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
