One of my favorite threads of TED,
A must read, whenever one is tempted to buy into the next BIG idea
One of the typical attributes of a young, impatient and a restless investor is to desperately look at new investing ideas when the existing ones look as promising as the rest. So the moment you meet someone the first question that comes to you is âAur Naya Kya liyaâ (What did you buy new?). Isnât that strange? Why do people want new things in life â always? So many families could have lived happily had people not looked for the new? Likewise so many investors could have stayed and become wealthy had they not tried identifying the new. Spare a thought for the guy who having bought Wipro in 1980 looked to exchange his stock for something new in 1981. A Rs 10,000 investment in the company would have grown to over Rs 350 crores had he just stayed with the old.
So does it mean that investors should do nothing and just sit back after an idea has been identified? Certainly not, all ideas need introspection and a constant monitoring vis-avis the new ones that come in every day. The only cost of investing is opportunity cost. So if Company A is doing well and someone whispers to you about the prospects of Company B then try comparing Company B with Company A before committing your money. If A is still better then B then buy A until you hi the 15% open offer limit!
Peter lynch says that the best stock to buy could be the one you already own.
Suppose you were running a restaurant, or a casino or a hotel, would you have looked at putting more money buying a new business each time your existing business threw back cash or would you have tried to consolidate your position in the business that provided maximum return for capital? Money has no emotion, given a free run it would flow to the spot that provides it maximum return but the emotions of the person in whose pocket the money resides allows it to do foolish things in the garb of looking at something new.
Many people look to buying something new to avoid the pitfalls of putting all eggs in one basket but one should remember that as long as the basket is strong and capable of holding the weight there is no harm in putting several eggs in one basket and if the basket is weak then even one egg can break the same. The idea is look for strong baskets not necessarily new ones.
There could be months where a smart astute and serious investor would not get new investing ideas in that case it would be prudent to analyse the existing stocks in the portfolio rather then hold cashand wait for new ideas. If a stock that he holds does not qualify as a buy then he has no business holding it in the first place..." - Basant Maheshwari.