‘Patience is a virtue’, more so in the world of investing! Patiently waiting for bargains to come your way, is often the best strategy an investor can follow. We are constantly dealing with different market conditions. It is important for us to realize the investment environment we are currently in and act accordingly. There may be times when greed and fear are balanced. At such times, everything will be fairly priced. And thus markets may not present great buying opportunities at bargain prices or selling at irrationally high prices. And at such times, doing nothing at all is the best option we have. However, this is easier said than done. Let me give you an oft mentioned example. In soccer penalty kicks, goalkeepers choose their action before they can clearly observe the kick direction. (The ball takes 0.2 seconds to reach the goal after it is kicked, giving the keeper […]Read more
In the fifth article of our Series on ‘The Most Important Thing’, we show you why if a certain investment is too good to be true, it probably is… Time and time again, the post-mortems of financial debacles include two classic phrases: “It was too good to be true” and “What were they thinking?” Why do we investors keep making such mistakes repeatedly? Because investing is an action undertaken by human beings, most of who are at the mercy of their psyches and emotions. According to Marks, there are four important emotions that govern our behaviour: Greed: The first emotion that serves to undermine investors’ efforts is the desire for money, especially as it transforms into greed. Most people invest to make money. There’s nothing wrong with trying to make money. Indeed, the desire for gain is one of the most important elements in the workings of the market and […]Read more
In the last article, we told you how you should deal with Risk. In this article we will highlight the importance of the awareness of cycles. If you’ve been an investor long enough, you know by now that the one similarity it has to life is that, there are very few sure things. You can be wrong about the value of the company, your assumptions and estimates, sometimes the circumstances may itself change and sometimes even a sure shot event may not occur. However, as Marks points out, there are two things that will always be true in the world of investing: Rule # 1 Most things will prove to be cyclical Rule #2 Some of the greatest opportunities for gain and loss come when other people forget rule number one Sure, we don’t know what will happen in the future, but we can at least be prepared. Very few […]Read more
“Riskier investments provide higher returns. If you want to make more money, the answer is to take more risk.” This is a common but incorrect perception of many investors, more so when the times are euphoric. Because if an investment can be counted on to give reliable returns it simply does not remain risky anymore! Rather the correct statement would be that ‘Riskier investments have to offer the prospect of higher returns in order to attract investors‘. It is true that in investing, risk is unavoidable because it requires us to deal with the future. And one cannot aim to be a successful investor in the long term without assessing risk correctly. The first step consists of understanding it. The second step is recognizing when it’s high. The critical final step is controlling it. Before we attempt to understand risk, we should first define risk. While modern finance theory defines […]Read more
The only way you can make great returns in the market is to ‘Buy Low, Sell High’. Now that’s glaringly obvious, you might say. Well if it is; let me ask you to elaborate on what is actually ‘High’ and what is actually ‘Low’? Most of us do not know the answer to this question.
Providing an answer to this, is the purpose of my second blog of the series on ‘The Most Important Thing’ by Howard Marks.Read more