Have you acquired the '5 CRORE WALA' mindset yet?
(Apr 6, 2015)
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In this issue:
» Are you thinking too much about short term economic outcomes?
» How did the Sensex perform in FY15?
» How did the markets close today?
» An inspiring quote by Charlie Munger...
» ...and more!
'Kya news hai? Kya lagta hai market kahan jayega? Market su lagey chhey? Where do you think the markets are headed?'
The languages may differ, but being an equity research analyst, people often bombard me and my fellow team members with this same question a zillion times over, even when we are on holiday...
And it happened again a couple of days ago...
It was a nice long weekend. On Saturday, I went down for an evening walk at Shivaji Park. Just when I was about to finish my second round, I saw a familiar-looking face coming in my direction. I recognized the middle-aged man was an acquaintance I had met a few times at some social gatherings. I smiled and said 'hello'. I hoped secretly that it would end there.
This gentleman was in a very jolly mood. He asked me about my family, my work and my interests... We talked for some time. And then, at last, he got down to business...
"To beta kya lagta hai market aapko?" he said with an expectant smile.
I reciprocated the smile and said, "Sorry uncle, I don't know."
To this he gave a jocular laugh and said, "You are an Analyst. You study the markets, right? Aapko to pata hi hoga..."
"Uncle, it is easy to bluff answers and make up reasonable-sounding stories. But to be frank, I really don't know," I said in a sincere tone.
He seemed baffled... So I continued, "Over the few years that I have been an analyst I have realized that the markets don't care much about what I think of them. Even the greatest of investors admit that they don't know where the markets are headed. So why waste time trying to outsmart the market when you can actually make a lot of money by following a sound investing process?"
On hearing this, he changed the tone of the conversation and said, "Oh right! You are into fundamentals-based research... Now I see where you come from... I, too, like the fundamentals-based investing style. I am a long term investor."
Then after a moment's pause, he tossed me another question, "So what do you think of the upcoming events - RBI's monetary policy meet and industrial production data (IIP) for February? How do you think these events will impact the markets?"
"Uncle, before I answer your question, tell me one thing. How much money do you really aim to make in the stock markets?"
He giggled a bit. Then sheepishly he said, "A few crores won't be bad..."
To this I replied, "Alright. Let's say you want to have a stock portfolio worth Rs 5 crores over the next 5-10 years. How are you going to achieve that? Do you have a road map for that? What investing process do you follow?"
He fumbled a bit for a coherent answer.
I continued, "Uncle, if your investing goal is to make 5 cr and if you say that you are a long term investor, then why are you wasting time asking 5k worth questions? The markets will always move a few hundred points here and there every time some data is released or some policy is announced. I want to understand how is that going to make you super rich..."
From his look I could see he was a bit taken aback. But he did seem to be following my point of view. I indulged myself a bit more...
"Uncle, I don't mean to offend you. But I want to tell you one very important thing. I see this same unproductive thinking pattern in many investors I come across. They all say they are long term investors. They all desire to be super wealthy. But their thought process seldom seems to match their ambitions. For want of a better term, I like to call it the newspaper mindset. They tend to consume a lot of information. They read the newspapers. They watch business news channels. They are loaded with information that can feed hours of coffee-table conversations. They have all the information... But I am sorry to say they have zero insight. Why? This is because they consume information as if it were just a form of distraction, a way to pass time, a way to make conversations, a way to look intelligent and seek other people's approval. But these are all empty talks... They don't take you anywhere... They don't make you rich."
Realizing that I may have said things a bit too bluntly I apologized, "I'm really sorry, uncle, if what I just said offended you. But trust me, if you let go of these unproductive thinking patterns and you start asking the real, big picture questions, you will be a successful investor."
To this, he nodded affirmatively.
To lighten things up I smiled and asked him, "You still want to know what I think about the IIP data...?"
"Oh no, no..." He quickly interrupted before I could complete my sentence.
Then as we were about to part ways, he shook my hand firmly, gave a gentle pat on my back and invited me over for dinner later on. So I guess it was a happy ending to my evening walk...
Dear readers, I would like to ask you the same question. If you want to make 5 crores in stocks over the next 5-10 years, what are the big picture questions that you must be asking today? Also, what are the trivial, short term factors that you will stop bothering about? Let us know your comments or share your views in the Equitymaster Club.
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Just to extend our point further, we want to show you why long term investing makes complete sense. Look at the chart below. It shows how the BSE-Sensex performed during each of the financial years during the last decade. As you can see, the stock market returns are very lumpy in nature. There are some years when the returns are supernormal. Then there are also a couple of years when the returns are negative. However, let's say you made an investment in a benchmark index fund at the start of FY06 and remained invested till the end of FY15, your returns at the end of the 10-year period would be 331%. That means a compounded annual return of nearly 16%. So to achieve this kind of return all you had to do was to invest in a passive index fund and stay invested for 10 years. Probably, if you invest wisely based on your own stock picking approach over a long time period, you could earn even higher returns. But the key here is to think long term, to think big.
FY15 Sensex Returns Highest In Five Years
After trading nearly flat until noon, the Indian stock markets picked up steam in the second half of the trading session. The BSE-Sensex closed higher by 244 points (+0.86%). The BSE-Midcap and BSE-Smallcap indices also closed higher by 1.1% and 1.4% respectively. The sectors leading the gains were healthcare, realty and consumer durables.
"Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime.
|| Today's investing mantra
A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past." - Charlie Munger
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|This edition of The 5 Minute WrapUp is authored by Ankit Shah and Richa Agarwal.
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