But winners are not quitters and thus we need to take lessons from this historic stock market event and become better investors.
There is no harm in making losses in the markets. But a wise person is one who looks back and learns from his mistakes. Thats how we get better with time. Even the biggest of investors have made blunders in their lifetime. But they are successful because they didnt give up and also learnt from their mistakes.I have tried to point of few things we could learn from this financial and stock market crisis.
Two Emotions that rule the stock markets (Fear and Greed) : This was the opinion of Warren Buffett and if we apply this in the current scenario then its most appropriate. In 2007 the stock markets were on a roll. Everything you invested in gave big returns. If every investor looks back at his/her thoughts you will find that we were all being greedy.
There were so many people who made 70-80% gains in a matter of few months in some big positions but the greed for more did not allow to sell the stocks. Then the crash wiped out all gains in a matter of few weeks. So 2007 was a year dominated by excess greed and that was the time to sell. For now its all fear and anyone who buys a great business now will not be dissapointed few years down the line.
So sell when there is greed all around and buy when there is fear.
Don't blindly trust Analyst and Brokers: At the beginning of 2008 when the stock markets were on a high there was a special show on one of the financial news channel telling which sectors the brokers were most bullish on for 2008. The brokers across all financial houses in India were most bullish on the Banking Sector for 2008. I am sure I dont have to tell anyone how this sector performed in 2008. Analyst at the beginning of the year were talking about 25K plus Sensex at the end of 2008. Again we are ending the year with over 50% losses.
So what I am trying to say is that brokers and analyst dont know anything special. The best investment decisions are the ones made by yourself looking at things around. The best investment opportunities also can be first spotted by you then anyone else.
Think of the inverstor who visited Pantaloons when it had just started off. Just by looking at the demand in the store he bought the shares (that time at Rs. 32). This is how you spot great investment opportunities. No analyst will tell you better then your own experience with a product of thing.That is what WARREN BUFFETT say...
So make it a resolution to buy with your research. Its ok to listen to an Analyst teling about a stock. But go back and verify facts for yourself before buying.
Never take positions in the market on Debt: Since I am cosely related to the financial industry I know of people who took big debt from banks so as to trade in the markets. This was because everyone felt that the only direction the markets can go is up.
But when the markets crashed all the money was lost. Those who traded the market on leverage were in deep trouble and still are in a mess. These kind of silly decision will not only affect you but also your family. So never use debt to invest in the markets.
Patience can earn you big money and also save you from big losses: I dont remember the name of the Company but there was one stock for which Warren Buffett waited for almost five years so that it gets to decent valuations before he buys. Similarly when he buys a stock he would hold on even if it did not move for a year or more. This is the confidence he had in himself.
Sure all of us cant be Warren Buffett. But we can try and learn some things from him. One is the patience you need when you are in the stock markets.
No one in the world can predict the stock market movement: This is the biggest lessen for everyone and if you realise this then you will for sure become a better investor.
The biggest institutions which failed were the ones whose recommendations and positions in the market were tracked the most. They were considered to have the best analyst brains in the world. Then why did they fail? Why did they not predict the stock market crash?
The answer is no one can predict the stock markets. Half of your tension is gone if you stop trying to predict the markets and start to just look for good business and buy them for long term.
Some more words of Advice:
I am sure there are people who would have lost 60-70% and would think they are not good investors or stocks markets are not a place for them. I would say that even the biggest investors lost big time this year. So dont give up and these levels and even more attractive levels in the near future are the best times to invest in great businesses. Use these to recover the money you lost in the markets.
2009 should be a volatile year for the markets. Look at low levels to buy and accumulate great stocks. Look at a investment perspective of not less then 5 years.
What to buy:
- Keep buying in small number the sectors which have been beaten down the most. I would look at buying some industrial commodity stocks. They are at very low levels. It does not mean they cant go lower. So buying in small numbers would make sense.
- Where there are big challenges there are also big opportunities. Look out from an India perspective where are the biggest challenges. You will surely find some great investment themes there.
- Gold is always a great hold for long term. Specially in a world where paper currency supply is going on increasing. The paper currency will decrease in value against something. That would be hard assets like gold.
- I had mentioned it in one of my earlier articles also. It would make great sense to buy farmland. The reasons are plenty. One would be the global food shortage makes farmland value greater. Also with rapid industrialization and urbanization coupled with infrastructure inprovements the value of farmland would increase.
The Mother of All Bull Runs Is Still To Come For India - Rakesh Jhunjhunwala
Gear Up For that...!!!
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