Should you "buy what you know"?

We all humans loves our comfert zones and as a defensive customer, we always want to go with the things we already know about and with the names familiar with. The same nature affect the investors portfolios while investing. In 1980 and 1990 this seems to be very common slogan that "buy what you know" but how much fruitful it is in today's uncertain market and time, we will try to understand it practically.

Suppose you went London for vaccations and you reached there at morning, after check out you want to have breakfast but you don't have any idea about the places and where to get best food. You will ask the best place to visit for breakfast from localities or your cab driver. He leaves you the place where you may find so many restaurants and stalls for breakfast options. You got confused that what would be the best as per your taste and pocket,you started to analys that where most of the people are going and what is the food you tempt most then you realise that on one stall the Sambhar Dosa is available and here mentioned South Indian Stall and you quickly jumped on that stall and ordered the breakfast for you. The reason for that is, you are familiar with the taste of the food and you are very hungary so you don't want to try any new dish at that point of time. 

The same thing happened while investing that you come with your money into the market with the hope of earning good return and you hunger for the same, insists you to follow your earlier belief in spite of trying new better growth companies.

Investors want to follow their belief and instinct rather than research and analysis, if you are comfertable with PSUs companies than it would be difficult for you to go with private companies.

Is this approach is fine to work with?

In this scanario and current market situation this approach is not preferable at all. As per Lynch's Rule - If you are supposed to "buy what you know" then what could possibly be a better investment for you than your own company stock? After all you work there, you know all the good or bads about the company than any outsider ever know? 

When you follow your instinct then you can avoid the balance sheets and all the R&D about the company we should focus on. Yesterday good in the company does not assure you the future good into the company. Below is the example for you :

I was very much bullish on Bank of Baroda Company in 2017 and invested 1 Lakh into that and my investment was for long term and since then continuously the stock even PSU bank sector is in a downturn and from the range of Rs 204 it comes to Rs 40. 

Your instinct and comfort zone is not workable nowadays. We have to be alert and well informed all the time about the companies we hold in our portfolios. There are few steps we should follow, if we want to go with known stocks:

• Do the reasearch work of your interested company by your own, 360-degree analysis required and you can follow these links to do the research work. https://bijimoney.blogspot.com/2020/06/Fundamental-analysis.html, https://bijimoney.blogspot.com/2020/06/Financial-statement  I.
• Get some Help: Get some help from expertise or analyst if you not able to do it completely with yourself but only take help, most of the work you should do with youself because the work you can do for yourself, no one else can do.
• Go diversified: Mutual fund would be the best option to avoid any big losses in your portfolio, suppose you are comfortable with gold investment then going with direct gol buying you should search for good gold fund, suppose you want to go with bond buying then searching a single bond can not be very good idea rather than go with a bond fund to minimise th risk.

Also read, https://bijimoney.blogspot.com/2020/07/portfolio-building.html