Yes, I did that recently!
I sold off all my stocks without even looking at their prices.
I realized that I had started liking stocks in my portfolio. In fact, my likeness for them had gone to such an extent that whenever I heard negatives about them, I rationalized my decision to hold on to them.
So whenever I learned that, from among my stock holdings, a business was not going to do well in terms of growing its sales in the future, all I did was assume a higher profit growth so that my overall decision – of it being a growth business – remained intact!
I first discredited all new piece of evidence which proved me wrong on a stock, and if I wasn’t able to do that – for instance, when the evidence was solid – I invented other, new reasons that kept my prior conclusions intact.
Then, in a moment of epiphany, and after seeing a few of my stocks giving me sleepless nights – not because they had crashed, but because I did not know what was really going in those businesses – I sold them!
I also sold all other stocks from my portfolio, without considering what they were trading at and how much profit or loss I was sitting at.
When I told this to my friend, he shouted at me saying, “You ask me to buy stocks when markets are bad and everyone else is selling, and you sold them all?”
“But…”
“What but?” he shouted again. “You are a cheat, double-faced, and overhyped person who says and writes something and does the opposite!”
“But…”
“But what?” he had lost his cool. “Do you really have any explanation to offer now?”
“Yes, I have!” I said.
“Okay, open your mouth!”
“Ha ha ha!”
“Dammit, open your mouth and speak up why you sold off all your stocks!” my friend said, while looking extremely disturbed now.
Before he could have murdered me out of angst, I said, “Hey, I did not sell them off actually. I just sold them off mentally!”
“What do you mean you sold them mentally and not actually?” he blurted out. “And how and why you did that?”
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How and Why of Selling Stocks…Mentally
This is one of the most important things I learned from my interview of Prof. Sanjay Bakshi last year – when I asked him how he dealt with value traps – stocks that you consider cheap, and that get cheaper for fundamental reasons.
This is what he said…
The first thing to do is to recognize it (that value traps exist). Many people find this hard to do. They go into denial.
If something you bought has gone down 50%, something is wrong either with the market, or maybe something is wrong with you. And it’s not a good idea to assume that the market is wrong. It’s often wrong, no doubt, but not always.
Look at the fate of folks who bought into DLF, Unitech, Lanco, Rcom, and Suzlon in Jan 2008 and who are still holding those stocks. Here are the stock price returns from 1 Jan 2008 till date (July 2012): Lanco: -85%, DLF: -80%, Unitech: -95%, Suzlon: -95%, RCom: -93%.
People, who held on to these names since 1 Jan 2008 – at some point, they went into denial. They kept on inventing new reasons to own these stocks even though the original ones were no longer valid.
People need a way to de-bias themselves and one good way to do that is to mentally liquidate the portfolio and turn it into cash and then, for each security, ask yourself, “Knowing what I know now, would I buy this stock?”
Often the honest answer would be a most certain “no”. Then the next question you have to face is – “Then why do I own it now?”
You have to deliberately expose yourself to cognitive dissonance and then you have to learn to promptly resolve it.
I used the above names as examples even though none of them were value stocks. But the same rules apply to value stocks, which turn out to be value traps. You have to recognise it which will expose you to cognitive dissonance, and then you have to rationally resolve the dissonance. And there is only now way to resolve it rationally – swallow your pride and sell it.
Swallow Your Pride and…
Someone rightly said that we’re not rational animals, but rationalizing ones.
We will easily go to extremes in order to fool ourselves into believing that we’re right about things about which we are really wrong.
We will also get obsessed with what it cost us to buy an investment – the sunk cost fallacy.
So when we make an investment, the cost we pay for it is not just a financial commitment made by us, but also an emotional commitment (“Come what may, we shall never part!”).
We like to think we were right. So if the price of a stock moves up after I buy it, I will take it as an evidence of my intelligence and investing skills.
However, if a stock falls well below my cost, I will overlook the negatives about the company that I may learn subsequent to my purchase. I will cheat myself into believing that the adversity my company is facing is only of a short-term nature, and that it’s only a matter of time when the stock will soar.
I see a lot of this happening with a lot of people who bought BHEL and Engineers India at “my” base intrinsic values of Rs 180 and Rs 195 respectively.
Now, after these stocks have fallen 45% and 35% from those levels, these investors have no clue what to do with them!
I can understand the tussle an investor in these stocks must be facing in his mind now.
He may be worried, “If I sell now, I will suffer a loss.”
But, dear BHEL and EIL investor, if you were never convinced that these were good long term bets – and that shows in your conviction now – and you bought them just because you were anchored to Rs 180 and Rs 195 respectively, the loss happened the day you made the buying decision.
Now, your sunk costs of Rs 180 and Rs 195 are irrelevant to whether you want to sell or hold on to these stocks.
So what’s the first step you must take now?
Do this…
- If you own BHEL and EIL, mentally liquidate/sell them along with all other stocks from your portfolio.
- Then using your “mental cash”, re-create your portfolio by looking at each stock and asking – “Knowing what I know now of this stock, would I buy it again?”
- If your honest answer is a certain “no”, then ask yourself the next question – “Then why do I own it now?”
- If you still don’t get your answer, just sell that specific stock (use this checklist), and repeat the process with each of the other stocks from your mentally sold portfolio.
If your current portfolio is what you would pick if you had all cash, just smile and get on with the rest of your day. You’re doing good.
If not, take a long, hard look at whether you should make a change to your portfolio. If so, that’s what you must do.
You see, your investments are about only one thing – the benefit you can derive from them in the future.
The past is past. You did what you did, and lost what you lost.
Now, either you bang your head against a wall or do anything else to punish yourself for your past mistakes, but you can’t recover what you lost.
The future, though, is wide open in front of you, inviting you to give your best shot. Of course, you don’t know what your future might hold – positive or nasty surprises – but at least you have a chance to mould it as well as you can.
That’s why you must mentally liquidate your present portfolio that was created in the past, so that you can change things to have better control over the future.
Why I Love Mentally Selling My Stocks
Well, there are three reasons why mentally liquidating my portfolio from time to time is such a liberating feeling…
- I get over my bias to hold on to past losses in hopes of recovering those losses.
- I realize that if I honestly and objectively expect that my current stock – including the one that dropped sharply recently – will do better than any other stock I can think of, then it’s a good investment to hold on to. Otherwise, I “actually” sell it.
- Mentally liquidating my stocks helps me answer this question well – “What’s the best investment I will make now with this ready cash in hand?” So I may actually end up selling stocks where I am losing my night’s sleep, and replacing them with others from my watchlist, which are better quality businesses and also available cheap.
Wait, Before You Sell!
It’ not just important to consider the above-mentioned positives of mentally liquidating your stocks, but also these two negatives:
- You will be bearing a transaction cost (broker commission) by actually selling a stock.
- You may end up selling a good business that is just facing an uncertain economy and nervous investor behaviour. So while you may be getting a chance to buy more of that stock at a cheaper price, you may end up exiting it altogether, and thus miss out on a great potential.
Finally, you see, it’s not easy to admit our own investing mistakes, simply because we don’t want to convert our paper pain and losses to actual pain and losses.
So whatever number of times I may ask you to cut your losses, the truth is that it’s hard to do in practice.
But, as I have personally experienced, once you adopt the practice of mentally liquidating your investments from time to time, you get in the habit of viewing them more rationally.
This way, I’m sure as years pass, you’ll see your performance as an investor improving.
So, when are you selling off all your stocks…mentally? 🙂
Try it…it will be an enlightening experience.
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Dear Vishal,
You are asking an adult who was doing sin all through his life to close his eyes and consider himself as dead and to ask himself a question, if he want to be re-born, where he would like to take re-birth and which way of life he will choose! Well tough to do in real life atleast let’s do that in stock investing.
Agian, I share here my own personal experience and a confession too: Invested in Sintex from Rs. 150 with a small amount and watched it going to 180 (high point fixed in my mind mentally) and started averaging it out (with high point in mind always, not the value of stock) till I reached to invest more than 3.4 Lacs ended up with a average cost of share at 100 and was holding on to losses. After going through your thought provoking articles to look in to value of stocks and not the price and also going by the sunk cost fallacy theory, I looked in to all my stocks and sold off many similar such stocks at very steep loss. In case of stintex, I sold of the stock at 50Rs. A loss of Rs. 1.77Lacs in sintex alone. The stock is currently trading at 22rs. a decision to sell and cut losses at 50 gave me a capital of 1.7Lacs to invest in other quality stocks available at bargain price. I did this in many other stocks like IVRCL (Loss of 1.34Lacs), C& C Construction (75K),Bharat Bijlee (1lac), Allied Digital (2.3Lacs), Lakshmi Energy (1.3lacs), 3i iNFO (1.34lacs). Instead of calling them as losses booked, I should call them as Capital Saved because after I sold them to cut losses those stocks further became 1/2 of their value or much lower from the price I sold off, hence it was a actually capital saved. Some of those stocks become 1/6th of their value (e.g. 3I Info).
Well, after coming in to SN, whether I learned to pick stocks or not, I can be sure which of the stocks not to buy. I have become more cautious than before putting my money in any stock, even if recommended by paid research services. Well I may miss some of multibaggers (if at all I find one), but atleast I will be more cautious not to lose any more money.
Thanks & Regards
Ajay
True ! I’ve been thinking this way on my own and reading this blog reinforces that. But it tought to do, kudos to you for being able to do that, motivates me to do that too 🙂
Thanks
Hi Ajay,
I have seen your comments in “I confess” article also. You seem to be lost lot of money from the leading paid research (I assume that Vishal’s old employer) in small and mid caps. I am also one of those unfortunate persons. I should admit that i made lot of money also during bull run and lost more than that during fall. So I feel that it is part of the game. But one thing still i am missing is what we learned from that to write home about. Atleast i do not find anything concrete which will make me rich. DE, PE, BV, ROE blah blah seems to be ok untill the figures mentioned in the books are correct and buyers believe. But the way our PSUs or corporate conglomerates indulge themselves to the short termism, i am feeling very negative (still investing big chunk of my surplus in liquid funds) about the future of stock market at the macro level.
Somebody mentioned that investment is not a science, it is an art. Personally i do not know the value (meaning) of art. For example, when i visit art mueseums, i always laugh at people. So much information available in internet, everybody comes up with statistics to justify, so many calculations, after all we are a broker (buying a stock and waiting for the price to go up). Goverment is also supporting brokers, not helping the people really producing something. I know some of my relations running their business in 5 to 10% margin (per year) and contnuing with the same business (they may not be knowing something called investment where they can earn more without doing much physical work), but we expect around 10 to 15% from stock market and Goverment is depreciating our money by 10% (approximate, no evidence) per year.
Sometimes i think that what are we trying to achieve as a whole nation (i mean all individuals)?
Just some thoughts come in my mind during office hours after reading your comments.
Thanks,
Sankar
Dear Shankar,
In 2006, when I started investing, the 5year annualized returns of funds were 25% to 30% (due to the bull run in that period), I was about to start a business venture with one of the friend (which didn’t take off) then when we made our calculations, I felt it may be better to invest in market than getting in to the business. You are right, after expenses and taxes, it is quite tough to make money in business yet we are expecting 15% returns from investment.
After all best investors in the market including veterans of the market and market analyst go wrong in getting right on the stock. OPTO was a clear example. Even vishal went wrong on that stock (he never recommended to buy that stock. I mean the analysis to arrive at intrinsic value after highlighting the risk). We poor investors ignore the risk in investing stock.
The theory is simple, if the inflation is at 10% in order to live a current life style and expenses, your earning/savings has to grow more to beat that inflation. Generally, it is told in investment theory (so far I did not get that kind of returns despite investing systematically in funds to meet goals for last 7 Years, I know now a days 7 year is not long term), over a long period the market (may not be our chosen individual stock) is likely to give that kind of return. In bull run in 2006, people said just 2 -3 years is long term, it was stretched to 4 – 5 years after sometime, now since we dont have decent returns from funds for last 5 years, 10Years and above has become the advisors time frame as long term to get a decent return. God only knows what will be the situation at 10th Year, may be someone will say 15 – 20Year is long term. Actually, if you remove the returns of 1992 (Harshad period) and bull market of 2003 to 2008 (due to cheap dollar, FII flows), the returns even in long term will look very depressing.
Had someone started investing in 2005 with daughter marriage or child education with a target amount to redeem in say 2015, he is likely to miss the goal despite having given a time frame of 10 years. So long term is not even 10 years, at best you can say in 10years you are not likely to lose money (also confirmed by analysis on past data by Franklin Templeton) but this is only past data and may not be valid in future.
Irrespective of long term is 2 or 20Years, if we are working towards a long term goal like retirement corpus which is 15-20-25-30 years away, we should welcome these kind of uncertain bear markets and volatility. It work wonders on the very long term returns, provided we keep investing in this period with a hope that some day a bull market will come back. This is where the asset allocation helps. The best we can do is to maintain asset allocation as per risk comfort and return expectations. Since for real estate investments, deep pocket is required, we are left with few choice – Equity & Debt (many kinds) & gold to meet our goals and we should keep investing till the end with a hope you will see light at the end of tunnel (sooner or later). Still, we will be better than others who are investing in avenues that for sure not going to beat inflation on a long run.
In my short personal experience investing, the only thing we can control is asset allocation among Equity, Debt, Gold and Real Estate. Let’s leave real estate (which has its own merits and de-merits) as for most of them real estate investment is only in their living house, which cannot be considered as a investment.
So rather than concentrating on asset (like liquid fund as you mentioned), we should look at asset allocation and invest your weekly/monthly/quaterly investment amount towards the goal. Always, bear market is likely to test the patience of the investor and we can overcome the same though asset allocation. It is my personal experience.
Although I have shared in many comments about my losses in stocks, let me also share that the money I invest for my long term goals like children education, children marriage, new home and retirement corpus are through equity, debt and gold mutual funds with a strict discipline through SIP’s (even in 2008 bear market and also in the present market) as per predefined asset allocation plan. All my stock investment is done over an above that investment with surplus money to earn better returns, which so far did not provide me decent returns.
Regards
Ajay
Ajay, you are absolutely correct about your observations. History of stock market with current set of regulations is not more than 125 years old across the world (prior to that it was mostly gambling activities without any regulations etc) and history of paper money is not more than 400 years old. Even in US market prior to 1920 there was hardly any regulations etc to safeguard from frauds and US market index took 1949 from 1929 high to cross the level again (more than 20 years it was just in bear market) and gain what level it achieved during 1965 it took 1981 (more than 15 years) to reach that level. Third time also from 2000 high it did not cross that level till 2012 while cost of leaving in USA also have kept increasing. So few people due to some special skills, lucks, insider informations, money power, high stake and management control etc always made huge money in share market but only in books mostly common investors made great return in stock market. Also if we include rate of money supply increase and inflation etc in indian conditions except few companies more than 95 % companies must have given poor return in long term and thats include bluechips company also. For exampleTata Group as a whole in long term (more than 40 years time frame) has just given return of around 13.5 % and it is one of the best and most successful corporate in India. So luck and timing is most important factors to make good fortune in share market otherwise even gold can be better invetsment in 25 years kind of time frame (no real return but paper return). Like gold was around 35 $ in 1971 and today it is still more than 1200 $ and if you include rupee depreciation against dollar during the period in last 40 years gold return in indian currency is more than 40 times while thats kind of return in the same time frame is given by handful of stocks only.
Very Very good analysis. You seem to have knowledge across asset classes. I am lacking this kind of overall analysis. But atleast I think I am good in stocks.
Dear Vishal,Shankar,Ajay
Good Evening to you all….
First of all I was not going to make any comment on this post,but after reading Ajay and Shankar,I thought I should put down my view points also.
Really it feels bad to lose money in the equity market….and it feels more bad when you are able to understand the books,the ratios,the sales figure.Though by god’s grace..or pure luck..I have had made money in the stock market,but as i have said luck has played a greater part in that,more than my understanding of the market.
I have completed 15 years studying and 12 years investing in the market,but like technology the market also throws new challenges everyday,it feels very hard to make yourself understand,why your investment failed,what were the challenges that were faced by your business,that led to its failure.
More than understanding the books,i have tried to understand the business,it does not mean that i did not encounter the ravanas of business,i have had invested in companies,that turned out to be shit personified and i have moved out of them as soon as i came to know about the holes,I may have one or two more shits in my portfolio,which i think teach me daily the lessons of bad investments.
But we also need to know what are the factors effecting the business,are they permanent or are they seasonal.Talking about sintex,I have watched this company closely and have also visited the plant as it lies in the way of my work,near kalol,gujarat.I think six or seven months back also,during one Jam session in safal Niveshak,I had my doubts why i would not invest in that business,when it was trading around 60.One of the primary reason was that it has lost its moat,secondly the working of the company on financial matters was cloudy,thirdly it was supplying to government companies in Gujarat,which is not at all possible without any collusion.
So as you see,it is tough to invest in equities all over the world and far more tough in India,because here you are not safeguarded from insider information,wrong data provided by companies and lot more.Some of the examples below:
1)There were insider charges against Mukesh Ambani and Relaince Petroleum(Now mereged with reliance) in 2008,what has happened nothing,who lost money-retail investors.
2)Deccan Chronicle did a massive fraud of 4000 Crs,what has happened to the promoters,nothing he is still riding his porche,who lost money,the banks(Indirectly the Deposit Holders of bank-the people) and the retail Investor.
3)Kingfisher Airlines mocked at retail investors…41 % shareholding is with retail….the promoter may still mock at us by tweeting that it was great having lunch at burg al arab…but many retail investor might have skipped their lunches in tension from holding this stock.
These are just some examples,they are many more that i could easily complete a book with 100 pages.With all these problems,our finance minister talks that there is less participation in equity markets.Naturally there would be less participants,who would come to the market to get hit by the bull and then mauled by the bear.
As shankar as said,if there would have been a true will from the government side,then all these problems,most of them could be solved,but the clear intent is not there.so its effecting the running of a rational market.
Anyways as vishal has said,we need to sell off the shits mentally and then perform the same function in reality also and then need to understand the business,the environment before investing in the market.
If we bring down our expectancy to a reasonable level…Iam sure we would surely find some gems….but remember it is same to like finding an oyster.
Thanks and Regards
Happy Investing
Reni George
I am with you. Many Businesses in India should be looked on with suspicion. And Equity Investing in india is very dangerous too. I experienced it several times: with Suzlon, with TITAN etc… I did not make losses even there because I mercilessly sold suzlon on first signs of trouble. With TITAN I had more wisdom, Gold business is in trouble, at least from the market perspective, And moreover it is discretionary product. Coincidentally The stock fell badly afterwards. But you know, we can’t survive sometimes, With MCX for example, Though i did not invest, I was busy with consumer’s, financials and banks. No one could have saved us from Satyam or Kingfisher or MCX or FT.
Sometimes I pray god that never ever give me such shocks.
Even Now I am with ING vysya and Indusind but The stocks fell 20% from the price I bought, They were making consistent highs, They were in a good trend and mostly they were making good profits which continously undervalue the price of the stock. Both are having excellent managements. But Private banks never lost sheen. I saw the power in which Indusind have recovered. and That confirmed that I am correct in my judgement.
Somehow I did not make trailing stop-loss on ING vysya with Overconfidence. Because My rules tell me that I have to follow the stock with a trailing stop-loss until the long-term trend is confirmed. and Market proves that I am right.
As Darvas puts it ‘You are never right unless the market confirms it.’
Our own mistakes keep us in trouble. Atleast we have to overcome such mistakes and only then we become rich.
One of my Uncles had told me around 5 years ago – Trading /Investing in stock markets is similar to horse trading or lottery. Only that ur relatives and society finds it ‘more acceptable’ ! It does not matter how much u know the business – u still dont control its functioning and results. Only thing you do is speculate and calculate ! If your investment (bet) is lucky – you make money and get some ‘respect’ in your cousin’s wedding !
Most ppl wont even mention their ‘shelf of shame’.. but the fact remains – Most of my friends have confessed to have lost a lot of money (2- 20 lacs range) including me (10 lacs). Retail investors are at the mercy of FII – does not matter how much homework you do…unless ur lucky !
Shelf of Shame list
Subex, Opto Circuits, Genus Overseas , OnMobile , Reliance Power, Everest Kanto, MIC Electronics, Jupiter BioSciences etc…
Stock market will be a casino (or horsetrading, or lottery) if you play it that way. But there’s a major difference between the two – stock market and casino. In the casino, the longer you play the more you will lose. In the stock market, the longer you play the greater is the probability of you winning…if you play the game sensibly.
And of course, every investor has his “shelf of shame”…just that you need to limit that shelf size if you want to create wealth from stock investing in the long run.
But if you have a long “shelf of shame” – thanks to the mistakes of buying a lot of bad businesses – then it’s easy to blame the stock market for all your losses.
My uncle as I said is a real estate businessman. He told me one-day: ‘There is a peculiar difference between Investing and Gambling
Investing: You know how to make money and you make money.
Gambling: You don’t know how to make money and you don’t make money.’
Even Positional traders make lot of money, not just value investors or momentum investors etc….The reason they know how to make money.
One more advice he gave:
‘Be like a businessman. Be a chameleon. and Be extremely careful of losses.’
vishal sir, can we have your thoughts on the same..
.
Thanks.
jugal.
My few cents after reading through comments on the top. I just dont understand the path retail investor takes every now and then. We always hear this mantra “buy low and sell high” , but now I see how difficult it is to follow the same.
So for example , when market was looks like heading above 20k , people are so high spirited like how to buy good businesses , how to look for value etc. Now when market is going down , people are arguing how they have saved their capital buy selling some bad business. So it looks like , when market goes high , article-writers and people who read it , think they should invest in market. When market head southwards , people start selling. I mean come on , be patient , wait a bit before deciding to sell. The current economy is in bad condition (that is what I understand) , so you can not expect business to do good in this kind of situations. So just going around labeling , businesses as bad , is not done. Have a patience , and if you dont have it , I dont think market is for you as a retails investor. Sorry if my wording sound harsh , but as I said , my thought , you take it or leave it 🙂
@Vishal , can you concentrate more on buying (ofcource not business like KA or DLF) when market is down rather than coming up with article how to sell mentally and physically ?
Dear Ramesh,
It is not about market high or low. Unfortunately the real color of the stock and the risk in stock investing will be known to a investor in such bear markets. During 2003 to 2008, throw money in any shit stock, you would have made money. After 2008, this changed to certain extent. Now since 2010-11, you can really see a difference the market is paying a very high price for certain stocks and really punishing the bad ones. Most of the investors who came to market after 2002 (including me) may not have experienced it. Every one makes mistakes in stock picking but being in the shade of patience after picking poor quality stock hoping that all will be well one day is as good as shooting yourself. Business valuation changes over a period of time it can be both on positive side or on negative side, we should be able to analyze and act accordingly.Otherwise, we shouldn’t be investing in stock market directly.
You talked about patience, I invested in Deccan chronicle from 160 Levels and waited patiently with all bad news kept on coming every day and kept on justifying my decision to average out at every significant fall. What happened in the end, it is a 2rs. penny stock. I did not sell it because, it is not even worth considering selling any more. Simply written off that investment. So here the patience was there, sufficient time frame was given for the investment, every time the stock went down, i said to myself that it will become better, I looked at BV, DE, PE and searched net and justified my decision. Market reports all were positive about deccan charger valuation, oddesy valuation, new publication in kerala so much value in that stock. So I said to my self I am a long term investor, value investor and I have to be patient and at the end of the day, it turned out to be dud stock. Well all banks also lost their money and the Reddy’s are still having their nice time. It is only you and me who are hurt.
Bottom line is, if you are not capable of doing your own research never buy a stock. Else invest through quality funds for your goals and to minimize your risk. It is not only investing and forgetting about it, are you able to track every news and development about the stock, which also affects its price. Patience alone will not give you good returns. I sold RCOM at 700 with a windfall gain but there must be someone who purchased it from me at 700 and see it to go down up to 70 to sell it after having all the patience for 5years (it took that much time to come down from 700 to 70). So it is not only about time and patience. It is all about valuations, quality of management and the business itself.
Sentiment may change and may affect the price temporarily but in the long run only quality and valuation only matters.
Now how many of us are really capable to precisely be right on stock selection assesing the quality of business, managment and more importantly the right valaution and track them on continuous basis? Let us learn that skill first before putting even a penny on a stock. That’s what vishal is trying to educate the readers through website and I sincerely thank him for his efforts. Although it looks simple it is not that easy as it is made out to be to pick a stock and make a good return out of it.
Regards
Ajay
Actually, Based on my few years of experience I think Picking a stock is easy. The right stock always tries to find us… as peter Lynch puts it.
Nicholas Darvas puts it correctly: The correct question is how long a stock is ‘real champion’?
My point is, The word ‘long-term’ itself creates Commitment bias. Once you own a stock, it creates Ownership bias. And when the stock shows loss, the normal reaction should be and must be FEAR. Value investors tend to ignore the value of fear. And Moreover Value Investors tend to buy stocks like creating wishlists. Think of this: When I buy real-estate I will not buy in a remote-place where sq.ft sells for rs 20. It looks like a bargain. But if there is no development You don’t make any money.
That is one of the biggest risks in real estate. You don’t know you made a mistake until long. And moreover, don’t know what to call it, a bias that ‘The land always stays there.’
But for ‘Buy and Sleep’ investors who want to hold stocks for 10-15 yrs, Only Market leaders with extra-ordinary maanagements may give 25-30% returns. they have wide and expanding moat. Out of 6000 stocks, may be 50 qualify for such place. and May be you will find one in a year. Because India still has high high growth phase you may find one each year.
How Many do you think are good for holding 10-15 yrs? Even with HDFC bank, My favourite stock, with very big moats, I cannot think so. How many coca-cola’s you can find in india.
Atleast the stocks in SN are not worth holding 10-15 yrs.
I follow certain disciplines which keeps me from making mistakes:
1. I am in constant search of stock-selection strategies. This keeps me away from ‘Style Bias’. But always and always stocks are slaves to earning power. So i never forget the funadamental, value approach.
2. I never average down. Averaging down is a very very very bad habit.
3. I don’t like stocks under 10 PE. The reason is most of the time there is something wrong with low PE stock. There will be exceptions, but most of the time it is the case.
4. Stock Market is a Market. I always ask what kind of market of it is. I learnt it the hard way. Buffet simply says ‘I look at individual businesses.’ Small investors should never neglect market.
5. I give the highest value to the management. I disagree with Peter lynch here. He says ‘Buy a stock which even an idiot can run.’ IDIOTS cannot run businesses in INDIA.
6. I don’t fix a term for stock. If i had, I could not have sold TITAN.
Thanks Surya Kanth for sharing what has worked for you…and thanks also for mentioning that “stocks in SN are not worth holding 10-15 yrs”. I am always fearful that people take stock analyses here on face value. Thanks for suggesting that they should not take it that way, but purely for entertainment purposes. 🙂
Sorry that I mentioned it. But If EIL can be held 10 yrs then TITAN can be held 25 yrs. He he.. TITAN is a phenomenal business. Even after RBI’s effect I think Tanishq will have an ROCE of 60-70%. And Of course Consumer businesses are in the trend. As always The trend will end someday, but before that I will be out.
I just want to let people think. Anyway, I would like to attend your course, but As always, I am completely invested. And 60% of my salary goes to my portfolio. But I saw your course syllabus. It was really good. Especially ‘Paying up for quality’.
Thanks Surya Kanth! 🙂
Hi ajay,
I want to ask you something??? What are your learnings in the ‘deccan’ case. What rules you have framed to avoid mistakes.
Dear Ajay, Sankar, Sanajay, and Ramesh…
I see a lot of frustration, regret, and detachment here…which is very obvious when you have made mistakes and seen losses on your stocks, whether you bought them on your own or based on someone else’s advice.
All I can write here are Buffett’s words that sound so true when the markets are in such a shape as they are now, and people regret as to why they invested in the first place.
Buffett says, “You’re going to make mistakes. You can’t play in the game without making any mistakes. I don’t think about it, I just move on. Most business mistakes are irreversible setbacks, but you get another chance. There are two things in life that you don’t get another chance at – marrying the wrong person and what you do with your children. Business, you just go on. It’s a mistake to dwell on mistakes, it’s unproductive. It’s like Mark Twain’s story about the cat that sat on a hot stove – he never sat on a hot stove again, but he never sat on a cold one again either.”
@Ramesh, maybe you need to read the last article again, and carefully. 90% of investing is about avoiding mistakes – getting off, mentally and physically, from stocks that can permanently destroy your capital. As far as searching for good stocks (worth buying at the right price) is concerned, while I will be writing off and on on them, if you are really looking for something “right away”, please concentrate on doing your own homework like I am doing mine. 🙂 You are, after all, the best judge of businesses that you understand and would like to buy and keep. Regards.