Agree! This is an interesting point. Goals drift or change, even in relatively short span of time. We are but humans and so can definitely err in defining our goals as well, which need refinement every now and then. And once invested in illiquid assets, changes in goals can cause stress of buying/selling.
In overall scheme of things, how do you see as real estate growth (land - assuming in safe non dispute areas & in control) & real estate income (residential flat/rental with yields 3-5%) as an investment class to balance the volatility of equity portfolio/equity mutual funds?
Do you think the illiquid nature of these asset classes and hassle to manage (check land intermittently, manage tenants, maintenance costs) etc. are a stress creator and this diversification is not worth the hassles, leave alone the stress at time of selling if goals drift/change in future?
Is it better to diversify in safer balanced index funds to diversify from volatility of our pure equity portfolio? How does this compare to investing in real estate as above?
Views invited from other experienced folks as well!
How to navigate the thoughts which create the impatience as it is often said especially in the context of low pe stocks (with apparently good fundamentals) that if big institutions with all the expertise and information at their very disposal are not giving the particular stock the high valuation then it could have been a problematic one ? I tried to get some answers from chatgpt with my own sense of prompt and chatgpt came up with the concept of inertia. The element which impacts the flow of funds from these institutions is the liquidity inertia where they could go for the companies that have certain narratives and they would bet on what others think will be beautiful. And also serving their clients with regular return also create the constraints to look for these cheaply valued companies. Is this reasoning correct? And kindly suggest your esteemed advice to maintain that conviction as well.
THE BROKEN-LEG PROBLEM
Most deeply undervalued, fundamentally weak stocks are that way because their futures appear uncertain—they are losing money or marginally profitable—and, on an individual basis, don’t appear to be good candidates for purchase. We know, however, that in aggregate they provide excellent returns, outperforming the market in the long run and suffering fewer down years than the market. This is an area in which our native intuition fails us. As we have seen, no matter how well trained we are, humans tend to have difficulty with probabilistic, uncertain, and random processes. Confronted with problems requiring an intuitive grasp of the odds in an unfamiliar context, even the best investors and behavioral finance experts flounder. If mere awareness that our judgment is clouded by our nature does little to correct the errors we make, how then can we protect against them? Since the 1950s, social scientists have been comparing the predictive abilities of traditional experts and what are known as statistical prediction rules. The studies have found almost uniformly that statistical prediction rules are more consistently accurate than the very best experts…so experts wont buy them…1 carrier risk because of long period of underperformance
2. Behavioral aspect of investing is emotionally painful
3. Humans fail to think group of stocks (than individual stock) approach with probability in uncertainty condtions
4. Uncertainty is not a risk…but human brain assumes uncertainty as risk
I am not an expert on real-estate. But in my view it demands too much commitment, liquidity, cost are high. Yes, if if get super deal with available capital can be considered.
It’s open question. I know many people are just living life on rent earned. But of course they stuck there with rent income and growth issues… But some is risk-averse can be considered.
Index fund might for someone who is naive in market. Real-estate and Index funds are different worlds. Not fair to compare them.
Everything boils down you. Where and how you want to reach there?
Gagan, the conviction must from within you. AI tools can only collect and present data based on past their learnings and algorithms. The question you posed on valuation any AI tool will give generic answer. Might be refined further for a specific Company, prompt and details. But ultimately you must take decision. Don’t leave on AI. I dont see Ai is currently that powerful.
Yes, it start within.
But I believe stats depend mostly on past data and algos feed into. But businesses, management, customers are real life…
So, my two cents…
Thanks for sharing your experience. I will be grateful if you would help me resolve a doubt: what do you do when your portfolio is falling daily? Do you book losses and wait on the side-lines for the market to, if not bottom out, at least stabilise? Or do you let the market run its course, as you are confident about your investments?
The argument against waiting it out is that for recovery, your profolio has to rise more in percentage to reach the same level.
Volatility is inherent nature of the Market. Remember Stock Price is NOT Business value.
If Business is intact and I am comfortable with Management market price does not bother me. As Market price is Servant of Business Value. But if not sure on company, bought for trading or get a crash then I might get out these companies.
Otherwise I am comfortable with market volatility,
Remember, market has its own flow, it not necessarily recognize value. It goes back to our conviction and homework.
excellent wisdom you shared here sir, really these all are the most fascinating and utmost important thing to follow in Investing, though I started my investing journey from 21 years of age
Value is everything in investing. The way we value before purchasing any product or service, we see it’s worth - Value against the Price.
In similar way, we to demand the Value for a Price with ‘sufficient’ Margin of Safety.
With this the probability of loss making get reduced significantly.
To get an edge in investing success, be aware of consumer market shift. It will indicate which are the business will get benefit. Hence possible leaders in the segment.
While most people focus on stock price or/and past numbers.
Get your edge today to invest for future.
Thanks, stock markets and hence equity are inherently volatile. It would be good to know that in your vast experience, among your top conviction long term hold stories, you held them in how much percentage drawdowns from intermediate peaks? This is not during building position but rather holding time. It would give a perspective to learn from.
Also, if you explain your journey via specific examples of businesses how and why you entered, held & finally sold (if sold), maybe learning would be even better than the good quotes you share.
Looking forward to some specific learnings from your vast experience,
If you ask specifically about my portfolio down from peak, in 2020 for few weeks it dropped by 55%. Of course, for everyone it’s case by case. This number does not tell much other than conviction. I have in my holding and factual data that these businesses will bounce back sooner or later. In fact, few were not affected or saw improvement, as having a competitive advantage.
Hence, I insist on always making independent decisions. It comes from 3Cs - Clarity, Conviction and Comfort.
As you asked for a specific example, I will share it soon.
Do not be carried away by the budget. Focus on the Value and Price gap of businesses before investing. It’s a simple game. No need to complicate things.
