“You know how bad I feel seeing my stocks these days?” asked my friend Ravi in a moment of anxiety.
“How bad?” I asked.
“It feels lousy! Every time I log in to my online trading account and see those red numbers, and then compare them with where they were a few months back, I feel really-really horrible.
“And you know what,” Ravi continued, “Wherever I look these days, whether it’s a newspaper or a business channel, or even within my office, I find a lot of voices screaming loudly in my direction and telling me to sell everything.”
“What wow? You’re happy to see me suffer?”
“No Ravi! Not at all! What you just told me is something that is very natural during such times of stock market panic.”
“What do you mean it’s normal?”
“It is normal during these times to feel terrible about your stocks. And it’s also normal to hear all those voices shouting at you and adding to your panic.
“But be careful you don’t let your emotions lure you into making a mistake. That’s easy to do. You see, there is a reason people, I mean stock market experts, want you to panic.”
“What could be that reason?”
“Almost all of them are trying to scare you so you’ll become dependent on them for information and guidance.”
“How do you say that?”
“Simply from my experience. You know that I’ve made my living in the stock market research business since 2003. What I’ve seen over these years is that people from the industry – brokers, mutual funds, research companies – sell what they think is popular.”
“Like they sold dotcom stocks in 1999, and power and real estate stocks in 2007. These were very popular, and see what happened to them subsequently.”
“They all crashed!”
“Yeah! And now look at this. Good investment ideas have never, ever been popular. Think of how unpopular gold was in 1999 or how unpopular stocks were in 2009. And see how well these have performed from the time they were unpopular.
“Now you know where the real problem lies?”
“Yes. It lies with people who advice investors to buy bad stocks.”
“No Ravi! The problem lies with investors themselves.”
“Don’t tell me! We poor guys believe whatever you experts say and when we lose, you lay the blame on us. That’s terrible!”
“I can understand what you are trying to say here, but realize this. It’s the investors who let the media and the market tell them what to do. When the market rises, they believe it’s telling them to buy. When it falls, they believe it’s telling them to sell. There’s a much larger and even less informed group that simply feels good when stock prices rise, so it keeps buying…and vice versa.
“And you know what the name of this problem is?”
“It’s called herding. In simple words, it means that whenever you are in doubt, follow what others are doing. We tend to draw comfort in going with the majority, or the consensus.”
“So what’s the problem in that?”
“The problem is that this is a terrible way to approach investing.”
“Yes. Sensible investors don’t let the market tell them what to do. They take advantage of the market’s volatility to buy and sell stocks at various prices. These investors are in fact delighted to see others panic because then they get to buy great stocks at cheap prices.”
“But don’t you need to worry about the uncertainty in the outside world – the economic growth, inflation, interest rates? Those are real worries, and given so many concerns on these fronts these days, anyone with a sane mind will panic.”
“But Ravi, do you have a control on how the GDP will grow, or where will inflation and interest rates move?”
“No! I mean who has control on these things?”
“So why spend so much time worrying about these things?
“I remember a great quote I read the other day. It said – ‘Our main business is not to see what lies dimly at a distance, but to do what lies clearly at hand.’”
“Nice quote, but is that easy to implement?”
“Ravi, who said it’s easy to become a sensible person and a sensible investor? It takes effort, but the right kind of effort. You can’t go on and on worrying about what will happen to the GDP etc. when you must be working towards finding the right kind of stocks to buy.”
“I don’t know Vishal whether what you are saying really works in the real world.”
“That’s the point Ravi. You become successful when you do what is ‘not’ done in the real world. And this is true of investing as well.
“What I’m trying to say here is that it’s impossible to accurately predict things like GDP, inflation and interest rates. Even the experts and economists who have made this prediction game their business know that they can never get it right!”
“You’re saying this from experience, right?” Ravi asked with a smile.
“Yes dear. Look at me. I have been a stock market analyst and an investor for the past eight years. And, to say the least, I have been rather frequently – and on occasion, quite spectacularly – wrong. But that is something I always expect to be.
“No one really knows what is going to happen in the future. This is especially true when it comes to the stock market. So why pretend otherwise?
“So if you believe you know someone who is able to call the market’s ups and downs, just wait a little longer. They’ll soon be wrong.”
“Okay, tell me Vishal, what should I do as an investor?”
“See, there’s no easy way that I can suggest. But if you do what I ask, you will be happy 10 years down the line looking at your stock market returns.”
“Okay. So tell me.”
“Are you really willing to listen to me?”
“Yes Vishal. Why do you ask so?”
“Because many people don’t like what I suggest them. So I want to confirm that you are pretty sure you want to listen.”
“Okay. See it’s simple. Take some time out and do your own research on companies. Start with the companies whose products or services you like the most. Identify the ones that have performed well in the past. See if they have ethical managements and whether their stocks are trading at cheap prices.
“If you are convinced on all accounts, go and buy the stock and hold it for as long as the business continues to perform well. But always remember, the moment you think it’s about predicting the future – and that you’ve got a crystal ball – you’ve already lost.”
“But isn’t taking help from an expert the easier way out?”
“See Ravi, I told you that you won’t like what I suggest. Yes, doing what others are recommending you is definitely an easier way. But it’s as safe as climbing the Mt. Everest without knowing the ABC of mountaineering.
“So my suggestion to you right now is to tune out the madness. Don’t panic. And, most of all, don’t abandon the discipline of buying great businesses when they get cheap.
“As long as you plan on keeping your money in the market for 10 years or more…and as long as you buy great stocks for great prices…a falling market shouldn’t cause you anxiety.
“Instead, panic situations like these must delight you.”
PS: Don’t forget – if you have a friend or colleague who you think would like to hear from me, please sign them up at www.safalniveshak.com. They’ll get a polite invitation – which they can decline – and I never share my email lists.
Great conversation. Some points that comes to my mind, Again there is nothing right or wrong here and its just opinion.
I have read this on many blogs that are dedicated to Long term and value investing. “Do your own research and buy when a good business is available for cheap”. Now dont you think that for someone like you its much more easier to do these research cause that is what you used to do and you used to get paid for it so you must be really good at it.On the other hand for someone like us who does not have good in depth understanding of how to read a business and MGMT, balance sheets can be changed even big companies do that as you mentioned in one of your post about satyam. so question is why not use your knowledge and expertise. whats wrong in sharing whats your view on a folio or things like that, additionally you must be invested so why not share that info with your readers as what are you buying and at when ( through facebook) now obviously with a very strict disclaimer so that noone can blame you later that they followed you and are in losses.
and its up to us if we choose to invest in what you think is right for long term.
One more suggestion.
As and when you get time or may be monthly you may post analysis of a business that you like and think would be good in long term with fair value, buy range, management quality and so on… what do you think about that?
am i getting too greedy ? 🙂
Vishal Khandelwal says
Whatever you said is justified.
And that’s why I recently launched the Safal Niveshak StockTalk.
Have a look at the details on this page – https://www.safalniveshak.com/safal-niveshak-stocktalk/
In fact, StockTalk is almost exactly like what you have asked me to do 🙂
Let me know your view on this initiative.
How do we know if the management is ethical? I mean, we can’t know some of the internal decisions of the company which only top management knows.