Isn’t it ironic that last corrections look like a lost opportunities but current correction is painful?
I think it is because of expectations. In hindsight it is easy to say that a correction was due whenever these happened but hindsight is not foresight so all corrections are unexpected whenever they start.
I used to feel the pain in the past during a correction but now I adjust my expectations as soon as markets begin to sway from trend value for whatever reasons. So when a correction begins I just take it as business as usual. Unexpected shocks is never a good state of mind to make rational decisions especially contrarian decisions
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In normal course of business i monitor my margin of safety regularly and keep my buy and sell lists ready.
When a correction begins the first thing I do is to get rid of positions that turned out to be duds. No matter how carefully I choose my investments I always find some positions are not working out as expected and in most cases chances are that it will definitely not work out after a correction. Instead of going in denial and fighting the market, I take the losses if any and move on.
A correction also gives me an opportunity to buy something that was previously expensive. That’s another reason to dump the duds
One thing I don’t do is to try and time the bottom.
when correction begins I tend to adjust my valuations downwards and that is because I realise that i had raised my fair value calculations upwards during the up move that usually happens before a corrections.
Once i I adjust my valuations I monitor market values more closely as market begins to throw some opportunities .
Another thing I don’t do is buy something just because it has fallen a lot. Usually such stocks look overvalued even after a steep drop. Valuations and margin of safety is always a criteria.
I do keep an eye on stocks that rally during a correction or defy gravity. I sometimes some hidden gems here.
If you a newbie and planning to buy stocks regularly for a long time here is a fact that will help.
If you was a genius at timing the market and managed to buy sensex exactly at low level of the year in each of the last 25 years your compounded annual return would have been about 13.5% .
If you was a total dummy and managed to buy sensex exactly at the top level of the year every year for last 25 years your compounded annual return would have been 11.5%.
On the other hand if you had purchased stocks regularly like every month or on 1st Jan of every year or on your birthday (or some other regular schedule that you can think of) for last 25 years your compounded annual return would have been about 12.5%.
The point is a genius earns about 2% more than a complete dummy and only a % point more than an average investor when it comes to timing the market over the long term.
What are the chances of you timing the market right each year for 25 years in a row? 0%
Similarly what are your chances of buying right at the top each year for 25 years in a row? 0% again.
The real skill is to pick the right stocks and not spend too much time in on timing the market.
I used to spend a lot of time reading all the macro events as they affect the market as a whole instead of individual companies with the expectation that all this reading will make me a smart and knolwldgeble person that will help me time my entry and exit. But over the years I realized that macro gyan is good but all thse efforts are not worth the gains in on timing the market. I have better chance of spending my time and efforts on researching the companies and finding the right ones and making more gains that way
Even if you time the market you have to figure out which stocks to sell and which ones to buy and there is a good chance that you will miss the trees for the jungle
Timing is for top down investors who actively manage their debt/equity allocation. I think debt to equity allocation of your portfolio should reflect your individual fear and greed and not where the market is treading.
I think how much time you should/can devote to investing also depends on how big is your portfolio. If someone has just has a few lakhs in portfolio, honestly speaking it doesnt make sense to spend much time investing. He will get much higher ROI if he puts the same efforts in his full time job via pay hike/promotion etc.
So my question is - what is the typical portfolio size of the members who seem to be quite active here. Just so that we are on the same page, I am just trying to benchmark efforts v/s return. I know people would have different sizes but a median would be a good estimate. Any guess?
With time your portfolio grows. And to manage that growing portfolio you need to grow your knowledge. However, I don’t think, there is any effect on Job work if you spend 2 hours daily on understanding different building blocks of stock market after your work. The effect comes when you start opening MoneyControl App on your mobile phone while working which I personally do but have reduced a lot in previous months. I have reduced it from more than an hour to 10 minutes (still effective 20 minutes) and will reduce it to a minute or so. I am no warren buffet who doesn’t get uncomfortable when his stocks go down by 50%.
As a full time investor…i have a ready template for anyone who asks me how
1 u should be debt free
2 live a simple non materialistic life
3 put 3 years home running money into a separate account
4 have a property which gives rentals
5 have enough corpus so that even 5% return covers your annual costs
Weather one should be a full time investor or not depends on how big the portfolio is, your curret job income and how good the investor is at generating alpha i.e. beating the markets including mutual funds, PMSs, Index funds etc. I have previously explained my logic about it in an earlier post. Here is the math
Am sure this would resonate with some who are full time investors and some others who want to be. It isn’t about chasing returns
"So, why do I invest actively? First, I am lucky enough to be investing my own money, giving me a client who I understand and know. It is one of the strongest advantages that I have over a portfolio manager who manages other people’s money. Second, I have often described investing as an act of faith, faith in my capacity to value companies and faith that market prices will adjust to that value. I would like to believe that I have that faith, though it is constantly tested by adverse market movements. That said, I am not righteous, expecting to be rewarded for doing my homework or trusting in value. In fact, I have made peace with the possibility that at the end of my investing life, I could look back at the returns that I have made over my active investing lifetime and conclude that I could have done as well or better, investing in index funds. If that happens, I will not view the time that I spend analyzing and picking stocks as wasted since I have gained so much joy from the process. In short, if you don’t like markets and don’t enjoy the process of investing, my advice is that you put your money in index funds and spend your time on things that you truly enjoy doing!
A Damodaran
A professor saying it in a manner which is so easy for anyone to understand. This might well apply to almost any profession one wants to get into.
From my opinion i disagree with the fact that people say if you spend 2 hours everyday you will be a good investor. If you need to find good bargains you need to spend lot of time. You need to read a lot. The fact is you need not buy everyday and sell everyday but you need to do your hard work to find bargains and improve your skill in investing. Nobody is going to tell you whats at bargain you need to do your handwork to find it.
People misunderstand timing the market and finding a bargain. You dont need to time the market but always need to be look out for bargain.
Agree with all, except point 4. I don’t think it makes sense to buy ridiculously expensive real estate giving 1-3% yield. if you are a half decent investor you can do far better. Blocking huge amount of money in real estate for meagre rental income makes no sense to me.
Agree completely. However I think two hours can go long way if they’re spent wisely. Instead of reading ET or watching cnbc or some other such stuff,if your two hours are spent analysing companies and reading solid value investing books, I think two hours per day can go a very long way. And I say this out of personal experience, have made the blunder of whiling away precious time watching TV and reading worthless stuff, but never again
The rental is to provide income in case of a prolonged bear market. Everything is not about returns.
Sometimes u get many years where your stocks dont do anything. Rentals help run your house during those difficult times
Point 3 and 5 overlap. If you have such a corpus that “have enough corpus so that even 5% return covers your annual costs” then why do you need 3 years expense put aside?
It’s a great idea and if it works well monetarily good for you; but at some time in your life usually at around 36-40 yrs of age you have to ask yourself what have I done with my time and opportunities; what difference have I made to others or society in any way. I have a feeling that sitting in front of computer clicking some keys and making money will be fun for a while, but after a while you will have to answer bigger questions of what’s the purpose of your life. It might be an idea to combine your equity market dreams with some teaching or volunteering or something that makes direct difference to others; otherwise you will burn out and it will all seem meaningless.
well, one can also buy High dividend yield shares like Nalco, REC with 5% dividend yield instead of property with 2% yield. You will get double the money, tax free, no hassles of changing tenant, maintaining property etc etc.
Conceptually u r correct. But need very high levels of discipline as div comes in lump sum…rentals monthly.
If yes…then u r correct.
Rentals have one adv though…they grow 10% cagr
Thestocklady. I read your template and it is the most simple, basic and only option of a investor, IMHO.
But, on the forum there will be “supposed investors” . Please do not stop sharing your advise. Many are reading it and many are finding it intelligent and valuable. The others will understand some time or the other. Best Regards.
. Please do not stop sharing your advise. Many are reading it and many are finding it intelligent and valuable. The others will understand some time or the other. Best Regards.