My friend Anishka is by far the smartest sales person I know. She manages clothing boutique for a big designer label here in New Delhi. Last week she told me a thing or two about how to sell. Here is an interesting way of doing it:

Assessing the psyche of a customer is most important. Let’s say a guy walks in the store who urgently needs a formal shirt or is in a rush. I must quickly understand what he is looking for in terms of color, cut and fabric and then for the first few minutes show him shirts which I think will NOT BE to his liking. About 5-7 minutes later I will show him just one shirt based on what he described earlier, this shirt has to be perfectly attuned to his liking. After seeing 7-8 shirts, a person in a rush will be far more eager to buy. At this point a perfect shirt would sell under 30 seconds.

Personally, I thought that was not marketing, that was plain fraud! As Anishka put it, that’s what sales are, nothing wrong with it. He bought a good shirt at a good price with some mind games thrown in based on well defined principles of investor behaviour.

Compulsive Investors

Some of you regularly write in to me seeking advice on increasing exposure to equities. I asked one such subscriber as to why he did not want to invest in a fixed income product at 8% for a few months while the markets looked expensive.

His answer reinstated an age old flaw with investor behaviour:

I have spare cash which I don’t need for a few months. I believe you said (quoting me) equities will give you the best returns over a period of time.

Yes equities will give you the best returns over time but making investment decisions based on when you have money vs. when you don’t have money will only get you devastating results. Stock investing is 60% discipline. Notice I use the word investing and not trading or speculation.

Don’t be a compulsive investor. Even if you happen to be in a situation where you suddenly have a lot of spare cash, my advice is always to invest based on market valuations and preferably try to spread out your purchases instead of buying all at once. Somehow people just hate the idea of 7-8% fixed return. I guess it’s the “inflation eats your money” notion that’s just been drilled into people’s minds so badly that they ignore fixed income options even at times when they are the best place for your money to park itself.

Not for once am I saying that you should break your investing discipline based on valuations or market conditions but increasing exposure to equities (or any other asset class) has to be done with some evaluation. A few days back I was asked about 1-2 stocks which investors should have in their portfolios (SEE VIDEO BELOW). Despite being overall negative on the market I said that investing discipline should be maintained at all times.

Some investors are so fixated with the asset class they are used to investing in (like stocks) that they cannot look beyond it. 5-10% up move and they come flocking in from all directions. A similar decline in prices naturally has the exact opposite reaction.

Golden Principle of Stock Investing – Don’t Be a Compulsive Investor (or Trader)

The idea of investing has to be differentiated from other forms of speculative activity. There are always good stocks to buy in all market conditions. But overindulgence would lead to serious harm to your portfolio – 100% times.

Set a monthly investment target and be as disciplined with it as you are with your cellphone bill.

I know its easier said than done. Here is a motivating story:

In the year 2005, somebody I know gifted shares of Rs. 1,00,000/- to his friend to help her build a corpus for her daughters marriage. The daughter is now 24 and the value of those shares has increased to 8,32,000/-. I recently met this friend to help her with some investments. She told me that she would have preferred gold back then since it has appreciated so much in price. It took me a while to explain to her that gold worth Rs. 1,00,000/- purchased in the year 2005 would only be Rs. 3,50,000/- today.

Further, she said the value of the shares was over Rs. 11,00,000 sometime back and she is making a loss now (these were mostly ITC shares). I have no idea how to convince someone that Rs. 8,32,000/- is still > Rs. 3,50,000/-