In the documentary “Pumping Iron” Arnold says – Every bodybuilder does the workout everyday thinking to win the Mr. Universe competition someday. So, the destination is fixed and clear. The only thing left with us is, minimize the time to achieve your goal with your preparation.
Here are the mistakes/learnings from my side
- Trading mindset – In the initial first year of investing which is 2018, I was almost investing just based on price movements – For continued success in trading, you need technical analysis skills of highest calibre. So, I stay away till I learn it
- Foundation – When we buy some fridge or TV, we spend some time what are its best features, how many years warranty, value additions etc. Many investors have told to write down at least 1 to 2 pages on your investing rationale per stock. I was not doing this till beginning of 2019.
- Market Cap – Horses for courses. In general, large caps give stability to the portfolio but also gives less return. Mid-caps are volatile but can give better returns
Small caps are highly volatile but given a larger timeframe, they will beat the returns compared to large and mid-caps. I was having around 50% in small caps at one point of time. Given my understanding and assessment of stocks, it was akin to shooting in the dark - Time horizon – The general consensus is to give 3 years if you are investing in large caps, 5 years for mid-caps, 7 years for small-caps. We need to give time for the investments to grow just like your FD, real estate etc.
- Cyclicals – There are some stocks which will click for once or twice in every 8 to 10 years. Investing in these, need extra caution as you need to study the underlying fundamentals on this extra-ordinary cycle/sales/profits
I have 3% of my PF in cyclicals now. At one point of time, it was 15% and I played the cycle wrong. - Tracking the performance – We don’t need to track the portfolio performance everyday but need assessment of the performance in regular intervals. Tracking against index/ETF like BSE Sensex 30 or HDFC Sensex ETF can be one way . I am doing this from 2020
- Risk management – Setting thresholds for allocation can be very helpful. This is like mindfulness about what is in our control and limiting the downside
- Diversification – I contemplated on buying Sovereign Gold Bonds in 2018 considering the fact that gold price was on downward trajectory from 2015 and SGB is offering 2% fixed return per year and giving the current gold rate without physically holding it. I did not buy.
- Temporary vs Permanent – In the March crash, I sold some part of solid companies like HDFC, HDFC Bank, TCS, Page Industries. Ideally, I should have used this opportunity to accumulate them more. In an ideal scenario, I should have sold some debt portion and increased allocation to equity. As I was left with little dry powder, I had to sell some portion of existing portfolio. I was lucky I found some good bets like Laurus Labs and Sterlite technologies to compensate. So, the lesson here is – get your allocation balance right.
- Karma – Even though your analysis is right, sector is doing good, have great ROCE, ROE etc, have valuation comfort, some black swan events occur where you don’t have any control – 2000,2008 and 2020. Diversification into contra bets like gold will help mitigate this risk.
Accept your mistakes and move on. In the end, a happy and positive mind is the primary necessity to stay in business.
Disclaimer - I’m still at an early stage with respect to stock market. My portfolio link - Southern_Cross's Portfolio
Some more - Southern_Cross's Portfolio