Now here is something for you to think about. What would happen if the current Prime Minister of India, Mr. Narendra Modi became an investor?
I think he would be a really savvy investor focusing more on growth investing and less on value investing. But irrespective of the type of investor he becomes, there are 2 very important things which he has said, and which can be used in the context of investing.
And those things are the two calls for action given by him:
Now the second one may not seem like something relevant. But please hear me out for some more time.
Don’t worry. It’s your portfolio and you have every right to check it as many times as you want. You can even do it on an hourly basis. No one will stop you. So open your portfolio and have a look at all the stocks you own. And here, I am talking about your investment portfolio and not the trading one. I assume you have two different ones. 🙂
Now you need to find out two things. And I want you to be really honest with yourself.
The first thing is…
To look for stocks, which you bought at really high prices and which are now trading at a fraction of your purchase price.
Found some? Great.
Though I might be generalizing, but chances are high that you are waiting for these to come back (atleast) upto the purchase price levels – after which, you will sell them. Sounds right?
Now this approach is fine if the business behind these stocks is doing great and is a sustainable long-term business. But if the business in itself is not great (like airlines, etc.), or if the management is driven more by ego and less by common sense, and regularly ends up borrowing thousands of crores (and which they in no way can ever pay off), then you are only hurting yourself by waiting.
So for all practical purposes, the probability of share prices of such business, going back to the levels at which you bought them is very low.
So here is where Mr. Modi’s first call-to-action comes.
You need to #Give It Up.
You need to give up the hope that stock of that not-so-great (or honestly speaking, shitty) business will ever come back up. Book your losses. Move on. And invest in better businesses.
Please do it. Because if you don’t do it, you are losing out on investing in far superior businesses which might be available at bargain prices.
Now lets see what the second call-to-action by our PM can do for your portfolio:
Now I will modify that a bit:
(For those who don’t understand Hindi, the word ‘Swachh’ means ‘Clean’ in English)
Once again, I request you to have a look at your portfolio tracker.
Do you see more than 15-20 stocks?
Have you bought most of these in recent times? In less than a year or so?
Then I will assume that you are up-to-date with all the important developments and data about all those 15-20 businesses. Not stock prices. I am talking about the actual businesses.
Am I right in my assumption? Are you really tracking how the business behind the stock is performing?
If you did not answer the previous question with a ‘Yes’, then it means that you are doing something similar to making blind bets in the game of cards.
You are putting your hard-earned money in something which you don’t understand completely. Doesn’t that sound stupid?
If it doesn’t, then best of luck with that guys!! It is a mistake similar to this one.
But if you are buying stocks frequently, even though with an intention to hold them for long term, then you don’t want to create a zoo within your portfolio. Isn’t it? Some great investors like Peter Lynch were able to do it. But please understand the importance of the word ‘great’ in previous sentence and how applicable or non-applicable it is on people like us.
So give your portfolio a clean up. Only keep a manageable number of stocks in your portfolio. And by manageable, I mean a number only those many companies, which you can actually understand and track regularly. And by tracking, I don’t mean tracking price movements. I mean tracking the developments in the industry and company’s own business.
So Go on. #GiveItUp and have a #CleanPortfolio.