Twelve Rules for investment!!

Recently I came across a handy mini-book published by Deutsche Bank giving some simple practical rules to make investments. If these can be further refined with the rules verily stated by the legendary Warren Buffett, it can almost become a mini-bible for investors, for who are not too well equipped to deal with investments.

I will summarize the Deutsche Rules thus:

1. Invest regularly. I feel this rule is the single most important rule. Also keep in mind that savings is not what is left after spending, rather the amount available for spending is what is left after saving!! Investment requires a lot of discipline by setting aside fixed amounts at a fixed frequency say typically - monthly.
2. Start investing early in life. Remember the fable 'early bird gets the worm'? No amount of smart moves later in life can beat the discipline of investing early in life, preferably from your first salary or income. You can never beat the power of compounding. Remember Einstein had famously said "compound interest is the eighth wonder in the world. He who understands it earns it ---- he who doesn't --- pays it."
3. Never try to time the market. Be a long term investor. I know of people who had identified shares which are fundamentally sound. Invested in them, and for the past several years are simply sitting on them! They have got better returns compared to any other investment avenues. They have seen prices move in a range of minus fifty percent to one thousand percent! They have got back much more than their original investment by way of dividends alone and the shares are now free.
4. Know the real returns from your basket. You can't imagine what minuscule real returns are left (if at all) by investing in FDs and debt instruments if you subtract the inflation rate from the nominal rate.
5. Diversify across various asset classes to spread and minimize the risk.You can follow the famous fifty-fifty rule of Warren Buffett or the golden rule that the your percentage of investment in risky assets (read - equity) should be about hundred minus your age. A person at twenty five can have 75 percent investment in equity but a person at seventy five should restrict equity exposure to 25 percent. I feel this rule can be refined further if the cost of one's equity investment  is historically low and today's market value is high. Variations in day to day prices do not affect much if cost of acquisition is low.
6. Periodically balance your investments in line with your age, changes in life style, or after undergoing major unexpected health issues.
7. Don't expect unrealistic returns and book partial profit periodically.
8. Learn from your mistakes. Remember life is only one and if you don't learn from past lessons you can only blame yourself.
9. Don't get carried by tips and invest hurriedly.
10. Avoid products which you have no clue about. Do remember: Experts are being paid handsomely to devise new products which are difficult to decipher, confusing but look attractive.
11. Treat your investments like your children - give them your time, review their progress, chide them, pamper them, shout at them, cuddle them, hold their hand or in short - bring them up lovingly.
12. If you have no expertise of analyzing equity investments - keep it simple - follow the mutual fund route. Do your own analysis. Don't buy what advisers want to sell. Find out who sells what you want.

Happy festive season and happier investing!
Madhusudan Sohani