Some thoughts on stock investing that I have learnt over the years

With over the last 17 years of experience in stock markets and having made money and lost money (some) and having observed other better investors and learnt from them – here are some of my learnings:

• In the stock markets -time is your friend. I am a long-term investor and I track stocks not daily but month to month. I invest for 3-5 years. I have a separate portfolio for my next generation, where I am mentally thinking 30 years (though it is difficult) – for 30 years, if you can get 26% ROI each year, one crore becomes thousand crores. I have seen many long term investors (10 years or more) and I haven’t seen them losing money at all. We all know many short-term investors who have lost money. I believe that investing is less finding the right stock at the right price and more staying invested at the right stock for a decade or more. Time allows the company to do well and hence the stock to grow. Stock investing is more a mind game than a valuation game. One needs to control the urge to think short term and force oneself to think long term.

• We buy and sell based on our beliefs – so the more you believe in something, the more you will accumulate data and facts to strengthen your beliefs. I have made quite a few bad decisions and I have lost money – whenever, I lost money, I have always delayed accepting my mistake and stayed on the course and lost more and then at sometime accepted that I was wrong and then exited. My mistakes have come down in the past few years – but even now, I believe that I find it difficult to accept that I have made a mistake.

• You cannot buy low and sell high – that is theory. What is practical is “buy high and sell higher”. I have made money always by buying winners even though they are quoting high and then sticking on to them for a few years.

• Timing the entry is not that important – many times, I have looked back at my stock purchases one year back and it is visible to me that I could have bought the stock one week later or two weeks later and still got the same results. But today, when I buy stocks, I have this tendency to time it. I believe that decision to buy and then buying it in adequate quantity is more important that trying to time the entry. Off course, this is not valid for trading – this is valid for long term investors only.

• Each one of us has a strategy that we are comfortable with and so wee must try not to copy someone else – I have figured out what works for me and I am at peace with my style of investing. So if the markets are down – I do not lose sleep or feel anxious. And I know quite a few investors who are at peace with their style of investing (even though I do not approve of their style). The key is to be comfortable with your style – your work is to discover your style of investing and then go ahead and implement it. It comes with experience and it surely comes over time if you look inside and not look outside.

• Adding to my existing stocks – I keep adding more to my existing portfolio of stocks – for example, I have bought Page industries, HDFC Bank, Pidilite and a few other favourites every year. Whenever I buy, I imagine as if I am buying it for the first time. I look at my rationale of buying it then and I try not to look at my rationale of buying it one year back. I keep track of the management interviews of my stocks and study the quarterly results – I also read the investor con calls – but I make my decision every year in a renewed fashion – as if I am buying for the first time.

• One can learn swimming only by going into the water – no amount of reading will help yu become a good investor. You will need to step into the water and experience it yourself. Start small and learn from your mistakes and wins and over time find your style.

• Predicting markets is like horoscope matching – there may be some science out there – but no one has been able to nail it. So even though I too predict the market movements and I also blog about it – I do not give it too much weightage while investing.

• Understanding the business is important – I have stayed away from industries or companies if I could not understand their businesses. Pharma industry is a black box for me. Many companies in India are growing fast for my comfort ( example India Bulls) – and I cannot figure out what they do to deserve that kind of growth – I stay away and do not try to join the band wagon.

• Analysts are also people like you and me – they are mostly young professionals and are trying to make a career out of this. Many are not as good as the company brands that they represent. Most of them only advise and they do not put money in those companies. And so do not be swayed by analyst reports.

• I aim to make money on the company growing YOY – I do not aim to make money due to market re-rating or company re-rating to a higher PE – When I first bought Asian paints in 2004-05, their domestic sales was around 2000 crores. Today the same number is around 12,000 crores. This growth in the company is what I have tried to forecast and that is what makes my ROI. What I cannot forecast is the PE re-rating and even though it has happened and even though I have made money due to that too – in my mind, that part of profits is luck. Real profits that I deserve is due to the company growing and becoming more valuable.

I guess I can keep adding to this list. But I would like to stop here. A blog cant be too long (I am told).

So happy investing and hope you all become better investors over time.