Principle and Philosophy: Basics of investing
So, Now that you have decided to start investing.
What to do next?
- Am I too young or too old to start investing?
- How, When and Where to invest?
- What kinds of investments will offer best returns for me?
- Can I straight away find companies and invest?
- Should I follow a stock tip which my friend told me about?
- Can I invest in a multi-bagger stock tip which I received on an SMS from a stockbroker?
- Can I invest in other investment vehicles apart from stocks? Commodities, Bond’s, Bitcoins, Currencies, derivatives, chit funds, commercial property, Real estate or can I buy a flat?
Probably these kinds of questions arise when you are new to investing. It is common and every one of us had these questions.
When it comes to investing in stocks, you will have more questions and the fear develops further.
You might be thinking about market risk, crash, recession. And that too if you have no experience the fear get to the extreme. You may portray stock market as a place for gambling, fraud, scam, Ponzi scheme etc.
Market show these faces to those who want to gain from the market hiding their ignorance.
On the contrary, if you understand the flip side of the coin, you will realize that the above-mentioned preconception is completely opposite to the real face of investing in the stock market.
principle and philosophies drive a good investor.
So what to do?
You can straight away go and open a Trading/ DEMAT account from a stockbroker, put some money and start Trading.
But that doesn’t mean you are an investor and your returns are guaranteed. It is more or less like a gamble or like the game of Russian roulette. You are bound to lose your money if you do that.
How to approach Investing:
Let us look at some of the basic principle and philosophies of investing:
Becoming an investor is easy. A little bit of common sense is enough to start investing. But to make returns consistently is where the actual skill comes in.
It comes with understanding the principle and philosophies of investing.
You can be an IQ topper. But it has nothing to do with investing. More important are the psychological aspects of emotions, behavioral biases, self-control, Fear, greed, Patience, etc. play an important role in investing.
Even the greatest scientists who have revolutionized the world with their theory and IQ have failed miserably when it comes to investing in stocks.
Yes, I am talking about Albert Einstein and Sir Isaac Newton. You can read about this here.
Remember, in your school days when you got beatings from your English teacher for making mistakes in that 7th-grade poem. We all have been brought up saying that we should not make mistakes.
But in stock market mistakes only will make you a good investor.
Mistakes are the mother of invention.
You should remember this. Don’t fear to make small mistakes at the early stages. Also, don’t risk too much.
Because we don’t have any free money won from any lottery to experiment in the stock market.
But if you learn from experiences, soon you’ll realize your progress.
It will be an added advantage if you start investing early. Because you have enough time to commit mistakes before any financial commitments.
Don’t forget, make mistakes quickly and learn from them as much as possible.
If you are late in your 60’s, then also no problem. Because we didn’t come here to catch a spaceship. Every one of us has our own time frame. Still, you get the satisfaction of learning.
Some retire early at their 30’s while some complete their university education at 30’s and start earning. That doesn’t mean one is better than other. Life is a learning experience.
So don’t bother too much about that.
Investing is an Art:
You can’t paint a masterpiece on the day one. You have to practice, practice, and practice and again practice…
Of course, Luck has a role in investing,
But, if you have passion and interest in learning investing, and understand the principle and the psychology of markets and how market participants react, you can bring the luck factor in your favor.
You can’t come to stock market with an expectation to double your money in a short period.
If that’s the case you can leave the idea of making money in the stock market. Even you can stop reading this article right now and move on.
It might look discouraging, but I am talking about facts,
If you buy a stock on a baseless conviction, chances of success are so thin that it will sooner burn your fingers.
It will be hazardous to your wealth.
Try to Understand the principle and philosophies of investing
Developing the right kind of attitude with the market in the key here. If you do so, doubling your money will happen automatically.
It is called the power of compounding. They call it, “The 8th wonder of the world”.
Believe me, it can do real wonders.
Investing is a way of life. It doesn’t need to be full time or part-time.
It is a continuous process. Day by day through learning and experience you can become a good investor.
You don’t have any competitors in the stock market. More the participants, more will be the opportunity. There will be someone out there to sell you that excellent business at a much better price.
Stay Away From Noise:
Everyone can do well in the Stock Market. The market is ready to reward rationality. So develop your rational thinking ability.
If you avoid what not to do, that much is so much enough to become successful in investing.
There is an information overdose around us. There are already enough information and knowledge source that we can look for whenever there is a knowledge quest within us.
You can read about many kinds of investment and personal finance tips around the internet, people have written excellent pieces of information about all aspects of life.
But what you read in ValueCliff will only be about investing in Good businesses. Because our focus lies only on that.
This is not to portray what we do, but to tell you that if you know what you are doing and stay focused on a single investment vehicle you can learn quickly and develop your edge over others.
But the challenge here is to remain clear in a noisy world. Staying focussed become much more difficult if you try to follow whatever comes to you.
So pick and choose carefully.
The available information about every investment opportunity out there is humongous and so publicised and it is widely available to everyone.
In such a scenario, do you think you can gain an edge by sinking in that flood of information, that everyone around you is aware of?
Staying clear will give you a wider perspective of the hidden opportunities out there. You have to remain calm and think a lot.
There will be information everywhere. Start building your character as an investor and develop your strategy based on what works for you. Stick to your strategy over time with conviction without any deviation.
Try to add your experience to your strategy and make it unique and adaptive. It will help you in staying clear from the noise. Once you start investing, over time you’ll realize this.
Investing is so simple than you think. But that doesn’t mean it is easy. The one who stands the test of time reap the benefits.
It’s like ‘Big swimbait Bass fishing’. You are looking for a huge fish, it’s going to take time and you should wait with conviction and patience but once you got a shot it will be definitely worth it.
Developing conviction depends on your research, strategy and thought process.
Sensible investing has more to do with principle and philosophy.
We have to drive that with our skill and experience to get good and consistent returns.
So be humble, stay simple and open your minds.