One of the important traits of a successful investor is being able to gather information and do sufficient research on the company he is eyeing for, wait patiently on the sideline and execute when value emerges from that opportunity.
For many successful investors, investing action is a minimal activity.
They would spend hundreds of hours gathering information and researching into the company, scuttlebutting the management, and then spend the next hundreds of days or weeks doing nothing just to wait for that one (or if you are lucky more than one) golden opportunity.
There are some retail investors have mistakenly assumed that one golden opportunity as a time when the economy undergoes a patch during recession, and so they waited patiently in cash for that one low hanging fruits opportunity in a lifetime, but that strategy can be costly if they are mistimed.
For the many others, it is usually the other way round.
These people are usually easily influenced and intrigued by the constant noise coming from the social media, especially when they see how their friends who have little knowledge about investment, made double or tripled their money and get to spend on luxury watches and holidays. This is why Warren Buffett in his recent interview was so confident in saying that history of the human greed will come as nature and repeat itself once again.
Instead of spending more efforts on the researching part, many people would rather jump on the bandwagon of the hottest stock on the Twitter trend and hopefully they would wish for more people like them to push the price up. For some who managed to exit timely at an appropriate timing, this would translate into a handsome profit earned over a mere couple of days or weeks. Immediately, this would elevate their confidence higher into going for their next hunting ground.
The problem with this approach is that many clueless retail investors would be victim of that “successful” hunt as you need to be a few among the many to have executed timely, both on the buy and the sell. It won’t be easy for many retail investors because they are hoping to ride on the luck of a few others but for many they ended up losing majority of their savings.
At the end of the day, many ended up poorer than their initial capital outlay and they gave up investing totally.
If we analysed the whole situation, it seems like the mistakes were done upon spending too little time upfront on the research but spending too much time on the investing action and jumping on the latest bandwagon hoping for a quick profit.
If you happen to belong to this type of category, there are a few things you can try:
First, accept that investing is a long term activity which would allow businesses to flourish over time as they grow.
What this means is you should only look for companies that have sufficient moats and ensure the company’s objectives to grow are aligned with yours.
This also means that as investors, you should also give the management time to grow the businesses and enhance your value as a shareholder by returning parts of their profits to you in the form of dividends.
Second, buy companies with sufficient margin of safety intact to the business.
This is especially important for companies which are cyclical in nature and businesses would typically fluctuate between the peak and trough, and investors would always be “attracted” to such companies when they are only at the peak of the cycle.
For growth companies, the margin of safety can come in the form of more conservative growth projected into the future so it will not look overly ambitious.
Third, if you need some psychological peace of mind, do take a look at the share price of strong moats companies on a multi-decade basis to convince yourself that businesses that grow over time also reward shareholders in terms of capital appreciation.
Investing action is a minimal activity but the work put behind the research will determine a clear winner.
The art of doing nothing is also the art of devising a process to be a winner.
It’s best to put our efforts on the right activity.
Thanks for reading.
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