GUIDELINES FOR INVESTMENT DECISIONS

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Chapter 21 GUIDELINES FOR INVESTMENT
DECISIONS What it All Comes To
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• OUTLINE
• Basic Guidelines The Ten Commandments
• Guidelines for Aggressive Equity Investors
• Guidelines for Conservative Equity Investors

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TEN COMMANDMENTS 1. ACCORD TOP PRIORITY TO A
RESIDENTIAL HOUSE 2. INTEGRATE INSURANCE IN YOUR
INVESTMENT PLAN 3. CHOOSE A RISK POSTURE IN LINE
WITH YOUR STAGE IN INVESTOR LIFE CYCLE 4.
TIPTOE THROUGH THE WORLD OF PRECIOUS OBJECTS 5.
AVAIL OF TAX SHELTERS 6. ADOPT A SUITABLE
FORMULA PLAN 7. SELECT FIXED INCOME INSTRUMENTS
JUDICIOUSLY 8. FOCUS ON FUNDAMENTALS, BUT KEEP AN
EYE ON TECHNICALS 9. DIVERSIFY
MODERATELY 10. PERIODICALLY REVIEW AND REVISE THE
PORTFOLIO
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NEED FOR LIFE INSURANCE PHASE FINANCIAL
AVAILABLE NEED FOR
REQUIREMENT RESOURCES
INSURANCE OF
DEPENDENTS YOUNG NONE
NEGLIGIBLE ABSENT ADULTHOOD (0-25) FAMILY
FORMATION HIGH MEAGRE HIGH AND
DEVELOPMENT TO MODEST
(25-50) PRE-RETIREMENT MODEST
SUBSTANTIAL DIMINISHED (50-60) RETIREMENT
SMALL SUBSTANTIAL ABSENT
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RISK - RETURN PREFERENCES OVER
INVESTOR LIFE CYCLE
RETURN
EARLY CAREER MID
CAREER LATE CAREER
RETIREMENT RISK
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INVESTMENT HORIZON VERSUS
LIVING HORIZON The general recommendation
that a person should gradually tilt his portfolio
in favour of bonds as he advances in age
implicitly assumes that a persons investment
horizon is more or less the same as his living
horizon. This may often not be true because for
most people the investment horizon may be longer,
indeed much longer, than their living horizon.
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CONSTANT RATIO FORMULA PLAN
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FUNDAMENTAL ANALYSIS AND
TECHNICAL ANALYSIS
Fundamental
Analysis Undervalued
Overvalued Technical Weak
Wait Sell Analysis Strong
Buy Wait
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• GUIDELINES FOR AGGRESSIVE
  EQUITY INVESTORS
• Focus on investments you understand and play
  your own game.
• Monitor the environment with keenness.
• Scout for special situations in the secondary
  market.
• Pay heed to growth shares.
• Beware of the games operators play.
• Anticipate earnings ahead of the market.
• Leverage your portfolio when you are bullish.
• Take swift corrective action.

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INVESTMENT SWEET SPOT
Zone of comfort
Sweet Spot
Zone of competence
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• GUDELINES FOR
  CONSERVATIVE
  EQUITY INVESTORS
• Avoid certain kinds of shares.
• Apply stiff screening criteria.
• Look for relatively safe opportunities in the
  parimary market.
• Participate in the schemes of mutual funds.
• Join a suitable portfolio management scheme.
• Consult an investment advisor.
• Refrain from short-term switch hitting.

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• SUMMING UP
• There are ten commandments of investing which
  should
• serve as basic guidelines for all investors.
• Aggressive equity investors play the equity
  game actively
• and vigorously. In addition to general
  guidelines, there
• are some special guidelines relevant for
  them.
• Conservative equity investors seek to minimise
  the
• investment risk as well as the time and
  effort devoted to
• portfolio management. In additional to
  general
• guidelines, there are some special guidelines
  relevant for
• them.