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How would your investing diary read?

Apr 22, 2015

In this issue:
» Baby steps to getting started on your own
» What's in store for India 15 years from now?
» Don't miss this inspiring quote by Charlie Munger
» ...and more!

As the editor of Equitymaster's Secrets, an online course on the style of value investing practiced at Equitymaster, I sent across this note to the course participants a few days back. Rahul Shah and Tanushree were of the view that given its universal appeal to every investor, the note should be made available to every reader of The 5 Minute Wrapup. So for the very first time, I am sharing a note meant exclusively for Equitymaster's Secrets participants with all our readers.

To give you a gist about what is about to follow, the participants of Equitymaster's Secrets have had access to videos on topics such as understanding business models and economic moats, financial statement analysis, evaluating management quality, valuation methods, behavioral finance, among others... We are now slowly prodding them to get started with the practical application...

So here is the note that we sent them...

If you have been going through the course lessons, you may now want to start applying what you have learnt. Yes, it is important that you start putting into practice whatever you are learning.

You may sometimes feel resistance that you are probably still not fully ready to invest on your own, that there is still a lot to understand and master, and that you'd rather prefer someone else to do the thinking on your behalf until you master the game. This is fair. But the fact is that in the stock markets you will always remain a student.

You will never have your 'Buddha' moment when you will feel that you have 'arrived'. Warren Buffett and Charlie Munger have been highly successful at investing because they have been life-long students. And they continue to be so till date. It is not that they don't make mistakes anymore. They still do. But they learn quickly from their mistakes. And they make sure that their hits are greater and bigger than the misses.

If you have some investing experience then you would know this... But let us remind you again that stock market investing is a very practical game. Rest assured that you will make many mistakes, just as you have done in the past. However, what will differentiate you from others is how you deal with your mistakes.

And please don't misunderstand us. By starting on your own, we don't mean you simply go out there, pick a stock and bet your money on it. What we would like you to do is to start investing based on your own personal research. Yes, your own research. Not based on other people's tips, opinions and convictions. This does not mean you should stop listening to other views. Listen to reason and logic. Filter away the noise and propaganda. And then go on to formulate your own hypothesis.

Today we would like to share with you a very simple idea that could really give you a headstart in your investing journey.

There is one thing common among all great investors... in fact all great thinkers... They are all well-organized inside their heads. It means they are able to screen and process new information very efficiently. They are able to filter away noise and irrelevant distractions. They know where to pay more attention, what things to avoid. They are able to synthesize different ideas smartly and build a coherent big picture.

Now, if you are already thinking that great people are born with great minds and all this mumbo-jumbo is not for you, then just take a deep breath and relax. Rome was not built in a day. Any skill can be developed. All you need is the right approach. And then - practice, practice, and more practice...

Let's start with something very simple... How about writing your personal research diary?

In the beginning, let's keep it very crude and simple. Pick up a book and pen and just scribble your thoughts and ideas about investing, about the markets, anything that may seem important to you in this endeavour. Remember to put the date each time so that when you revisit your writings you would know what you thought at that time and how your thinking evolved over time.

As you get used to this drill, start writing more specific views and ideas - about companies/sectors that you find attractive, about what you think about the markets at the moment. Make notes about your own behavior as well. How do you feel when your stocks shoot up or fall sharply? How do other people's opinions affect your own view? And so on... This intimate dialogue with your own self will make you a good observer and student.

Gradually, you should start writing more elaborate stock thesis. When you plan to buy a stock, write the stock story, write down your key arguments and rationale. Once you get a knack of writing your research diary, you will have many ideas about how you want to go about it. The learnings will be immense, and so will be the returns on your investments.

"Never invest in any idea you can't illustrate with a crayon." - Peter Lynch

Have you written a personal diary ever in your life? How about penning down your stock market research diary? If you were to start writing your diary today, what would be the first few lines? Let us know your comments or share your views in the Equitymaster Club.

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  Chart of the day
After scaling new all-time highs, the Indian stock markets appear to be on a slippery note. And if you tune into business news channels and newspapers, you will be bombarded with a zillion pieces of information every day. And every day you will find yourselves worrying about what's going to happen next? What will be the next big trigger for the markets? And in doing so, you might get tempted to jump in and out of stocks. And most brokers will more than willingly support your impulses. Now the problem is that if you waste too much time, effort and money on petty short term events, you are going to miss out the big picture.

We came across an interesting piece of news today. The US Department of Agriculture has published its latest macroeconomic projections for 2030. As per the estimates, India is set to become the third largest economy in the world in terms of Gross Domestic Product (GDP) by 2030, second only to the US and China. It must be noted that the Indian economy is estimated to have reached US$ 2.1 trillion in FY15, making it the eight largest economy in the world. So it is expected to surpass countries such as Brazil, the UK, France, Germany and Japan to be part of the top three by 2030.

The cherry on the cake is the fact that India will boast of the largest and the youngest workforce in the world in 2030. No wonder all eyes are now set on India. So if you start making investments today keeping a 15 year view, you could be on the path of immense wealth compounding!

How Will India's Economy Rank In 2030?

After treading in the green for the first half of today's trading session, the Indian stock markets caved in post 1 pm. At the time of writing, the BSE-Sensex was down 202 points (-0.73%). The BSE Mid Cap and BSE Small Cap indices were also trading lower by 0.76% and 0.92% respectively. Barring the Healthcare index, all sectoral indices were trading in the red with Information Technology and Auto sectors leading the losses.

 Today's investing mantra
"Obviously if you want to get good at something which is competitive, you have to think about it and practice a lot. You have to keep learning because world keeps changing and competitors keep learning. You have to go to bed wiser than you got up. As you try to master what you are trying to do - people who do that almost never fail utterly. Very few have ever failed with that approach. You may rise slowly, but you are sure to rise." - Charlie Munger

This edition of The 5 Minute WrapUp is authored by Ankit Shah and Richa Agarwal.

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3 Responses to "How would your investing diary read?"

penugonda Prabhakar

Apr 23, 2015

iam Penugonda prabhakar all stocks safe


Mitesh Hariya

Apr 23, 2015

Interesting insight on the way one can take charge of his affairs. I have investing or for that matter may be trading for last 8 years but I have not made handsome returns. Sometimes I feltit was a zero sum game. Before reading this for it was like believing in one's own instinct backed by not so elaborate reasoning. I hope this insight shared today will help me to be more organised and focussed. Thank you to the equity master team.

Like (1)

Satish Pendse

Apr 22, 2015

Compliments to Mr. Ankit Shah for putting forth a great idea of maintaining an investment diary. I agree that putting the thoughts about investing on paper with a date will definitely help us improve our thought clarity and will make us much better "research analysts" for ourselves.

Like (2)
Equitymaster requests your view! Post a comment on "How would your investing diary read?". Click here!