Investing in today’s volatile markets can be overwhelming, especially with so many different strategies floating around. If you’re in India and navigating the stock market, mutual funds, or other investment vehicles, understanding some tried-and-true principles is invaluable.

Renowned investor Joel Greenblatt has shared 10 essential investment principles that can act as a guide for all investors.

Let’s break down these principles in an Indian context, discussing why they matter and how you can use them to build wealth.

1. Don’t Try to Time the Market

Timing the market is tempting but notoriously difficult, even for experts. In India, markets can be driven by various factors like global events, government policies, and investor sentiment.

Instead of trying to guess the market's highs and lows, consider a systematic investment plan (SIP) in mutual funds, which allows you to invest regularly and averages out market volatility.

SIPs are an ideal choice for the salaried individual who wants to build wealth gradually.

2. Know What You Own

Understanding your investments is crucial.

For instance, if you’ve invested in Indian tech stocks or banking sector mutual funds, know the basics of how these industries perform.

Avoid blindly investing based on trends or hot tips. Only invest in areas where you understand the risks, growth potential, and industry trends. If you focus on sectors you’re familiar with, you’re more likely to make informed decisions.

3. Buy Good Businesses at Bargain Prices

This principle is all about value investing.

In the Indian market, sometimes high-quality companies like Tata Consultancy Services or HDFC Bank can see temporary drops due to market conditions.

This may provide an opportunity to buy such blue-chip stocks at a lower price. Look for fundamentally strong businesses with good management, and try to buy them when they’re undervalued.

4. You Will Underperform

Investing isn’t always about winning every time. It’s normal to experience periods where your investments don’t perform well.

For instance, during the COVID-19 pandemic, even some of the best-performing stocks took a hit. Accepting this helps you stay focused on long-term goals instead of short-term setbacks.

5. Every Investor is Unique

Your investment goals are unique to you. Just because your friend invests in aggressive growth stocks doesn’t mean you should too. For example, if you have responsibilities like a child’s education or buying a house, you might lean towards safer investments like Public Provident Fund (PPF) or debt mutual funds.

Your journey is personal—plan accordingly.

6. Focus on Small Caps

In India, small-cap stocks can offer significant growth potential.

However, they’re often ignored by big institutional investors. Investing in companies within emerging industries, like clean energy or regional manufacturing, can sometimes yield high returns.

However, remember that these stocks are riskier and should be a part of a diversified portfolio.

7. Determine Your Risk Appetite

Every investor has a different tolerance for risk. Consider Howard Marks’ advice: “There are old investors and bold investors, but no old bold investors.”

If volatile stocks make you anxious, opt for a balanced mutual fund or low-risk options like fixed deposits. Your financial well-being matters more than trying to maximize returns by taking on uncomfortable risks.

8. The Market Will Eventually Be Right

If you’ve made an investment based on solid research, give it time.

The market might undervalue certain sectors temporarily due to economic conditions. For example, after initial setbacks, the IT sector in India surged in the long run. Be patient, and let the market’s long-term correction work in your favor.

9. Never Underestimate Incentives

When investing in a company, pay attention to how management is incentivized. For instance, check if a company’s promoters hold a high percentage of shares, as this often aligns their interests with shareholders.

Conversely, if there’s a history of insider trading or excessive executive compensation, it’s a red flag. In India, where corporate governance standards vary, understanding management incentives can help you make safer investment choices.

10. All Intelligent Investing is Value Investing

The core of smart investing lies in buying something for less than its worth.

In the Indian context, this could mean researching undervalued sectors like infrastructure or agriculture, where growth potential is high but current valuations are low.

By focusing on value, you maximize the chance of returns when the market eventually recognizes the stock’s real worth.

Why Following These Principles Can Help Indian Investors

India’s financial markets are evolving, with new opportunities in sectors like tech, clean energy, and manufacturing.

By following these principles, Indian investors can make well-informed decisions, safeguard their investments, and build a sustainable portfolio.

Each principle helps you avoid common pitfalls, stay patient, and ultimately aim for long-term growth.

Final Thoughts

Joel Greenblatt’s principles may be universal, but they’re especially useful in the dynamic Indian market.

Investing is a journey that requires patience, research, and discipline.

By integrating these principles into your strategy, you’ll be better equipped to make sound decisions, even during challenging times.

So, next time you’re about to make an investment decision, revisit these principles and evaluate if it aligns with your long-term goals.