“An Investment in knowledge pays the best interest”
1 Oct 2019by Harsh Ashar
Whether it is stock market or any field of life, when we hear about a successful person, i.e. the heights they have achieved, we wish, ‘Wish I could be in his place.’
However, hardly anyone knows about the struggle they might have gone through to achieve this success, fame and wealth.
I am sure you might have heard of Lionel Messi, one of the world’s highest-paid soccer player, earning $111 million p.a. When a reporter once asked him the secret of his success, he replied: “I start early, and I stay late, day after day, year after year, it took me 17 years and 114 days to taste this success.”
Not many know that Messi had to face several health issues as a child due to a growth hormone deficiency diagnosed at the age of 10. His family could not afford the full cost of the growth hormone treatment. Only years later when he enrolled in the Royal Spanish Football Federation (RFEF) in February 2002, Messi could complete the treatment for his growth hormone deficiency and play in youth tournaments where he started making his mark. The rest, as they say, is history.
Just like Lionel Messi, who is one of the most successful football players in the world, there are many successful investors such as Warren Buffet, Peter Lynch, Benjamin Graham and Charlie Munger in the world of stock market investing. We all know how successful they are and the kind of fortunes they have built, but most people don’t know the ups and downs they too might have been through in their investing journey.
Many investors often assume that stock market investing is a fairy tale. They consider it as a quick gateway to becoming rich overnight just like winning a jackpot in the casino. And when this assumption goes wrong, they blame the market or their luck for their losses. What they fail to realize is that there are many unspoken realities of investing. In this story, we shall take you through four unspoken truths of investing, which many won’t tell you.
If we look at the history of stock markets, it has always been a roller coaster ride. Sensex touched a lifetime high of 40,309 on 3rd June 2019. But this journey from 100 points at inception to 40,309 has never been a straight one. There have been periods of fast growth, consolidation and slow growth.
Sensex took 11 years to cross the 1,000-mark in 1990, but it passed the next 3,000 points in less than a year. Sensex’s journey from 4,000 to 5,000 levels took almost 6-7 years. This was the period when IT stocks replaced the old economy as the most tracked and watched components of the Sensex.
In 2006, the Sensex breached the 10,000-mark as global markets rallied and went on to hit the 20,000-mark in December 2007. But crisis struck in the form of American sub-prime disaster in early 2008 and Sensex had lost around 8,500 points by October in the same year.
Over the next five years, the market consolidated and grew steadily on the back of a recovering Indian economy. Between 2014 to 2017, the markets moved up to 30,000 levels aided by Indian economic reforms.
In 2019, a few days after the formation of a stable government and a second term for Prime Minister Modi led NDA 2.0, the Sensex touched its lifetime high of 40,309.
Yes 40,309 from 100, in spite of multiple corrections, terrorist attacks, global liquidity crisis, financial scams, spike in oil prices, wars and other transient hiccups.
During our journey of investing, we may buy few businesses which look good at that point of time but lose their sheen over time due to some reason. In such a situation, it is important to accept the fact and exit the investment even if we have to bear some losses. This is perfectly normal. Even successful investors like Warren Buffet have made mistakes and admitted to it.
In 1993, Warren Buffett purchased Dexter Shoe Co. for $433 million. In his 2007 letter to shareholders, Buffett explained the inferior decision, admitting it cost investors $3.5 billion.
In Warren Buffett’s words to shareholders “To date, Dexter is the worst deal that I’ve made. But I’ll make more mistakes in the future — you can bet on that”.
It may be impossible to spot early and invest in every business that could become the next Page Industries, Maruti or MRF. But it makes no sense to regret about it.
Here again, I would like to give the example of Warren Buffett. At the 2017 Berkshire Hathaway annual shareholders meeting, Warren Buffett told investors he made a mistake by not purchasing shares of Google at an initial stage when it was available at a low valuation, despite the fact that one of his own group company, Geico was paying them for leads.
So you see missing out on an investment opportunity too is perfectly normal and completely acceptable. What is not, is not learning from the mistake and committing it time and again.
I am sure you know how buying quality businesses and holding it for the long term is one of the most effective ways to create wealth. However, at times when we say long run, the real holding period could go even beyond 4 to 5 years which usually investors consider as the long term.
When someone asked Warren Buffet about how long one should hold a stock, he replied: “Our favorite holding period is forever.” According to him if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.
There are many unspoken realities of investing. We have tried to list few of the most important ones here. Hope you will keep these in mind in your investment journey. Remember only those investors who understand unspoken realities of investing and accept it are the ones who become successful in investing!
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