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A Huge Investing Advantage You Can Easily Achieve Over Most Investors

I’m often asked how an investor can behave calmly when the stock markets rise and fall 1%…2%…even 5% in a single day, day after day.

Well, if you see the trend over the past 3-4 years in the chart below, the volatility (sharp rises and falls) has really been on a higher side, except in 2010 when people were on the sidelines after the gains made in 2009 and 2010.


Data Source: Ace Equity, Safal Niveshak Research

Anyways, when the markets rise and fall 1%… 2%… even 5% in a single day, day after day, you need to remember one thing – that it means nothing.

These moves are random, meaningless events. No matter what the business channels ‘experts’ would tell you, these mean nothing to the thoughtful, smart, long term investors.

Such random falls are not a great deal. Instead, how you react to these means a great deal.

Traders, speculators, or beginner investors often jump in and out of stocks based on one or two days of price action. They buy stocks when they’re rising, and sell immediately after they fall. In the process, they lose money. And they get frustrated.

See the chart below. It shows the year-wise average number of trades per day on the Bombay Stock Exchange (BSE) since 2006.

The daily trades surged during 2008 and 2009, and we now know the reason behind the same.

In 2008, people were trading feverishly because they didn’t know what was coming ahead. They were selling the falling stock ‘A’ to buy the rising stock ‘B’, and then selling ‘B’ because it too started falling.

In 2009, they were again trading anxiously, trying to make up for the huge losses they’d made thanks to their insensible trades in 2008.


Data Source: Ace Equity, Safal Niveshak Research

People got so frustrated that many stopped trading in 2010, and waited on the sidelines. They continue to wait.

You don’t be one of them
The best way not to be frustrated with your stocks is to learn to hold them long enough to make some money.

This is an easy advantage to gain, since most people don’t have it – they don’t hold stocks long enough to gain from them – as the second chart above suggests.

If you can’t hold on to a stock for more than 2-3 years, you’re never going to make any money on a sustainable basis.

It takes a few years for most good ideas to work out. Some stocks, bought at the right price, should be held for decades.

Take the dividend gems I recently told you about.

These businesses dominate their markets, generate large cash flows consistently, and pay out regular, growing dividends.

Whatever the stock markets do – rise or fall 1%…2%…or even 5% – stocks like these are going to make money for their investors over the long term.

Understanding the benefits of holding on to safe stocks – while others are trading in and out as if there’s no tomorrow – will give you a major advantage over other investors.

Simply buy such stocks at right prices, and hold them longer than 2-3 years…and you will be way ahead of most investors.

Here is what the famed fund manager Peter Lynch says: “The key to getting rich in stocks is not getting scared out of them.”

So, refrain from getting scared out of stocks long enough, and your odds of making money go way up.

Just follow this mantra and you’ll have a huge investing advantage most people fail to achieve due to their own misdoings.

Buy good businesses at the right prices…hang on.

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

Comments

  1. When the DOW is leading a rally in a bear market, it is a sign that investors are not comfortable putting their money into riskier stocks.

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