Why You Shouldn't Set Stock-Picking Goals - The 5 Minute WrapUp by Equitymaster
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Why You Shouldn't Set Stock-Picking Goals

Aug 11, 2016

In this issue:
» Passenger vehicles sales show signs of a pick-up
» Self-driving cars heralding a big sake-up in auto supplier industry
» ...and more!
Rahul Shah, Co-Head of Research

Climbing Mount Everest is certainly one of the toughest journeys in the world. If the treacherous terrains don't get you, the bone-chilling cold will. A few explorers die every year in their quest to scale the world's highest peak.

Fifteen climbers died trying to scale Everest in 1996. Strangely, though, more than half of those deaths, eight to be precise, took place on a single day.

Your biggest enemy on Mount Everest, especially during the last couple thousand feet, is the inclement weather. It can change in a heartbeat. And when it does, you have to turn around and come home, irrespective of how close you are to your goal.

On that fateful day in 1996, however, at least eight climbers were in no mood to follow this advice. And they paid for their defiance with their lives.

Somewhat ironically, seven of the eight actually died on their way back down after reaching the summit. Their fatal mistake was continuing past the turnaround time. While they did make it to the top, the odds of making it back down were slim.

Chris Kayes, who wrote a book about the event, calls this a destructive passion for one's goals. These climbers were possessed by their goal to summit the mountain. The closer they got to the top, the harder it became to turn around.

Destructive passion for goals applies to internal goals as well. The goal seeing ourselves as expert climbers or guides, for example. And the more we are driven by a passion for goals, the more likely we are to cock a snook at things like weather and uncertainty.

Goal setting, it seems, isn't a virtue after all. Does it not get reduced to an uncertainty reducing exercise most of the time rather than help us plan and prepare for the future?

We become so obsessed and invested in our goals that we don't even attempt a course correction when the conditions under which the goals were set change. We tell ourselves that everything is going to be fine as long as we reach our goal. But the truth is an inflexible passion for one's goals could literally kill us.

So how should we approach investing? Should we make a certain number of investments and target 20-25% returns every year? After all, this is what clients want.

Well, investing is subject to a tremendous number of unpredictable outside influences. And therefore, the idea should be to stay flexible.

Your only plan should be to always do your homework and keep some cash handy. This way, you can react to whatever conditions the stock markets throw at you and buy only businesses of good quality and cheap valuations.

Setting pre-defined goals could make you ignore changing market conditions. This approach could prove fatal in the long run. After all, it's not just about reaching the top. It's about reaching the top and getting home safely.

Do you agree? Do you believe in not setting any goals and staying flexible? Let us know your comments or share your views in the Equitymaster Club.

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02:40 Chart of the day

The good monsoons and an increase in salaries due to implementation of the Seventh Pay Commission recommendations finally seem to be having an effect. On the passenger vehicle industry, at least.

The month of July has seen sales of passenger vehicles (cars, utility vehicles and vans) zoom 16.8% higher year-on-year. For one, this the 13th consecutive month in a row that they've seen an increase. Second, as today's chart shows, this is a great number considering that car sales have all but floundered for the last five whole fiscals. Now that's a long time for car sales to go nowhere.

Industry body Society of Indian Automobile Manufacturers (SIAM) has now said that it is likely to revise its previous forecast of 6% to 8% growth for the year.

Passenger Vehicle Sales Finally Taking-off?


Talking of trends in the auto sector, there's another trend playing out these days. As per a Bloomberg report, the self-driving car revolution has set off the biggest two years of mergers and acquisitions in the auto ancillary industry in a decade.

As per the report, the combined value of auto supplier deals in 2015 and 2016 was US$74.4 billion. Each of those years far exceeds the US$17.7 billion annual average of the previous decade. Transactions of upwards of US$500 million also skyrocketed to 18 last year. That's triple that of the previous decade. And there's already been 11 such deals so far in 2016.

Auto parts makers seem to be in a struggle to keep up with the pace of technological transformation that self-driving cars are bringing. This shift means radical change in the many different parts that go into an automobile. And the speed of change means that many of them, so far used to a more 'mechanical' way of life, are finding themselves inept at adapting to the demands self-driving cars place on them.

Seems like the distant future in the auto industry is not so distant afterall. And these are precisely the kind of changes that bring in structural shake-ups to an industry. Investor's taking a long term view on businesses in this industry would do well to keep close track of the developments here.


The Indian stock markets were seeing a fair bit of volatility today on the back of mixed sentiments across index heavyweights. At the time of writing, the BSE-Sensex was trading up by around 7 points. Gains were largely seen in FMCG stocks, while metals and realty stocks were seeing losses.

04:56 Investment mantra of the day

"Cash combined with courage in a time of crisis is priceless." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Rahul Shah (Research Analyst).

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1 Responses to "Why You Shouldn't Set Stock-Picking Goals"

ramesh b

Aug 13, 2016

excellent, dear! many times,your team gives fantastic/very valuable views,which applies to life over and above stocks!! salute you/your team....pl keep it up...!! with best wishes....

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