X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Don't invest if you can't do this - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jul 8, 2009

    Don't invest if you can't do this

    As Robert Hagstrom described in 'The Warren Buffett Way', there are few aspects of human existence that are more emotion-laden than our relationship with money. So while much of this world revolves around money and most of us are owned by money...we are never satisfied with what we have. In fact, money, like the law, is a cruel taskmaster - demanding all our effort, consuming our thoughts and stealing our dreams.

    And the two emotions that drive our money-related decisions most profoundly are 'fear' and 'greed'. Motivated by fear or greed, or both, we frequently buy or sell stocks at foolish prices, far above or below a company's intrinsic value.

    To put it in simple words, our emotions have a more pronounced impact on stock prices than a company's fundamentals. And you must agree to the fact that much of what drives our decision about stock purchases can be explained by our own behaviour.

    And since the market is, by definition, the collective decisions made by stock purchasers like us, it is not an exaggeration to say that our psychology pushes and pulls the entire market.

    Data Source: Trend

    Yes you read that right - markets are but an extension of our collective psychologies.

    So if you hope to participate profitably in the market, you must allow for the impact of emotion.

    And how can you do that?

    1. By keeping your own emotions under control as much as possible, and...
    2. By being alert for those times when other investors' emotion-driven decisions present you with a golden opportunity.

    See, we might make it sound very easy when we say that you just need to control your emotions while making stock investment decisions. But is that really so easy when you put it to actions? Not at all, we must say!

    We humans are generally not hard-wired to practice discipline in our dealings with money. If we were, the market would have been a dry place with no real opportunities to make tremendous wealth.

    Whatever the experts on business channels say, you need to realise that the market is a highly inefficient place to be in. Stocks that you buy and sell are the same that are sold and bought by someone else. In this case, either you have the correct information about the stock and are subsequently buying or selling it, or the other guy is better placed than you to be selling or buying the same stock.

    In simple words, what we mean to say is that when the market provides us with the right kind of opportunities, rather than acting on our own discretion, judgement, and knowledge, we often tend to do what others are doing.

    We tend to follow the herd...and so do our stock market returns...and even in the long run, we end up earning just as much everyone else has earned.

    So where is the advantage?
    How do you find and act upon those wealth creation opportunities that others will realise later and by then you would have made your buck...safely?

    The answer, we must tell you again, lies in you having full control of your emotions and investing in the right kind of stocks with utmost discipline.

    At Equitymaster, we try and do exactly this while looking for long term opportunities for our subscribers.

    We keep emotions out of the picture while researching companies and valuing their stocks.

    And the way we do it by following the sound philosophies of investing legends like Warren Buffett and Benjamin Graham as closely as possible. We though try to suit these learnings to the Indian market conditions, where company disclosures are not so good, and the markets are not so deep and broad for us to find 'world-class' companies.

    As such, we believe in recommending 'good' companies when their stocks are available at attractive valuations as compared to their intrinsic values. Thus, when intrinsic values of fundamentally sound companies do not change but their stock prices come off by 10%-12%, there is only one thing you as an investor should do - take advantage of the irrationality that is prevalent.

    After all, as Warren Buffett would confirm, great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause stocks to be misappraised.

     

     

    Equitymaster requests your view! Post a comment on "Don't invest if you can't do this". Click here!

    1 Responses to "Don't invest if you can't do this"

    Dalip Singh

    Jul 11, 2009

    How correct!How very Correctly put.This is what I have done in the past and regretted,I played with emotions and look I am down half my investment of over inr 5 lacs.I buy when the stocks start to rise and sell in panic,though I have not sold all but am going to average once the market starts to fall further as I am left with no choice,can't sell at lower price than what I bought them, and have been waiting ever since the time when I entered the markets first timer when sensex was 21000+But did not sell all like others,any which way I have some but some good company's stocks which if the sensex corrects further will buy and keep in order to average,as I am an optimistic man and what I fathom that India will shine like never before,as the fruits of the budget will not be seen overnight but in a year's time there will be some amount of recovery in the US and our budget will show the true positive picture then,I may be wrong!!!But definitely an Optimist.

    Like 
      
    Equitymaster requests your view! Post a comment on "Don't invest if you can't do this". Click here!
     

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Will They Haul Off Trump's Statue, Too? (Vivek Kaul's Diary)

    Aug 16, 2017

    All across the country, the old gods become devils. New, gluten-free gods take their places...

    This Company Beat the Business World's 'Three Killer Cs' (The 5 Minute Wrapup)

    Aug 16, 2017

    And what it has in common with beating the stock market too.

    5 Steps To Become Financially Independent (Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Let's Hope This Correction Continues (The 5 Minute Wrapup)

    Aug 14, 2017

    Last week's correction is making a number of Super Investor stocks look a lot more attractive...

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE SENSEX


    Aug 16, 2017 (Close)

    MARKET STATS