The above question can be framed differently as “Do I wait for next Downturn for Cheaper Valuation?”
When you are building your portfolio towards a long term sustainable wealth creation, there are multiple aspects that you need to focus on. As individual investors, it is very easy for us to get carried away with the individual stock wins. But when we look holistically, including wins and losses, then we realize who is the real winner. That’s why I say, for DIY investors, sustainability is key in portfolio management. Over the years, all the retail investors I have interacting with, most of us focus too much on stock picking, or stock selection. This is similar to what an employee does of executing blindly now knowing how it is related to overall company strategy.
The first lesson you should learn in investing is “not stock picking”, but how you can maintain and sustain what you have (safety of capital). By this I do not mean going with bonds, FDs, or government certificates. What I mean is invest in a way, where you believe there is relatively less risk of losing your capital. Continue reading rest of this article…
As a do-it-yourself investor, I enjoy the process of investing much more than finding my next company I will invest in. Admittedly, the process is much more challenging than finding the winning stocks. Yes, you read it right! Investing process is very difficult in many different contexts. Managing the portfolio requires wearing different types of hats. Sometimes you have act and behave like a leader, sometimes play the role of manager, and on many occasions you work like an employee.
Do Not Enter “The Channels” Otherwise….
I buy stocks with an objective to hold it forever. This, for most people, is very difficult to grasp. I started investing about nine years ago (eight of which are being buy-and-hold investor). In these eight years, I can count on my fingers how many times I have sold a given stock. Conversely, I will have to check my records to determine how many times I have purchased a stock.
My friends and acquaintances keep telling me if you never sell a stock how you will make money. You need to buy low and sell high to make money and increase your wealth. I politely ask them only one question, “You have been buying low and selling high for xx number of years. What is your wealth?” Almost every time the voice starts stammering.
To some of them, who are close and good friends, I put a proposition to them. I tell them, since your “first investment” to “as of today”, tell me honestly what has been the real percentage appreciation to your “wealth” (chuckle!). If it is more than my “wealth” appreciation (again more chuckle!), then I will transfer my entire portfolio to you. If not, then vice-a-versa. What is surprising to me is many start mental calculations; hmmm, not including tax, and transaction, ignoring commissions, not considering my subscription fees, blah blah blah…. I end my conversation there itself. Beyond that it’s a waste of time because they do not understand the meaning of total return or wealth. Discussing these two aspects is a topic in itself so I will leave this for future post. Continue reading rest of this article…