I Promise This Will Completely Change How You Compete in the Game of Investing

Apr 30, 2018

Ankit Shah, Research analyst

I have a question for you today.

As an investor, what's your greatest dream?

You want to make big money, right?

But that's not all.

You want to achieve the highest returns in the shortest time.

And in the safest way.

To sum it up...

Your Dream = Highest Return + Shortest Time + Lowest Risk

That's why you're reading this.

You want your stocks to perform the best.

A part of you even secretly wishes that Mr Market will pay special attention to your stocks and reward you handsomely.

But in doing so, you may risk ignoring the not-so-flattering reality of the stock markets.

Your Dream of Quick Riches = Every Investor's Dream

The reality is that there are millions of fellow investors and traders starting each day with the same dreams and fantasies of quick riches.

I'll give you a precise number.

The BSE website says that there over 3.87 crore registered investors in India.

Every investor is out there to grab a piece of the great Indian bull story.

Imagine the consequences when every investor and trader is trying to do that... day in and day out.

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What's the playing field going to look like?

Intensely competitive and chaotic...

Imagine a crowd of people scrambling and fighting to pick a few randomly tossed Rs 2000 notes.

Imagine a Mumbai local at peak hours.

Imagine the massive queues at Lalbaugcha Raja during the Ganpati festival.

That's the kind of competition you're facing, dear investor.

In today's Chart of the Day, I will show you how this competition is getting more and more intense.

But don't worry...

I will also show you a secret pathway to outwit your fellow investors without even fighting them. (Some of the most successful investors use this secret pathway to great riches.)

Before I do, I'd like to share some patterns and traits I notice in my life.

As a school-going kid, I loved participating in sports and activities.

But when I look back now, I notice one interesting pattern about the sports and games I played.

I never ventured to play football, or basketball, or hockey.

When some of my classmates would urge me to join in, I'd decline jokingly, "I simply don't see the point in 10-20 people chasing after one ball. Why can't each one have a ball to himself?"

The idea of a mob scrambling for a ball didn't excite me at all.

I preferred playing chess and lawn tennis.

Even as a grown-up, I'm not much different.

For instance, when I travel, I inevitably find myself visiting off-beat destinations during low seasons. It's cheaper and nicer because I don't have to compete with the crowds.

When I watch movies, I prefer the morning shows. Again, cheaper and less crowded.

While I see my friends going through the rat race so that someday they can afford to buy a small apartment in a crazy city like Mumbai, I simply choose to stay away from the race. And instead, I spend much of my time in the quiet, green environs of the countryside, hoping someday to buy a piece of land.

I simply don't like to go where the odds are not in my favour.

This pattern encapsulates all aspects of my life. Even investing.

I prefer the investing game where there is least competition.

How do you find the secret pathway to that place of least competition in the stock markets?

Let's revisit the 'dream' equation I discussed at the beginning.

Your Dream = Highest Return + Shortest Time + Lowest Risk

So, there are three variables in the game of investing: Return, Time, and Risk.

Given the intense competition among investors, it is never possible to have all three variables in your favour.

As such, each investor is compelled to compromise on at least one variable.

If you want quick riches, you'd have to take significantly higher risk than you prefer.

If you want to assume lower risk, then you would have to be satisfied with lower returns.

So, what should you do if you want to have high returns with low risk?

The secret is here...

High Returns + Low Risk → Expand Your Time Horizon

This may sound like simple common sense. But tell you what, common sense is not so widely practiced in the game of investing (and thank god for that).

Most investors don't have the patience to wait too long. They want quick returns. They want their stocks to start ascending higher the moment they buy them.

Even many institutional investors tend to be under immense pressure (Warren Buffett calls it the 'institutional imperative') to match up with their peers and benchmarks on quarterly and annual basis.

So, as the investment horizon increases the intensity of competition decreases.

Over long-term horizons, the volatility and the riskiness of equities also diminishes.

This is the secret pathway that some of the most successful investors use.

Would you also like the least crowded and least competitive path to big money?

The choice is in your hands.

Chart of the Day

The Phenomenal Rise of the Retail Indian Investor

The game of investing is getting intensely competitive.

Domestic investors are making a beeline to invest in Indian equities like never before.

As you can see, the chart shows tepid investor participation in the Indian stock markets until FY14. But starting from the financial year 2014-15 (FY15), there's a paradigm shift in investments by mutual funds.

Some of the key drivers for this shift has been the relatively poor performance of other asset classes such as gold and real estate. The downcycle in interest rates made fixed deposits unattractive.

Then, the year 2017-18 (FY18) saw another massive leap in net investments by mutual funds. This was, to quite an extent, triggered by the Narendra Modi government's demonetisation drive and then further propelled by the bull rally in the stock markets.

With stocks gaining acceptance among Indian savers, this trend is likely to sustain.

Happy Investing,
Ankit Shah
Ankit Shah (Research Analyst)
Editor, Equitymaster Insider

PS: Have you heard about the exclusive Bombay Investing Society? It's a society that has given its members stock recommendations with a success rate of more than 70%. This exclusive society is now accepting new members. You too can join! Just click here...

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