Experience is a great teacher, and learning never ends especially in the stock market where every price change is either a precursor to an unforeseen development or is based on profits/losses booked by a company. Still, sudden news like announcements of stock split/bonuses or mergers/acquisitions are other reasons for share prices to suddenly perform steeply in both directions.
Taher Badshah, CIO-Equities, Invesco Mutual Fund in a tête-à-tête with Value Research explains how the share market has something to teach daily. While there are many lessons worth sharing, Badshah lists some very important learnings that have stayed with him to date. These are:
Humility: Never try to fight or tame the market forces. The market is more enormous than you think or can comprehend. The best way out is to stay abreast of the latest developments and happenings and then assess which stocks are best to park your funds in. Have the necessary conviction to play in the market. It is your conviction that will sail you through the market during its highs and lows.
Follow a process: Not all strategies work for all. Once you have learned which process works best for you, follow it stringently to avail of its benefits.
Strike a balance: The market is not the right place for you to showcase your extreme views regarding your choice of stocks or portfolio. Adopt a balanced approach irrespective of which way the market sways. Do not adopt extreme measures or tactics, be it during stock selection or portfolio construction.
Do not panic: The market operates by a set of rules and is governed by logic. Do not allow emotions to overrule your investing logic even when times are bad. Ignore what the crowd around you says. Cut out the unnecessary noise. When others panic, you stay calm and act indifferent to the surrounding chaos.
Risk over return: In the risk versus return game, pay more attention to risk. You can start this by avoiding investments in risky stocks. Study the fundamentals of every company carefully and then gauge the inherent risk accordingly. Pay attention to risk; the returns will take care of themselves.
Not many pay attention to the concept of “value migration” that they frequently encounter while investing in stocks. Value investing is the key that if followed diligently can lead to immense wealth creation in the long run. Picking the right stock is important. Badshah elucidates that the key to his successful stock picking lies in his ability to look out for such opportunities that allow him to invest in value-added stocks.