I began over 21 years ago.
And during these years, I’ve made all kinds of investing mistakes.
Here are seven of the worst:
“What type of stocks to buy?”
I fell in love with what Peter Lynch, Warren Buffett and Ben Graham have said.
But, I stopped with them. Didn’t look any further.
And that was a mistake.
Because, I missed out on many useful tips from other investors.
- I had no idea about market cycles.
Example: In 2013, I bought SAIL. But used a buy-and-hold strategy. Which was totally the wrong strategy for the stock.1To be clear, Peter Lynch does cover cyclical stocks in One Up On Wall Street, the book I’d read. I guess, I didn’t study it diligently.
- I had no idea when to average down, and when not to.
Example: In 2012, I bought and averaged down BHEL, thinking it’s a great stock, merely going through some temporary trouble. Didn’t realize it was in a structural decline.
Follow modern value investors too. Read their books, articles, and letters. And listen to their interviews and talks.4Three excellent resources are: Ben Graham Centre for Value Investing at Ivey Business School, Investors at Google Talks, and CFA Society India.
Build your arsenal of value investing strategies.
“Where to find those stocks?”
I always began my search with high-quality companies. And never with low price.
I kept hitting dead ends.
Because, between 2010-2020, my favorite high-quality stocks rarely fell below my price trigger.
As a small investor, you should try to find stocks, which are cheap. And then, check for adequate (not stellar) quality.
Not the other way.
The rare occasion to begin with high quality, is when there’s a market dislocation (fancy words for stock market crash).
- 1. Didn’t start investing earlier, with meaningful sums. Was a paper tiger.
- 2. Many sectors are blind spots: IT, banking, pharma, chemicals, etc. Didn’t sort them out.
- 1. I never really found out what I was good at, and bad at.
- 2. Never could touch stocks from the blind spots.
- 1. Have skin in the game. Invest actual money. You’ll learn even more about yourself, than about your stocks.
- 2. Also, spend a few days on each blind spot sector. Read up on it. Take notes.
“When to buy?”
Did not specifically pay attention to catalysts.
I could not predict the twists in the tale of many stocks.
- 1. Listen to a lot of earnings calls.
- 2. Track the supply side of asset heavy sectors like metals, energy, banks, etc.
- 3. Track latest corporate events.
- 4. Do a deep-dive on companies in crisis.
- 5. Study user feedback for consumer facing companies.
“When you buy?”
Did too much spreadsheets.
Focus on adequate value. Not on exact valuation.
6. Asset allocation
“How much to buy?”
I did not know how important cycles are. And did not pay sufficient attention to them.
I missed many stocks from sectors which experienced upswings.
Pay attention when several stocks from 1 particular sector are going through pain.
- Gold just sits there. Business produces cash flow. Choose business.5 1. Fortune magazine, 2010, Oct, 19, Warren Buffett: Forget gold, buy stocks | 2. Launch of Berkshire insurance in India, 2011, YouTube video, 10:48
|Asset class||Produces||A bet on||Preference|
|Gold||Nothing||Price of the asset||No|
|Business||Cash flow||Productivity of the asset||Yes|
7. Position sizing
“How much to buy?”
- Disclosure: A few of the stocks mentioned above, might be a part of my portfolio. Kindly assume, my views on them, are biased.
- Disclaimer: This blog post is for educational purposes only. It’s not a research recommendation, or investment advice. Kindly read the full disclaimer.
|↑1||To be clear, Peter Lynch does cover cyclical stocks in One Up On Wall Street, the book I’d read. I guess, I didn’t study it diligently.|
|↑2||Sankaran Naren’s interview with Edelweiss Wealth Management: A Contrarion’s Checklist|
|↑3||Although, he wrote When Do You Average Down, 5 years after my unfortunate buy-decision.|
|↑4||Three excellent resources are: Ben Graham Centre for Value Investing at Ivey Business School, Investors at Google Talks, and CFA Society India.|
|↑5||1. Fortune magazine, 2010, Oct, 19, Warren Buffett: Forget gold, buy stocks | 2. Launch of Berkshire insurance in India, 2011, YouTube video, 10:48|