Please read the earlier 3 posts also…it tells you what all you need to know about equity investing for you to start investing….

One very important learning in equity is to know how to compare. In life how much money you have is a function of how well you compare.

Comparing direct equity investing vs using a mutual fund.

Mutual fund – passive vs active

Mutual fund active: Direct or with the help of an adviser

Also in life the amount of portfolio you have is a function of

a) what shares you bought and b) what shares you did not buy.

If you chose to sell off LMW at 1800 because you have bought it at 900, it was perhaps the WORST profits that you booked! Like I sold Infosys at 700 because I had bought it 45 days earlier at Rs. 300.

It is also the function of not having sold many other shares / held for 25 years – MRF, Hero Honda, Bajaj Auto, TVS Suzuki,…..the list of shares that i sold is long too.

Whether it is momentum trading or long term deep value investing, it is all analysis vs expectation management. Fundamental analysis captures the essence of what the accounts of the company tell you. Expectations is about ‘thinking’ how the company will use its resources. It is also about know how the value (potential) is realized and the value unlocked. Results are announced every quarter. It is knowing how to compare Expectations vs Results. I can assure you it is not easy. You could have bought Eicher Motors for its truck operations, but it could have made money selling motorcycles.

Many investors make the mistake of managing the fundamentals vs expectations. When the fundamentals are GOOD (already reported) they want to buy and when the expectations are belied (POOR results announced) they want to sell. This is wrong. Look at Maruti (all Good) and Tata Motors (all BAD). It is the reverse that you should be doing!! This is just an example. None of the fundamentals of TaMo are bad – except the results. So if you see that the next quarter is bad, you may still have to hold, rather than sell! And look at the PE – makes Maruti a great sell and TaMO a good buy (caveat I may or may not have a position in both these shares).

Market is not about finding the best share. It is about finding the most mis-priced share. For example Hdfc bank has awesome fundamentals, good management, good prospects. It is not about knowing that. You need to realize that its value may be fully captured. However, Bank of Baroda may be much better buy for a trader – because it may be mis-priced and maybe a better buy. It is not about betting on the best horse with the best odds. It is about betting on the horse whose winning is not yet discounted. Its about making money, not researching to arrive at the best company.

If you are looking at acquiring a badly run company, it is not sensible to say “It could turn around like Satyam”. You have to see how many VOLUNTARY acquisitions work well. The probability is very low. Satyam is / was the EXCEPTION. Pricing has to be based on probability, not wrong analogies.

You also need to understand causality. You need to know what caused the success of a particular action. Demonetization put a lot of money in the hands of the banking system. As a banker my most important job was to push that amount OUT of the savings bank account. It was imperative because I could not have found ENOUGH investing opportunities.

So banks pushed really hard to sell mutual funds and ULIP – get good commissions, take less risk, and push the money out.

However, we, the Mutual fund industry attribute all this to the #Mutualfundssahihai marketing initiative couched as an education platform!