“A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc.” ~ Charlie Munger.
I recently wrote a post detailing my stock investment philosophy. At the end of that post, I had requested readers to share their personal investment philosophy.
But I didn’t receive a single response to my request except for one reader who wrote that some ideas discussed in that post were “a little heady for a person without a financial flair”!
If that was the case with you as well – that the investment philosophy I discussed then sounded a bit technical – let me discuss the philosophy from a different angle – this time it’s not about what I do, but what I avoid.
These avoidances have helped me cut the entire stress out of my financial life, and I hope some of these might be working for you as well.
So here’s my personal ‘not-to-do’ list with respect to my investment philosophy…
- I avoid IPOs. I’m never sure how they arrive at the offer price, plus I don’t want someone else (except my judgment) to decide what I must pay for a business.
- I never trade. I think I have a weak heart, so always like to be on the slower side.
- I avoid pharmaceutical stocks. I’m never certain about their cash flows and an appropriate margin of safety to apply.
- I avoid banking & finance stocks (except one that I bought based on the suggestion of an analyst I trust a lot). I’m never sure what lies beneath most banks’ balance sheets.
- I avoid commodity stocks (except one that I bought because I found great value in its assets at the bottom in March 2009). I never get the commodity cycle right.
- I avoid oil & gas stocks. I’m always confused about the (mis)regulations.
- I avoid real estate stocks. I hate the businesses for ethical reasons.
- I avoid textile stocks. These companies will never have any pricing power.
- I avoid Reliance Group stocks. I have my reservations against companies that often mistreat minority investors.
- I avoid hot sectors. I shut them out with a cold mind.
- I avoid predicting the number of leaves on a tree in the next season (the future EPS). I’m more comfortable trying to find what would be the next season (the broader direction of the business).
- I avoid stock price targets. They are always moving, and thus rarely reached.
- I avoid hunting for the ‘next Infosys’ (if it happens, I’ll count myself lucky).
- I avoid derivatives. I fear dying of weapons of mass destruction.
- I avoid companies with high debt. They can go bankrupt anytime.
- I avoid borrowing money to buy stocks, however attractive the opportunity. If I borrow, I can get wiped out in a crash.
- I avoid companies run by egoistic managers. I prefer humble people taking care of the businesses I own.
- I avoid more than 15 stocks and 5 mutual funds at a given time. My attention span is very limited.
- I avoid watching business channels (except when I’m on the show :-)). They have the uncanny ability to make a sane mind insane.
- I avoid online portfolio trackers. There was a time they used to invite me to have a look at them in the middle of the night…only to spoil the rest of my night.
In all, instead of rushing through my investing life, I’ve learned to take things slow.
I enjoy the process of identifying the right stocks and avoid the wrong stocks. I enjoy a great amount of time reading (and re-reading) the ideas of world’s most successful investors.
All possible because I’ve saved myself tons of stress.
Anyways, continuing with the idea of cutting out stress from your financial life, here’s an interesting article on the concept of “returns per unit of stress” written by Prof. Sanjay Bakshi, a finance professor at MDI, Gurgaon, and one of the leading brains on value investing in India.
The idea of this article is to lead investors to incorporate “return per unit of stress” in their investment thinking.
If you can do what Prof. Bakshi suggests in this post, as he writes, “…you will slow down and start appreciating the slow process of long-term, stress-free compounding as opposed to nerve-wracking, adrenalin laden high frequency operations in the stock market.”
That’s exactly the idea that defines the Safal Niveshak philosophy of safe, sensible, long-term investing.
By the way, let me and all other tribesmen of Safal Niveshak know in the Comments below, how you have reduced (or are trying to reduce) stress from your investing life.
This time, I’m waiting to hear your views. 🙂
Here’s to your stress-free investing life!