A few days back on a flight to my hometown, I was reading a book on Warren Buffett – Tap Dancing To Work. The person sitting next to me got interested and asked me whether the old man on cover was the well known investor Buffett. This question was the start of our small but interesting conversation about stock markets in general and my investment philosophy in particular.
Now this person was far more talkative than a few which I know of. And hence for 90% of the 2 hour flight, I ended up listening to him. 🙂
It became quite clear that he had burned his fingers (& money) in 2000 and again in 2008 Crisis. He also seemed to be having a tough time believing in market’s potential to make people rich. Anyways…he told me about a lot of stocks which I had not heard of. And unsurprisingly enough, these stocks had brought down his portfolio substantially in past.
But the interesting part came when he asked me about what I was buying in current markets, which are regularly making new life-time highs. I told him that apart from few stocks which I purchase regularly (almost irrespective of prices & for really long term), I am not buying anything.
He was surprised as he thought that since everybody else is buying…and if I considered myself to be an expert investor (since I was reading a book on Warren Buffett – ;p ), I should also be buying stocks and finding potential multibaggers.
I told him that I am not looking at finding the next multibagger and am pretty satisfied with my mutual fund SIPs and few stocks which I am accumulating in my core portfolio. He unsurprisingly was not impressed with my reply.
Then he asked me what I did in 2008-2009 when markets crashed. And whether I was able to get out of markets in time? I told him that since I had just started earning during those years and still did not have significant sums in markets, I never cared about getting out of markets at that time. I was rather more concerned about getting in when share prices were falling like anything and there were plenty of no-brainer deals available if one looked carefully.
This ticked him off somewhere deep. He said that:
“This is not how an investor operates. You should be able to get out before a market starts to fall. And start buying when markets are ‘supposed’ to rise for next few years. You seem to have double standards in stock markets….you try to buy when no one is buying and try not to buy when everyone else is buying.”
I told him clearly that I don’t know what a typical investor, or for that matter an expert investor should do or shouldn’t do.
But I do what is in accordance with my personality and risk appetite. I also said that his comment of ‘markets are supposed to rise’ was not sensible as markets are not controlled by anyone and cannot be predicted. And that for a real long term investor, it doesn’t make much sense to time the markets.
If others are comfortable buying in rising markets then so be it. I am not and I will not go with the trend.
There was nothing noteworthy in rest of our conversation as this person realized that I could not be convinced and I realized that its not easy to convince someone about the benefits of long term investing when that ‘someone’ has lost a lot of money in markets.
Thankfully for me, pilot’s announcement of approaching destination came as a way out of the discussion, where for the first time I was accused of having double standards and I happily accepted it. 🙂
I believe most investors have such internal contradictions in such philosophies…”value” investors investing in stocks with 40 PE, investing in direct equities monthly irrespective of the price , timing the market at times…I too am guilty of the same 🙂
Always read a book with cover in a public place !! And that too if the book evokes strong reactions like investment, religion, philosophy …
He must be a broker…. 🙂
Thats interesting 🙂 Will make note of this idea ;p
🙂
He would have made a good one ;p
But he was not…
I am buying ONGC and NMDC now. They pay good dividends and I think they are good investments for the long term. But, when I see other stocks making new life-time highs and these are not, I wonder if my stock selection is correct.
We have advice and solutions for all problems. Bas problem kisi dusre ka hona chahiye! 🙂
i like to ask what could be your strategy particularly for your sizable investments in equity mfs if mid 2007-start 2008 market euphoria repeats now or in future .what is your criteria to decide the market stage as euphoria?
Ha ha…that was a real gem of a statement 🙂
everything will eventually rise in a bull market.. a rising tide lifts all boats, as they say. But I have developed severe distaste of PSU stocks and this through experience of being in the market… All the best to you though.
ROFL…simply hilarious….poor guy.
most people think one can predict future and act accordingly, I wonder why they cant see this simple truth?
Guess its really important to have common sense….irrespective of whether one is operating in stock markets or normal life 🙂
Broadly putting it…I wouldnt touch my SIPs, i.e. I would continue to invest….But I would also not increase my SIP contributions and instead start parking the funds in RDs or similar instruments. Once the froth of market clears….as it always does after a round of irrational exuberance, I will deploy the funds accumulated in lump sums in MFs as well as direct stocks where I consider prices are much below the value offered…
My logic of not selling our MFs even when 2007 like situation comes is that I may or may not be able to correctly identify whether markets are about to go down or not…so I would not disturb the accumulation.
thank you for your reply and wish you all the best on 4th Anniversary of
'STABLE INVESTOR' . i think , for direct equity investment with
research ( say for 'moat companies' ,) where you have clear ideas about
their intrinsic value ,future growth etc. for limited no. of companies ,
it is o.k. , but where you hold 3-4 equity mutual funds having more
than 100 companies' shares , and mutual funds have their limitations
(they must hold @65% in equity) , it is better to come out in euphoria
condition of market. these are my thoughts after haunting experience of
that phase.