A friend was boasting about his Stock picks and how he has discovered a whole lot of money making stocks. Until I casually asked him how long has he been doing this.
One year, he sheepishly admitted. He has been investing in the recent Bull Run and with the beginners’ luck with him; he was a self styled “Stock Guru”.
To be fair to him, he had a good sense of stocks which were selling below their value in the crash of January, 2008. And he helped himself with those stocks “On Sale”. To another question, he admitted that 1-2 stocks happened to be the “falling knife”. (Falling knife stocks look like undervalued stocks, but continue to go downhill)
The point I want to make is not to laugh at my friend but realize that I have gone through a similar process. And the first learning is that nobody is a stock guru!
Along the way of around a decade of investing, often in tid bits, there have been a few learnings (articulated by great men in a better way) :
The most valuable things in life are not measured in monetary terms. The really important things are not houses and lands, stocks and bonds, automobiles and real state, but friendships, trust, confidence, empathy, mercy, love and faith. Bertrand Russell V. Delong
October is one of the peculiarly dangerous months to speculate in stocks. Others are July, January, April, September, November, May, March, June, December, August and February. Mark Twain (1835 – 1910)
The Thought process
As I said earlier, I believe that nobody is a Stock Guru. With due regards to all great investors, I think they have made lesser mistakes than others. And their greatness lies in admitting the mistakes when they make one!
Before I get to share my style of stock investing, I do want to share the thought process behind the style:
- Experts add to the confusion: If you look up to TV, Newspapers for tips, let me pray for you. There are so many conflicting views (and all of them appear confident and right), that I do get confused. Now I look for information, not views/tips from the Newspapers/TV.
- Timing the market is impossible: Nobody actually knows whether the market is going up or down. And When! I have made countless attempts at predicting the market and hoping to time my investments. I have failed more often than not.
- Mutual Funds are more costly than ETFs: Having discovered the abilities of stock experts, I also discovered that we pay a lot of fee for their fund management abilities. I have also learnt that majority of the fund managers underperform the market indices. And they get paid from our pockets for underperforming the markets!
- Riding the momentum wave is not for long term: We have everyday reports of top gainers and losers. And there’s a whole lot of day traders riding the wave and appearing to make good money every day. But along the way, we have also seen suicides when the markets crash. To me, it is a zero sum game where you win some and lose some. Eventually balance it out.
- Discipline/Emotion Control is important: It is easy to get waylaid by emotions of greed and fear. So it is important to understand this risk and continue with your investing, come what may. You also need to figure out your own risk appetite and not just ape anybody else.
Even though investing in stocks is a glamorous and sexy thing to do, my style of stock investing is actually very simple. (Nothing to brag about!)
I have made three portions of 50%, 30% and 20% for my monthly investments.
The 50% portion goes out to various ETFs available in the market.
The 30% portion goes to any of the 10 stocks that I have done a bit of research on. These are mostly Nifty 100 stocks which has a very strong Management (according to me).
The balance 20% goes to some of the momentum stocks that ride the wave. My experience has been both good and bad and that’s why I limit it to 20%. I just might limit it to 10% in future, though the gambler in me doesn’t let me do that J
To conclude, I must say that investing in stocks is a huge learning experience. And this learning never stops. Hopefully, I would be able to do better and better with my stock investments.
Ranjan Varma is the captain of a personal finance team called the RupeeManager Team. He is on a mission to change the world! His efforts have already begun to change the way Indians manage their money. You can read his blogs here http://ranjanvarma.com