We said that to make your money work for you, you have to take charge of your own investments. You cannot leave it any more to your Relationship Manager, your Insurance Advisor, your Broker. Sounds threatening? Of course, it does. Let’s see why.
What is the common mindset?
Complete the following sentence using one word. ‘Stock Investing is _________.’
What word came to your mind?
Most likely it will be one of these: Gamble, Risky, Unpredictable, Complex, etc. What do these words make you feel? Do they make you take up stock investing or make you avoid it? Most of us will feel like avoiding it. We are afraid of venturing in it on our own; hence hand it over to “experts”. However, it is these experts who have constantly blasted us with the myth: ‘You are better off leaving Stock Investing for the experts to handle.’ Just have a look at ads of any of the financial products and services; they all say the same thing. Now, if they were all such wonderful experts, how well did such expertise protect your wealth during the crash of 2008?
What should our mindset be?
The test of real expertise is wealth protection in bad times and solid growth in good times. So that, over a longer horizon covering boom and bust, you get attractive growth, say 20% CAGR. Of course there are a few rare, real experts (but you won’t see them on TV every day, predicting the market) who have consistently been doing this. Each Stock Shastra is the distilled wisdom of such rare, real experts. The real Gurus! And from them, here is Stock Shastra #1: Stock Investing is not Rocket Science! Now, how do you feel when you say this Shastra?
Sounds too far-fetched? Consider this:
- Benjamin Graham, one of the Gurus of stock investing, did not have a background of finance when he started investing. However, he learnt stock investing, eventually pioneering the concept of value investing; his philosophy was simple: Buy great businesses at extremely cheap prices.
- Warren Buffett, one of the greatest stock investors of all time, started investing when he was 12, without any formal finance education. He regarded Benjamin Graham as his Guru and today is amongst the richest people in the world.
- The common thread binding these great investors is the same. They weren’t experts when they started. But they learnt to do it on their own by following a simple and sound framework of investing and sticking to it with discipline.
- It involved buying into a great business with the mindset of an owner. Finding such a business might require some search and analysis, but is something you can certainly manage.
- Most importantly, sooner or later, the market gives you many opportunities to buy such wonderful businesses at throw-away prices; or sell your holdings at unbelievably high prices. The proof: Look at the 52-week Highs and lows of any of the Sensex stocks.
Once we change our mindset and decide to invest in stocks on our own, the next step is to find a wonderful business worth owning. The next Stock Shastra will tell you how to start doing this.