Equity Investing
Here are a few things I have learned in the last four years of investing in stocks. My insights primarily stem from direct stock investments for the long term.
#1 Have a core investing philosophy which you can follow all the time. Mine is, buy only high quality companies at reasonable prices and stay with them as long as they are good.
#2 Buy only those businesses which you can understand and can track regularly.
#3 Uncertainty is all around us, the best of your efforts sometimes can’t help you. Hence rely first on margins of safety then your competency
#4 Past performance is no guarantee for future returns. Believe that a black swan event might occur anytime. Perform what-if analysis
#5 Mean reversion will happen, though you can’t tell when. Avoid overvalued assets.
#6 Always think of downside first and then upside
#7 If you can’t imagine roughly where the business will be in 10 years from now, avoid. Example new generation businesses which are yet to find their feet.
#8 If you are losing your sleep then it is not a good investment
#9 Investing is simple but not easy
#10 Deeper your research work about a company better is your conviction
#11 In investing it is your stomach which counts more than your intellect
#12 Learning in the market never ends, it takes a few cycles before you get the hang of it. If you haven’t spent 3 years in the market, consider yourself a toddler.
#13 If you think the markets are overvalued, and there is nothing available at a reasonable price, then restrain, hold your cash, don’t cave in.
#14 Don’t buy a business for its past performance but for future favorable outcomes
#15 If you don’t like your stock at a lower price, then you didn’t buy it right the first time.
#16 High churn in your portfolio shows weak conviction and impulsive buying/selling
#17 If you are in a hurry to buy, you will be in a hurry to sell
#18 If you don’t have patience to wait for your price, do SIP
#19 Beating the index is not easy, 90% of fund managers fail at it.
#20 If you can’t stomach a 50% portfolio drop, be away from the markets
#21 Don’t follow the herd, in fact do the opposite, you might do better. Have the courage to stand alone. Also don’t seek consensus in investing.
#22 Thinking you are smart in a bull market is same as using a calculator and thinking you are good at math
#23 Look at risk adjusted returns. Returns from a low risk bet is not the same as a high risk bet. For example, Russian roulette vs Equity returns.
#24 You can’t predict future, but you can understand the present and bet probabilistically
#25 Never seek advice from someone who is incentivized to do so, like asking your broker to tell you which stock to buy
#26 Diversification is good, but over diversification means you are too afraid or you don’t know enough about what you already hold
#27 Don’t buy just because you like the management. Remember that the horse (business) is more important than the jockey
#28 Never leverage to buy, market might turn unkind anytime
#29 If you want to be a long term investor, ignore volatility and macros
#30 Focus on risk management and not losing money, rest will happen
#31 A high PE stock doesn’t necessarily mean it is expensive, a low PE doesn’t necessarily mean it is cheap, look at businesses holistically
#32 Focus on free cash flow, earnings can be deceptive sometimes. As Munger says you can replace EBITDA with Bullshit
#33 During crash/correction stay invested, don’t panic. If you have free cash buy more
#34 Growth can also be a minus if the company isn’t managing it well, hence research & track well.
#35 If you bought something at the peak of the 2000 bubble, it might have taken years to regain the losses. Respect valuation
#36 In the markets don’t invest money you need in the next 2 to 3 years.
#37 Save up at least 12 months of expenses in FD/Bonds for emergency, before you put money in the markets
#38 Stock performance follows the earning performance over the long run
#39 Believe in the power of compounding, returns are back loaded, so have patience.
#40 Buy businesses when they are unpopular not the other way, if you can’t resist yourself, do SIP
#41 Markets are up 70% of the time, so your window to buy at a bargain is relatively smaller, bet big when the time is right.
#42 When you buy/sell, follow a process/checklist, don’t try to wing it or do it all mentally, use a sheet of paper or excel
#43. Almost everything is cyclical in the markets, stay the course, your turn will come
#44 Be mindful, observe how your mind reacts to various market/stock situations, this will make you a better investor over time
#45 Limit watching business news channels, it is skewed towards traders, it is a source of anxiety. Instead focus on concalls, annual reports and mgmt interviews (YouTube).
#46 Stock price may not correlate with company’s good performance for years, if you exit, you lose.
