It’s human nature to want to get a job done as quickly as possible. Like you cross the street between intersections instead of using the zebra crossing, or jump a fence instead of using the gate.
It isn’t your problem!
Many of us have grown up being told that it’s important to accomplish as much as we can. But what we often aren’t told is that rushing can result in accidents, errors, and more time spent in the long run.
It is not wrong but it is dangerous
This is what Mr. Miyagi, the karate teacher in the movie Karate Kid, teaches his apprentice how when we choose the shorter way it always leads to danger.
In investing as well, we are perennially looking for shortcuts…
- Can you recommend me a outperforming stock please?
- Can you recommend me a market-beating mutual fund please?
- How can I invest without reading annual reports?
- So many investors don’t read annual reports, so why should I?
The truth is that there aren’t many actual shortcuts…in life and in investing.
There are direct paths, but no shortcuts.
But the irony is that most investors would put their lives in danger but not take the direct paths…
- Learn to read annual reports
- Remain within their circle of competence
- Learn to pick the right stocks and mutual funds
This is simply because direct paths often frighten us.
Interestingly, and especially when it comes to money, we are ready to work hard – take the longer route – to earn it…but don’t want to work hard – and take the shortcut – to keep it.
The story of the Tortoise and Hare is a constant reminder that reaching our financial goals takes a great determination, discipline, and practice. It also means ignoring the “hares” who brag about high returns with minimal risk.
Winning today (vs. winning tomorrow)
Look at your portfolio. You may have many stocks sitting on losses – stocks that you bought on someone else’s advice (shortcuts) and those that you bought on your own advice (direct paths).
It’s frustrating to look at them, isn’t it?
Well, one choice you have is to spend today frustrated that you are not winning with the stocks that sit in your portfolio – a choice that may lead you to seek ready-made advice (shortcut).
The other choice is to focus on what you need to do today to win tomorrow – a choice that will lead you to work harder to do your own research, think independently, and then invest (direct but longer path).
Your financial future would be defined by the choices you are making today.
Shortcuts – trying to reach there fast – won’t pay off in the long run.
Face the right direction, and keep walking.
Through millenia man has been teaching the other man “there is no substitute for hard work and the results are often a matter of luck” but man will continue to try various combinations, fall and get up and hopefully learn.
Indeed investing and reading various inputs on this site has been a source of lot of wisdom. Thank you all.
Nicely Said!
Good article Vishal.
However I have a doubt. I totally agree with you when it comes to stocks. It is our skill and experience (own and vicarious) along with little bit luck that matters a lot in investing in stocks. However I have question on mutual funds (may be out of context here). Other day I was doing a little bit research on mutual fund performance and I saw many funds (with leading names) giving spectacular one year performance and abysmal three-five year performance. I am talking about diversified funds, not thematic or sector funds. If these funds are yielding me 7-8% y-o-y then isn’t it a failure of fund manager? I am not bothered about one year performance. But what worries me is bad performance of the fund over the period of five years. Even so called contrarian strategies didn’t work. Then what is the true KPI of a mutual fund? Bcos as a mutual fund investor, I don’t have control over buying stocks as well (vis-à-vis regular equity investing in market). How reliable do u find mutual fund as a long term investment vehicle? Bcos I may be better off by investing in debt instrument (like FDs or Post Office Saving Scheme) if my equity fund is yielding me just 7-8% over 3-5 years. Can you elaborate?
I would think post 2008 the times were very very uncertain and even the experts fumbled. One such expert is your fund manager who was hit hard. Most fund managers were experiencing such an event for the first time.
I agree with you that fixed income may have been an equally good bet atleast vs equity in the last 3 to 5 years.
So frankly you should apply the asset allocation logic as well.
I personally prefer a mix of assets viz. real estate, fixed income (btw the tax free bonds and ppf are a good proposition), equity (direct and through MF’s) and gold. There may be other asset classes but I have no knowledge of them and possibly neither have the quantum of funds to consider such options like art, so I stay away.
As Mr Peter Lynch says in his book put only that much money in equity which you are ready to loose !
Gaurav, thats is why you should invest in an index ETF like Nifty Bees.
Vishal,
can you explain Cash flow per share vs EPS to identify stocks
Very true and Thanks for remanding the basics of life and investing.
I almost got used to neglect how things should be done, which are important, always looking for shortcuts as you just described. I’m not ashamed to say that I’m one of them, but it is truth.
Most importantly, “focus on what you need to do today to win tomorrow” was en-lighter for me, especially in investment/trading aspect.
Thanks again for sharing with us.
Keep up the good work.
Long live and prosper.