jumped many times. Still there was no planning but a burning desire to buy stocks and get rich. The process was missing. So I invested into stocks like Cheviot, Reliance Industries and HCL Technologies. I made gains only from HCL and made losses in the other two. With losses, I was even more determined to recover my loss by investing into small caps which were flashing on 52 weeks chart. With this thought, I invested even bigger sums into unmentionable stocks like Bhilwara spinners, Crazy Infotech, Archana Software, etc. At one point, I had losses running into ₹7 Lakhs. Mr Market had taught me a good but expensive lesson.

Desperate, I wanted to become smarter and got hooked to TV experts. One of the expert, Mr Daljit Kohli highly recommended a stock called Intellect Design Arena. Being an IT guy, I had an idea about the technology and knew that product companies have bigger margins than service companies like TCS. Flushed with onsite salary and in an attempt to recover my losses, I invested almost 80% of my portfolio into Intellect at ₹180. Stock went up like a rocket until ₹275 and I was convinced about my decision. More risk more gains! Due to sheer size of the bet, my portfolio returns were in high 30s. I started boasting my investment success to my wife. She is not from a financial background but she still pointed out that what will happen if this stock goes down. Common sense. I simply ignored her question and told her that I will buy a new property once Intellect hits ₹2000 within a year. At this point in time, I was also following what small cap mutual funds were buying. One of the fund Reliance Small Cap, had substantial holdings into Intellect Design Arena. This re-affirmed my belief in the stock as Mr Sunil Singhania (Fund Manager) can’t be wrong.

After a few months, stock went down to ₹180 and I bought more to accumulate at lower price. Now I realize that uncautiously I was always fascinated by the idea of buying a new property using stock money. But Mr Market had other ideas. Stock went further down to ₹140 and refused to move up at all. There was no news of Mr. Daljit Kohli nor Mr Sunil Singhania. Forums in moneycontrol were only abusing the stock and promoters. My patience gave in. I made another huge loss by selling this stock. I can not blame Daljit Kohli or anyone else because it was free advice with no follow-up or accountability.

One big lesson was learned: There are no free lunches in financial world. Either pay for it or pay for not paying for it!!