How many investors can think and act like Manish Sonthalia, Director & CIO, PMS, Alternates & Offshore, Motilal Oswal AMC or share his vision regarding investments? Looking at the fundamentals of a company before buying its stocks may be easy but going against the market tide by holding it may be difficult to practice. Investing is not an easy game considering how it may be difficult to predict the future. There should be an implicit and inherent courage to buy, especially, when the prices of stocks move in a direction opposite to how one had anticipated.
Relying on “Buy” and “Hold” strategy
The determination to traverse the market and experience success in buying and selling stocks comes with a lot of experience. “Patience to hold” is the most difficult to practice, especially, after one has identified the right stock and has the courage to pay for it. The temperament to hold irrespective of the market weather and the views that market experts share must be developed from within, practised and absorbed. This does not occur overnight, but rather over time. The desire to not trade or flip is difficult to put into practice because capital is always the limiting factor in investment, not ideas.
Businesses are not always linear. In fact, every good business goes through a phase marked by either regular or sudden highs and lows. The tenacity of investors is evident in their ability to hold. Veteran investors are able to hold on to their investments realizing how it is insensible to sell good businesses in bad times. “Tough times don’t last long, but tough people do” is the guiding mantra that underlines all their actions. This is because only those businesses that have survived the winds of time have the audacity to take the next step to grow in the future.
Genuine investors think differently from traders who rely more on momentum investing to benefit immediately from the stock price rise. Investors must be ready to trust and defend their idea despite having very few people in support of their thesis to buy and keep that stock. It is okay to have people oppose one’s idea; however, what matters is the conviction to stay put. Real investing is time-consuming and must not be confused with enjoying time at the casino.
You can never succeed on borrowed conviction
One can never succeed on borrowed conviction. In fact, no such thing as borrowed conviction exists. It always helps if investors listen to and act on the advice of advisors or experts. However, it is more important to understand the company, its underlying business, and the process by which value is created. Knowledge of the market and how it operates is the key to self-assurance. If one truly understands these characteristics, one can train one's mind to practise patience in order to maintain that stock in difficult times. Markets are experts at causing emotions to throw you off track. To get it right, one must maintain one's conviction in the face of market moods.
Rely on your own understanding
How do you act on something if you do not understand it? Interpretation becomes a different ball game altogether if you do not understand the context of what you are doing. Understanding a subject applies to all aspects of life and not investing alone. If a person does something that he or she truly does not understand or believe in, he or she will have only himself/herself to blame.
“Investing” and “being in the investment business” are not in any way similar. You may invest your money hoping to earn more in the future. However, when you are “in the investment business”, you invest on behalf of people relying on your knowledge, experience and expertise to grow their money. In the “business of investing”,' it is one's fiduciary responsibility to outperform the benchmark or peers. In the world of investing, it’s a game of relative return.
Get rid of unwarranted complacency
One of the most difficult questions to answer in long-term investing is when to sell. Complacency can result from the buy-and-hold investment strategy. It is necessary to train one's mind not to become complacent. If Michael Porter's Five Forces model breaks business models, preventing the company from achieving a specific desired growth rate, or if visible and understood corporate governance issues arise within the company, I believe it is game over for that stock.
Every day of your life will have something to teach depending on whether you are willing to learn. Though there are endless things for one to learn, practising what you learn will help you become a better investor as planned.
