Many individuals wait to be “in a position” to invest. This is specially with regards to equity. Don’t waste time. If you can spare as little as Rs.1,500 per month, start systematically investing in an equity mutual fund. Or at least a balanced fund with a predominantly equity orientation. Start small, but start now.
“You have to realize: decision making isn’t one size fits all.” A particular fund may be excellent for one individual’s portfolio, does not mean that it is a good fit in yours. You may be a 32-year old investor who thinks that it is quite alright to copy the asset allocation of a friend who is the same age. But consider two 32-year olds, both earning identical amounts. Individual A is married, his parents are not dependent on him, his spouse is also employed, and they plan not to have children. Won’t his asset allocation, investment potential, risk taking ability and insurance needs be different from Individual B, who has four dependents – spouse, parents and child; and who is also servicing a home loan? There is no one-size-fits-all when it comes to matters of finance and investing. If confused, talk to a financial adviser who can tailor an investing plan based on your circumstances. What is good for one investor, may not be good for another.
There are numerous investing styles. Long-term. Short-term. Contrarian. Value. Growth. While some swear by moats, others believe that since we are in a disruptive age, moats are hard to come by. Bill Ackman and Michael Price are known as activist investors. Seth Klarman believes in a long-term orientation and patience. Howard Marks buys assets that are out of favour and his style is embodied by the motto “if we avoid losers, the winners will take care of themselves”. Sam Zell looked for distressed companies sitting on quality assets. Marc Andreessen bets on change and says that Warren Buffett bets on things that won’t change. Philip Fisher believed in holding a concentrated portfolio of outstanding companies over the long term. (Outstanding meant superbly managed companies with compelling growth prospects that he understood well). Anthony Bolton stressed on diversification. Ralph Wanger hunts for smaller fare. Pick an investing iteration that you believe in. And stick with it. It will provide you with consistency in your decisions and keep you grounded when your stocks are out of favour with the market.
Don’t obsess over stock price:
When the stock is up 30% in a month, don’t feel 30% smarter, because when the stock is down 30% in a month, it’s not going to feel so good to feel 30% dumber — and that’s what happens. Never spend any time thinking about the daily stock price. Don’t obsess over the market. Or the stock price. Whether it is going up or down. Market volatility is never going to go away. Bear markets are never going to disappear. Both are a feature of equity investing. Both are a feature of markets, not a bug. A pure macro, top-down call may not result into transmission into specific stocks. Some bull markets are very polarised with just a few stocks taking the indices higher. Stick to a bottom-up approach. Always. Ask yourself what the reasons are for investing in a company? Are you still prepared to hold the stock for many years? Is your investment thesis still sound or has it changed? It makes complete sense to retest the thesis at regular intervals. If the thesis still holds and the stock price has dropped, it may be good to add to your position. Value investor Seth Klarman always advises that investors buy on the way down. It’s impossible to always catch the bottom, but it does ensure ample margin of safety. He makes money “when he buys” and captures profit “when he buys the bargain”.