From the Executive Editor

Sarbajeet K Sen on why making investment decisions by tracking FIIs may not be the best move always.
Sarbajeet K Sen/Money Today        Print Edition: April 2014

The BSE Sensex touched its all-time high of 22,040 on March 18 before settling for a close of 21,832. Expectation is building in the market of a stable, industry-friendly government at the Centre with opinion polls suggesting a possible Bharatiya Janata Party-led NDA government in a few weeks. Foreign institutional investors (FIIs) are taking positions in the market and are pumping in higher amounts into Indian equities since the beginning of the year, partly in the hope of catching a postpoll rally, if that happens. Net FII investments, which were Rs 714 crore in January, went up to Rs 7,726 crore in the first 19 days of March.

As a retail investor, you may also considering increasing your exposure to stocks on seeing market highs. In doing so, maybe you are tracking FIIs to see what they are buying and selling to get a cue on where to place your bets. So, if FIIs have collectively raised their stake in a particular company, you might feel that it would be a good investment for you too. On the face of it, that might sound a good investment strategy because institutions, be it foreign or domestic, have the expertise and the research backing to take considered investment calls. But do they always get it right?

The reality is that there are innumerable instances where FIIs have gone wrong with their bets. It is just another market myth that following institutions is a good way to create wealth. There are many such investment strategies followed by retail investors, such as tracking promoters' moves in companies, trying to locate stocks with low priceto-earning (PE) ratios, putting money in initial public offers that are over-subscribed in the hope to make listing gains and trying to spot penny stocks that could provide multiple returns. There are risks associated with following each of these investment strategies in isolation.

In our cover story, we bring you ten investment strategies commonly adopted by retail investors and tell you situations in which these may not work and why these are not sure-shot ways to create wealth. The knowledge might come handy in the coming months if the expected post-poll rally does happen. In the event euphoria builds up, stocks could be flying all over. The market will once again be flush with advice on stock picking, with stories woven around individual stocks and how they could become multibaggers.

Every investor should do adequate homework on his own and study several parameters before putting in money or else seek the assistance of professional money managers. Of course, no investor has got it right all the time. But proper due diligence will more likely than not help build a winning portfolio.

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