Professional Equity Investing
Having seen so many amateurs and professionals investing in equities (not talking about traders), here are some big differences.
1. Averaging means ignoring market information: Many people average in a single scrip and this can be dangerous. Examples like Silverline, Shaan Interval, Idbi bank, Moschip, Crest Animation, ..are just too many to be ignored. Yes you thought it was a good company, but YOU are ignoring all the data saying …’hey this company is bad’ or failing.
2. Professional traders – i know many of them – have a fantastic amount of discipline. I know a chartist who has NO MONEY INVESTED IN THE MARKETS – he says even holding a small position creates bias. He invests only in mutual funds (through his brother, on a SIP basis) and HAS NO CLUE about the portfolio of the fund scheme. The last time I met him he had earned Rs. 15L as fees from a stock broker for giving calls on the broader indices. Not bad for a months job, eh?
3. Professional Investors invest ONLY in 20-30 companies ALL THEIR LIVES: Unless of course they are so big that they run the business of asset management.
4. Good professional investors (and I do not mean fund managers, but people who make a living with their investing and trading skills) have a fantastic ability to cut the noise, straight to the news. I know of investors who will go to an annual general meeting and not ask any questions – but come back and buy more or sell. One such investor knows more about a company than its CFO – the details having come from a competitor.
5. Professional Investors commission research reports: For them the mass media is a distraction, so mass media is just to know where is the hysteria. In fact there is a professional investor who uses the mass hysteria to get RID of some of his shares, but NEVER buy the share 🙁
pattu
Every time I think of investing in direct equity I search for your new year resolutions post, remind myself of
`’never invest in direct equity if you cant or wont do the research’
and move on. Unless one has the discipline to read, research and aim to become a value investor, direct equity investing is not worth the stress.
I see many retail investors who blog on value investing practice what you have listed.
subra
Even when you see OBVIOUS value scrips – you need to know how the value will be realised. For e.g. in Mumbai there is a company called Cable Corporation – and they have tons of land. However if you CANNOT influence the state government about what to do with that land, if you do not KNOW whether the management will HONESTLY bring the profits to the company, whether the company will decide to DEVELOP the land and take the risk, whether the labor unions will play dirty…..YOU REALLY DO NOT HAVE A VALUE UNLOCK answer….so investing in such a company is not STRATEGIC. It is HOPE.
And we all know that hope and luck are not good STRATEGIES, right?
subra
one way Pattu is to follow the portfolios of Templeton India Growth fund and I Pru Discovery schemes.
Short list 10 companies – and do research on them. Then buy one or two in a year. Otherwise Index or choose a good MF and be there. Build your portfolio over 8-9 years, there is no hurry
pattu
Thanks. I will try this. I do have a reasonably diversified MF portfolio. Just that from time to time I wonder about getting into stocks. The jargon and the research involved scares me off. I will give this a shot.
Nishanth
“There is no hurry ” – True words , portfolio building and maintenance are a lifelong process. Too bad the same people who exercise patience and discipline with their property and gold portfolios can’t do exactly the same in the equity markets.
Santhipriya Nair
thanks subra for the great advices and information you put on your blog. i always get to learn something new by reading your posts. i am a beginner in investing and trying to follow your advice for researching about the stocks to invest in.
Sriraksha Financial Planning Services
There is a large segment of people who regularly invest a small fraction in equities just for the thrills.. or because it is more exciting and eventful than their monotonous work lives:).Apart from the section of professionals who actually do serious research, invest and track their portfolio, I feel most of the “general public” investors do not have the time,patience or the real know-how and rely on tips and advices given by analysts in finance newpapers and business TV channels for their investment decisions.