Investing Behaviour

What is Your Biggest Fear of Being a Stock Market Investor?

I’ve been investing in the stock market since 2004. Over these 10 years, I have seen two big rallies in stock prices and one shattering crash.

Now, 10 years isn’t a particularly long investment resume, but in these years, owing to my work first as a stock market analyst and then as an educator, I have spent a lot of time researching businesses, studying human behaviour, and meeting thousands of small investors.

Anyways, what I have known through these years is that the stock market can be absolutely brutal to your net worth if you are not wise and prepared.

If you planned to retire in 2008-2009 you were absolutely crushed if most of your investments were in stocks. Most things have rebounded five years later, but that means you lost five years of financial freedom with a whole bunch of worrying while you worked through the recovery.

Now, when you’ve been as involved with the stock market as I have, you see a lot of ugly stuff. Leave aside the occasional financial and economic crises that dot the timeline every few years, you also get to know…

How stocks and IPOs are (mis)sold;
How equity research analysts make (read, fake) recommendations;
How professional money managers (mis)manage investors’ money; and
How corporate managers mask bad performance through fraudulent accounting.

You see, nothing is exactly what it seems.

In fact, if you, as a small investor, knew everything behind the scenes, I fear pandemonium would break out.

Seeking Wisdom in the Age of Information

T.S. Eliot posed the question more than fifty years ago – “Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?”

These questions find much greater relevance fifty years later, in an age of accelerated information and information overload, when people are living larger parts of their lives on Facebook and Twitter than with their families and ‘real’ friends.

The rate and way in which we receive information has changed dramatically – from newspapers and television to constant news online. In fact, we have made our personal lives available to the world in tweetable and retweetable moments.

Now, as much as we try to stop consuming the vast amounts of information coming at us, we wrestle against the paranoia of ‘missing out’ on important information or being out of the loop on something.

This is especially true when it comes to stock market information. As if the second-by-second changing stocks prices were not enough, we are seeing analysis of these changes at a similar pace if not faster.

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10 Investing Gems from Peter Lynch’s One Up on Wall Street

This article was originally published in June 2012. I was re-reading Lynch’s book and thought of re-publishing these amazing lessons again.

Peter Lynch's One Up on Wall Street Apart from Benjamin Graham’s The Intelligent Investor, there is no better book to get started for beginners than Peter Lynch’s One Up On Wall Street.

The easy-going and simplistic stock picking style discussed in this book brought Lynch great success in his profession as a fund manager at the US mutual fund company, Fidelity.

The best part about this book is that it’s low on number crunching but high on anecdotal stories. Moreover, readers are given a clear picture on how to get off to a good start in the stock market.

One Up On Wall Street offers insight into the mind of one of the greatest money managers of all times.

Lynch helps you discover that he is a normal guy (like you and me) who thinks rationally, believes in doing his own independent research on companies, asks plenty of questions, and gets caught off guard by the market at times, just like anyone else.

Anyone thinking about buying individual stocks must read this book before they ever make their first stock purchase.

When NOT to Sell a Great Business You Own

Consider this. If you want to multiply your money 100x in 25 years, you want your investment to return 20% every year.

In other words, Rs 1 growing at 20% per annum will turn to Rs 100 after 25 years, excluding all dividends.

But if you sell this stock after 20 years (instead of holding for 5 more years), you will get just Rs 40. The remaining Rs 60 would come only between the 21st and 25th years.

Even if you earn 15% return per annum, your Rs 1 would turn to around Rs 35 in 25 years. But 50% of these returns would come only between the 21st and 25th years.

What A Tulip Can Tell You About Sensex Reaching (Or Not Reaching) 100,000

This post has been authored by Dev Ashish of Stable Investor.

Tulip You must be wondering whether what you just read in the title of this post is correct or not? Isn’t it?

You are being told that a flower can tell you whether Sensex can reach 100,000 or not? Now this is really strange.

Not Warren Buffett. Not Charlie Munger. But a flower?

Well, a flower can help you in answering the question whether the Sensex will reach 1 Lac or not. But mind you, this figure of 1 lac is not a figure of imagination which I have pulled out of a magician’s hat. This is a number which has the blessings of many so-called market experts.

But for the time being, let’s park the discussion of whether Sensex will reach that target or not.

Let’s get back to the story of Tulip.

Are You Right Because Your Stock Moved Up 200%?

I find a lot of Mrs. and Mr. Right these days in the stock market – people who bought a few stocks in the past 6-12 months and have seen all or most of them sky-rocket 100-200% since then.

For instance, a schoolmate who is a housewife with no business dealing in stocks, has started recommending trading tips in our batch’s online group, “because” she is getting her price calls right!

Then, someone wrote to me yesterday “praising” how my “recommendations” like BHEL, Engineers India, Crompton, Voltas, HMVL and Tata Motors have finally been “successful” as they have risen sharply in prices.

This very person had written a hate mail to me last year when some of these stocks – or let me say, their prices – were down in the dumps. 😉

Such is the way we behave as investors.

What Are Your Stocks Telling You…About You?

I’ve always believed that there’s more wisdom, insight and instruction to be found in your day to day experiences and results than you will ever find in any book.

There’s much more you can learn from your own life and from the lives of people around you, then you would from the eminent alive and the eminent dead.

But you must pay attention. You must be conscious. You’ll see and learn nothing with your eyes and mind closed. And because it’s your life that’s providing the information, wisdom, insight and instruction that I speak of, it’s all totally specific to you. No book is going to give you that!

This also holds true of your stock investments.

What lies already inside your portfolio says a lot about you.

The Investor Who’s Always Right

If you look back at the careers of the world’s most successful investors, a large majority of them have learned about successful investing in the best possible way – by making mistakes.

Warren Buffett did it with Berkshire Hathaway – the textile business. Charlie Munger admits he still makes mistakes even after many decades as a business person and investor. He has also said that it is important to “rub your nose” in your mistakes.

Doing wrong, or making mistakes (in investing or in life) is inevitable.

As Einstein once said, anyone who has never made a mistake (if there is such a person) has never tried anything new.

Value Investing, the Sanjay Bakshi Way 2.0 – Part 2

Image Source: Outlook India

After talking about the important concept of economic moats in the first part of his interview, in this second and concluding part, Prof. Bakshi talks about his thoughts on valuations, mental models, diversification, checklists, and why you must buy great businesses for the long term.

Safal Niveshak: One of the problems that new or small investors have is that they can’t really get their heads around valuation. It seems so complex. A lot of the terminology is complex, the concepts are, and there is a lot of contrary thinking needed to effectively value businesses.

How can valuations be made easier? How have you made it easier? Or can it not be made easier?

Prof. Bakshi: Vishal, that particular problem is equally applicable to large investors!

Anyway, over the years I have dealt with the problem in many ways. As a disciple of Ben Graham, when working on any business and not necessarily moats, I developed my own ways of thinking about valuation.

Value Investing, the Sanjay Bakshi Way 2.0 – Part 1

Image Source: Outlook India

After much delay owing to issues in getting mutually convenient dates, I have finally finished my interview of Prof. Sanjay Bakshi. 🙂

Here is the first part of the interview. As you will find below, it’s amazing the way Prof. Bakshi has explained critical concepts in investing in a highly comprehensive yet simplified manner.

Enjoy the wisdom!

Safal Niveshak: Let me start with a question I have been waiting to ask you for some time now. Through a comment on a link I shared on FB and through a few of your posts over the past few months, you have suggested that your investment philosophy has moved further towards high quality businesses, and great managements. Can you please elaborate on the same? What has been this transition all about? And why?

Prof. Bakshi: I started my career as a value investor in 1994. Over the last twenty years, I have practiced most styles of value investing including as Graham-and-Dodd style of investing in statistical bargains, risk arbitrage, activist investing, bankruptcy workouts, and Warren Buffett style of investing in moats. There have been times when I have owned 40 stocks and times when I have owned just 10.

I teach all these value investing styles in my course at MDI. I tell my students that they need to pick a style which suits their personality.