When I look back, my beginnings in investing were very simple. I made a decision to invest a portion of my income into our 401K plan. Perhaps that is how many of us begin. I knew very little about the stock market and the amount of money was small. I cannot even recall where exactly I put my money into. There was little advice to go around back then. I stayed focused on my work and it was only after a few years that I started noticing that my 401K was growing and had equaled our rather small annual salary back then. I think that is when I started thinking about where should I portion my monies among the choices I had in my 401K? Since investing is a very personal decision, there was not much advice to go around. Anyhow, I chose to put my money into three equal portions – an income generating fund, an overall market equity fund, and the company stock. Fortunately the company stock went up through the 90s and we did rather well in the 90s.
But should one put money back into the company stock fund?
My answer for the majority of people would be “No” but with one exception. The answer No is given because most of us have all our lives tied into the company and maybe it is best we keep the investment separate in case the company tanks.
But for those who know stocks technical analysis or those who have devised a system based on thorough back testing of rules to follow to get in and out of the company stock that could be very rewarding. The company stock could rise much faster than industry mutual funds... I remember 2003 well. The stock market went up 28.8% that year after the terrible fall from the previous years. My investments in my company stock went up over 50% and I was able to enter on a technical signal, coupled with a nice rise in volume, which gave me confirmation that the market was changing its mind and further rises would be likely. After the stock rose 70%, I chose to take out half my money before earnings announcement, mainly because I did not know how the market would react to whatever our earnings would be, and I wanted to book some of the profits. I think looking back that showed me the value of technical investing better than I could have learned from a book.
Back test your trading system – follow your rules for entry and exit – take some profits along the way.
But should one put money back into the company stock fund?
My answer for the majority of people would be “No” but with one exception. The answer No is given because most of us have all our lives tied into the company and maybe it is best we keep the investment separate in case the company tanks.
But for those who know stocks technical analysis or those who have devised a system based on thorough back testing of rules to follow to get in and out of the company stock that could be very rewarding. The company stock could rise much faster than industry mutual funds... I remember 2003 well. The stock market went up 28.8% that year after the terrible fall from the previous years. My investments in my company stock went up over 50% and I was able to enter on a technical signal, coupled with a nice rise in volume, which gave me confirmation that the market was changing its mind and further rises would be likely. After the stock rose 70%, I chose to take out half my money before earnings announcement, mainly because I did not know how the market would react to whatever our earnings would be, and I wanted to book some of the profits. I think looking back that showed me the value of technical investing better than I could have learned from a book.
Back test your trading system – follow your rules for entry and exit – take some profits along the way.
Rahul: Thanks for starting this blog. I am looking forward to learning at the feet of the master.
ReplyDeletePaul Joseph
Thanks Rahul for this. I for sure will follow it. I have taken the liberty of sharing this with my children who may be able to use this too. Good Luck.
ReplyDeleteMaulik
'Investment' Guruji Pranam,Some thumb rules please to pick up in Indian environment.Pradeep Bhatta
ReplyDeleteRahul,
ReplyDeleteIt's great sharing your lifetime experience in Investing. Anytime is good time for learning to invest wisely with guidance and tips from an Investment master like you.
Keep us posted on further ideas. Great to learn for anyone including my children.
Baldev
Rahul
ReplyDeleteWhile in the U.S., I was discussing investment opportunities there, and drew a blank most of the time. This blog should definitely help fill this lacunae. Pl keep posting.
Sudhir
Thanks for your comments everyone. It provides me with a lot of encouragement. I know that several of the techniques apply to the Indian stock market as well. A few years back I had subscribed to data from the Indian exchanges and found that my software woked smoothly with it. I will try to vary the posts to offer a variety of information to the readers; whether they are a beginner or active investors.
ReplyDeleteKeep blogging Rahul
ReplyDelete