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What is the Key to Successful Investing?
Tue, 5 Jan Pre-Open

Stock markets in China hogged headlines yesterday. Markets there plummeted 7% followed by a major selloff. Finally, trading had to be suspended. And the effects were widespread. The crash sparked a selloff for many global equity markets. Indian markets were no different. Taking cues from the China's Shanghai Composite Index, the Sensex closed lower by 538 points.

Events like this, almost always manage to get a reaction from investors. And this short term focus often leaves them with losses.

There are different opinions that investors have about the direction of Indian markets in 2016. If only, answer to the question was that simple. That's because there are no sure bets in the world of investing. However, one can always keep the odds in favour.

Take the cases of legendary investors like Warren Buffett or Peter Lynch. They have earned spectacular returns over the years. On the other hand, there is a pool of speculators who have burnt hands in stock markets. The latter are mostly the people who get carried away by the short term market sentiments. They increase their bets at the top of the market cycle and are the first to get out at as soon as a correction takes place.

So how can you avoid getting caught with this trend? One of the answers could be Value Investing approach.

You shall follow a systematic stock selection approach. For that, you should thoroughly examine the earnings quality, management quality, make necessary adjustments for macro conditions that may influence earnings but not stay in the future. Once you arrive at an intrinsic value, make sure that you are not overpaying for a stock. You will automatically be confident about your investments and will not get influenced by any random news that could cloud your investment decisions if you follow this approach.

Lastly, one shall keep a checklist for bottom-up approach to investing. The same focuses on the analysis of individual companies rather than the economy as a whole.

Once you choose a solid investing philosophy and have guts to stick to it, you can hope to earn good returns overtime without bothering too much about the economic data and the deluge of information that is thrown every day. As Charlie Munger has said, "All intelligent investing is value investing - to acquire more than you are paying for. Investing is where you find a few great companies and then sit on your ass."

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Mar 21, 2018 (Close)