Rakesh jhunjhunwala has formulated several important rules of investment that every investor must follow if he wants to keep his capital intact and make profits from the stock market:
(1) Keep Margin Of Safety by buying stocks cheap:
Never get carried away by the heat of the moment to pay a fancy price for the stock because you will regret it later. Instead, be very careful that you are not paying a very high premium to the intrinsic value of the stock.
(2) Buy for the Long Term:
Rakesh Jhunjhunwala is a strong proponent of holding shares for very long period of time because it is only then that the shares become true multibaggers. All the stocks in his portfolio; especially the ones that have become multibaggers like Titan, CRISIL & Rallis have been held by him for several decades.
(3) Don’t Sleep over your stocks:
Rakesh Jhunjhunwala’s suggestion that you should buy stocks for the long-term does not mean that you should sleep over them. Instead, you must be vigilant and periodically review the stocks to ensure that the business model has not changed to your determinent.
(4) Buy a business you understand:
Rakesh Jhunjhunwala points out that if the investor has no knowledge of exactly what the company is doing. sooner or later he will lose interest in the stock, stop paying attention and lose confidence. So, the best way to invest is to buy stocks in a business that you understand. This way, you will know what the company is upto and whether you should stay invested or bail out.
(5) Know when to sell:
Many investors get married to their stocks and do not sell even when they can see that the valuations are unsustainable. Rakesh Jhunjhunwala cautions against this situation and advices that investors should have a clear head that they should sell the stock when it gets overvalued.