Oct 22, 2012|
Secrets of world's best global stock picker -II
Last week, we brought to you our first article in a series of articles we plan to write about Sir John Templeton's rules for investment success.
This week, we focus on the second of the 16 rules that the investing legend has been so kind to share with the investing community.
Rule # 2: Invest - Don't trade or speculate
First up, Sir Templeton outlined how over the long term, stocks are one's best bet to preserve or even enhance purchasing power. And now, he focuses on helping an investor acquire the correct mindset for successful investing. And that mindset is of being an investor and not a trader or a speculator.
Thus, if a person has to achieve great long term track record, he will have to think from the point of view of an investor. Acting like a trader that buys today and sells tomorrow or a speculator that buys solely on the hopes that he will sell the stock to a greater fool is nothing but highly risky in the long term.
But how exactly does one think like an investor? Well, to think like an investor means thinking long term and thinking like a business owner. In other words, for an investor, the main focus should not be the stock markets. It should not even be the stocks under consideration. Instead, the main focus of an investor's analysis should be the underlying business.
Thus, an investor is only concerned with whether the underlying business has a strong financial position and whether it makes sufficient profits that continue to grow year after year. Besides, an investor should also be concerned about the price at which the shares of the business are available at in the markets.
Aside of these factors, there are hardly any other factors that matter for an investor we believe. Things like stock price volatility or the volumes in the financial markets should be of no concern for the investor.
In the final analysis, what matters is the cultivation of right habits. And once a person does so by focusing solely on the investment aspects and not getting influenced by wide price swings, he would have taken a huge step towards a rewarding career as an investor according to John Templeton and also according to us.
||Rahul Shah (Research Analyst), Managing Editor, Microcap Millionaires has led the team from the front in developing some of our most stringent and rewarding research processes. As per his own admission, the turning point in Rahul's life as a financial analyst came a few years back when he got introduced to the works of Warren Buffett and Charlie Munger. From Buffett, he understood the value of investing in good quality business with powerful moats and strong management teams. Charlie Munger on the other hand inspired him to be a lifelong learner and use mental models in order to arrive at the crux of matters across most disciplines. Rahul firmly believes that in order to be successful at investing, you have to do the big things right and possess a great temperament and a contrarian streak.
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