5 RULES YOU MUST READ

1. Buy and hold is dead.

I hate to be the one to tell you this, but “buy and hold” is a marketing slogan, not a proven investment philosophy! It was invented in the ‘90s by mutual fund companies and Dalal Street to lure more people into investing.

Ask any investor who used to believe that “buy and hold” was the right strategy—that good stocks would always go higher if they were only held long enough—what they have now to show for it. Only losses!
Look at the brutal roller coaster “buy & hold” investors have been taken on over the last 10 years in the NSE, BSE, DJIA, NASDAQ, and S&P 500 indexes…
…and how the world’s best blue chip brands—companies like Reliance, LT, BHEL, Suzlon in India and GE, Cisco, Intel, Coke, and Microsoft in the USA—went down 50-70% or more over this same period.

The key to profiting in today’s market is to actively manage your money.

2. Diversification won’t save you.

You’ve heard the bromide that says you can survive anything with a diversified portfolio? It’s wrong. In a down market like we just lived through, everything goes down.

One of the distinguishing features of this bear market has been that all asset classes, economic classes, industries and regions are now correlated with each other. It’s about 90%, the highest since at least 1984, according to one study.

Financial, power / energy, technology, infrastructure, drugs, steel and real estate stocks… they all went down 72%, 42%, 62%, 58%, 62% and 85%.

Diversification didn’t offer a lick of protection. Just ask the president of any mutual fund / hedge fund, who announced not long ago that their well-diversified xxx billion endowment was preparing for “unprecedented” losses that would lead to corporation-wide spending, salary and employment cutbacks.

3. Speed is in.

Unfortunately, people think they lack the intestinal fortitude to trade more frequently, but what they don’t know is that it doesn’t take guts to trade. It takes flexibility and a good plan. I’ll give you both.

In today’s market especially, it is critical that you take advantage of advances. We have seen—and will continue to see—plenty of big knee-jerk reactions to news that present big profit opportunities for the nimble.

4. Don’t take a knife to a gun fight.

In today’s market, you must use every weapon at your disposal. A mercenary uses whatever weapons work—you don’t just go into battle with your .38 caliber, you take your knife, Hanumanji ka gada, Ram’s brahmastra, Krishna’s Sudarshan Chakra and Arjun’s Dhanush and poison with you, too. You never know what weapon will get the job done. The same goes for us. We will use whatever tool gives us the best chance to win today—stocks, options, bonds, commodities, forex. If it can help us make money, it’s in our investing toolkit.

5. The stock market isn’t the most important game in town anymore.

As we just saw firsthand, the credit market has the power to unravel the stock market, cripple the economy and take down major American icons (like Lehman Brothers and AIG). The credit market is now FIVE times larger than the stock market today.

Bottom line: You simply MUST understand the credit market to thrive and survive as an investor.