Chapter 3: Strategy or How the heck do I get to Financial Freedom?

3.6 By investing in equity ‘systematically’


It all boils down to investing in equity successfully, so how do you ensure that? What is required to be a successful Do-it-yourself, DIY investor? How do you take informed investing decisions and improve upon them with time? How do you prevent your emotions from hijacking your decisions? How do you take your equity investing to the next level? 
 
From your Financial Plan and everything else you have seen so far you would have concluded that your Strategy or your answer to “HTH do I get to financial freedom?”, is investing successfully in equity and say earning 12 to 15% CAGR or thereabouts, for years maybe decades. This is great because now you have your ONE Thing to do to reach your financial goals. But how do you make this happen? The answer again comes from what a good strategy must do and here’s something to remind you exactly what that is: 
 
Strategy also decides what the company does at the next two levels. This is where great companies differ from the good and not-so good companies. There are innumerable things a company is required to do and resources are always limited. A Strategy-focused organisation succeeds by choosing the One Process required to implement the chosen strategy. It masters and gets its employees to execute this excellently; while doing the other necessary things at an acceptable level of performance. It doesn’t stop there; it strives to improve this key Process and its implementation continuously through learning and growth initiatives which includes acquiring key resources it does not have and cannot develop internally. This is what separates great companies that thrive for decades from others. 
 
But how do you choose the Investing Process that is suitable for you? And how do you with limited knowledge of investing in equity improve on it. Is it possible? Lets find out. 
 
First you need to know what exactly do you do when you invest in equity? You make these decisions:
  1. Which stocks or Fund to buy?
  2. At what price or NAV? 
  3. How much? 
  4. At what price/NAV to sell it? 
And then act on it. In short, build and manage your equity portfolio to achieve the desired returns. 
 
Now, can you know in advance, with certainly which stocks/MF will deliver your targeted CAGR? You cannot, no one can.  Then how can you be responsible for achieving these returns. Good question. This sounds like a problem faced by people working in the corporate world at least the good ones, who hold one another accountable and responsible for meeting their targets and goals, despite not knowing how things will pan out in the course of the year?  How do they handle this and can we do the same for investing? 
 

Essentially, they follow the PDCA : Plan-Do-Check-Act Process or Cycle. How does this work? 

 
 
First they agree to a plan of action, then do the actions as per the plan, check what results they have got and whether it is in line with what was expected or not, in short how well it worked. Then, and this is the game changer, they...........Read More

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