Some learnings/ observations…
1. Mistakes are an inherent part of life, and investing is no different. What makes mistakes in investing different is that these get amplified in the market – people lose years of hard earned money in a matter of months. The best way to learn is to learn from the mistakes of others, though obviously one will still make mistakes. In the markets, as long as one can avoid making big losses and most of the mistakes are opportunity loss, and not capital loss, one should do well in the long term. As it is said, “To finish first, you have to first finish.” A common problem in the market is that people lose capital or courage (mostly both) to be able to successfully invest for long period of time – critical to compound money. The common reason is – high stake speculation, most probably at heights of bull markets.
2. The market is like an ocean with few islands of excellence. Investing in these great businesses at a fair price can lead to years of superior profits, while reducing the risks associated with seemingly cheap businesses and also the reinvestment risk, besides the costs related to transactions and taxes. As Buffett says “Time is the enemy of the poor business and the friend of the great business”.
3. There are very few businesses where one can bet for growth. Most are mediocre businesses lacking growth prospects/ moat/ intelligent & honest management.
4. A blend of growth and value could lead to optimal portfolio construction. Most value investors keep going down the quality curve to get value (speculative businesses), while most growth investors keep justifying any valuations just to chase growth (speculative valuations). Both approaches can lead to pretty nasty results!
5. Waiting for a fat pitch is way better than to just invest in a mediocre idea, just to “invest” your monthly paycheck. As Munger mentioned “I didn’t get where I did by going for average ideas”.
6. Over a period of time, I have realized right asset allocation at appropriate times is an important aspect of making and retaining gains in the market. It’s not about the timing the market, but pricing the market. Going into cash when markets are overheated is important to avoid paper profits turning into losses. Loading up when there is blood on the streets and everyone is avoiding markets like a plague is an almost-sure way to the riches.
7. People spend more time researching when buying a Rs. 20,000 TV than buying shares of Rs. 200,000. It seems losing Rs. 200,000 is less painful than spending 1 hour reading the annual report!
8. As Buffett often says “Investing is simple, but not easy.” The environment and our own attitude make profitable investing such a difficult task.
9. The easiest and most dangerous thing is to take recent success as evidence of superior intelligence/ skills. As Richard P. Feynman said “The first principle is that you must not fool yourself and you are the easiest person to fool”.
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