Investing Success Comes from Conviction and Executing Your Ideas
Do you know how many people investing and/or trading in equity markets truly succeed over long term? Success here means increase in wealth over their investing lifetimes. This group of people includes individual retail folks and professionals. I am sure many of us would have no clue. I do not have any hard core reference to share; however, I can recall reading various percentages that range from 1% to 7%. Without going in specific data points, my observation has been every time this is less than 10% of investing population. More than 90% of the folks will lose money in equity markets over their investing lifetime. Quite startling but this is very true.
We as individuals focus too much on one or two big time success or multi baggers, but ignore the importance of sustainability and consistency. We fall into the “Chalta hai” trap. Long term success is not built on few multi-baggers. Long term success is built on multiple average successes that are sustainable over time.
My articles here may seem to be biased towards long term investing, but irrespective of this, I continue to believe that any form of trading and investing, has its own set of pros and cons. It depends upon what context an individual is looking at it. In the end, trading and investing is done to make money (or increase one’s wealth). Some use approach of capital appreciation, some use dividend income, some do trades to generate income. Like everything else in life, here also, we forget that the key is to have a plan and execute it for consistency.
The lack of discipline is what kills individual retail investors. We do not have conviction to execute our own well crafted ideas. Our ideas are for others to execute. When it comes to dividend investing, each one of us thinks of high yields. Indian investing blogosphere is filled with examples of companies that provide high yields. But the missing element is conviction to execute on those ideas. Those ideas of high yield stocks are for others to execute. The missing element is conviction to truly understand what it really means and how it will “help me in my wealth creation”.
There are two overlooked aspect of dividend investing, which are (1) dividends add to your total returns; and (2) it is about capital appreciation in long term. It is my view that:
- good quality of dividends come from companies that consistently generates cash from selling its products, effective use of capital for growth, prudent debt management, and remains focused on its core competency.
- When such companies expand and grow over time, it will grow its earnings and dividends. This growth in company is bound to result in increased value and increased growth (hence capital appreciation).
A good company with a very good business model and excellent execution will consistently increase its operating cash flow, sustain it, and make effective use of capital. Such companies have low downside risk. Even if they get pulled down by other macroeconomic trends, it tends to be a short term event. In general, such companies bounce back very quickly. In addition, the continued dividend payments keep on adding to your total returns. Few examples of dividend paying companies show us how much total dividend have been paid over last few years.
Dividends do not receive much attention in our investing chit chat because, there is no panache attached to it. They are very small and insignificant against few multi-baggers. We all want to talk about the stock of the day or story of the day, whether it matter to us or not. Dividend investing does not mean focus on high yield only. It is about consistency and sustainability which inherently focuses on total returns. I believe it works and I have a conviction to execute it. Just remember, in the end, it’s tortoise that wins the race, and not the rabbit.
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@ Tip guy,
the last line says it all, “in the end it’s tortoise that wins the race, and not the rabbit”.
Very few people understand this.
I will also say that, you are perfectly right, people like focus on short term few success and forget sincere evalation for long term. i have been in that boat, until I really lost some big amount in early 2009.
No matter how much we talk about oneupmanship, all it matters is our own long term goals. I am not surprised that 90% of people lose money.
its been a month I have been reading your blog, it has changed by perspective about dividends. So you have at least one person who was influenced by your blog.
good luck. keep throwing the ideas.
YY
Hello Yogesh,
I am happy to know that this blog was able to influence your investing thoughts. I would love you hear your thoughts/experiences.
Best Wishes,
Tip-Guy,
Wish you and the readers the very best that 2010 has to offer.
Wish all the folks a happy, healthy and prosperous new year.
Cheers,
Arun
Arun,
Thanks my friend.
Best Wishes,
Hello Tip Guy,
Happy new to you. I haven’t been commenting but i regularly read your blog.
very true, we just like to brag and focus on few good ones and happily put everything under the rug.
do you have any plans for writing about personal finance? your process based focus would help lot of middle class individuals like me to under this domain better. like brokergae houses, this is also fined with pseudo planners, who themselves do not have any stake but claim to provide you services. it is free fall…
you can start a poll to just test the need, i m sure it will receive maximum votes…
waiting for your reply
Hello Raju,
Haven’t seen you for a while. Happy New Year to you.
No, I do not have any plans to write on personal finance. In my view, PF as a whole is prevention/insurance, beyond that, what is there to manage. Once you buy life/term insurance what else is there to do?
I do not know why we make PF so complicated.
On the other hand, investing is something that grows, you work day in and day out to get results. This is what requires effort. Doing it properly will make your life easier.
If you have any questions, then drop me an email.
Best Wishes,
Thanks for taking time to respond. Well in theory it does make sense what you said. But many of us do find PF/FP confusing. May it is because we are not systematic or process oriented.
We are so busy focus on trying to save what we have, or hoping to grow our investments with others tips… and in this process we make is complicated….
thanks for your insight.
Raju
i second raju’s opinion. I vote for it.
Hello newbie,
please see my response above to Raju.
My apologies, I do not plan for writing on PF.
Best Wishes,
Hi,
I am a amateur investor and I’m just trying to get a system in place for my portfolio. I like ur income portfolio approach but I want some help in understanding dividend intimation I receive frm companies when they declare dividend . For e.g ONGC declares interim and final dividend but the final dividend is always declared in sept of the next financial yr . why so? Also what are the accounting processes in brief that one shld follow. any information on that would help me immensly in putting a system in place. Thks
Hello Student,
It is OK for companies to send dividends in next financial year, because, after the year is finished, only then they know how much dividends to be given. It usually takes 3 to 5 months after completion of the financial year.
Can you elaborate by what do mean my accounting process?
Best Wishes,