An Athletic Approach To Stock Market Investment

Recently, while going through business dailies, I found many experts commenting about the recent bull-run in the Indian equity markets. And I found a striking similarity between a bull-run and a marathon. Both marathon and bull-run can be broken down into three phases. I have jotted down a few points that I feel are analogous.

Marathon, initial 14 kms: You have to be strong and confident to take up this challenge. You have to trust your ability and prepare mentally to finish the task at hand. Start slow; running slow is the key to enjoy and complete the marathon. Remember the hare and the tortoise story? Don’t worry about the people who have passed you starting way too fast. These people will get eliminated due to early fatigue.

Bull-run, phase 1: Markets start moving up just in anticipation of growth. Similar to a marathon, don’t hurry to jump into markets. You need to identify core sectors which are likely to flourish or turnaround. You need to assess the impact of macroeconomic fundamentals on these sectors. Don’t get carried away by your friends and colleagues who insist you to invest just based on intangible factors like Modi Sarkar, Y2K, etc. Don’t think about missing the rally. Keep in mind that we need only 4-5 stocks ideas to get the most during this bull-run.

Marathon, next 14 kms: Look at marathon in small parts. Remember, marathon is more of a mental challenge than physical. Keep yourself focused on your mission. One of the strategies may be to engage yourself in things different than marathon itself. Look around at the shops, malls, gardens or listen to songs or simply think of the best moments in your life.

Bull-run, phase 2: Similarly, keep in mind that market is there to serve you and not dictate you. Investment is more of a temperament than a technical ability. You have to align your thought process in line with your knowledge and past experiences. The curious mind will definitely pop up some ideas, which will help you make investment decisions. Invest only in those companies which are going to benefit from the revival of economy. Many companies will announce above average results, but be patient and rational in differentiating the real growth vs the nominal one. Don’t get baffled when you find below average companies making into the gainers’ list. They are inching upwards simply because of liquidity in the market or blatant anticipation. Remember, positive sentiments don’t put cash into your wallet. Do not distract yourself with all short-term statistical data and index value forecast circulated around. Rather than news articles and brokerage reports, read more on the upcoming industries and sectors.

Marathon, last 14 kms: You will feel exhausted and uncomfortable. Try to focus on the achievers, the successful athletes and sportspersons. Remember how they claimed the throne by perspiration and confidence. Get inspired and put yourself in their shoes and move on. Keep telling yourself that you are an achiever. You won’t settle for anything less than victory. By now, many will probably quit the race. You just have to beat the ones who are leading you. Take hold of what you deserve after so much patience and hard work.

Bull-run, phase 3: You will get excited looking at how your investments blossom. Do not get thrilled with high returns. Do not enter the market at these levels. Recollect and recite the quotes of legendary investors on greed and self-contentment. Aiming to achieve above market returns will spoil the end results. There is only one way the market will go from here, down. Become more practical and listen to your mind. The market prices might have factored in 30%, 40%, 50%+ future earnings growth rate. Make a conscious effort to identify which companies will operate at those growth rates or slightly below it despite some slowdown in the future. There are few companies which are defensive and will continue outperforming the market. Retain these low risk companies in your portfolio. If you feel few companies in your portfolio have rallied above their valuations, considering selling a portion of it. It is always good to book profits at these levels rather than carrying a downside risk or loss of profits. Many people will influence you not to book profits and continue investing. These people are trodden by greed. Greed is good when it is based on facts and figures, but it is bad when it is notional and manipulated. Do not envy others who are betting on 50-75% returns. Feel proud of yourself that you have made reasonable returns with minimum risk as opposed to others. Take control of your emotions. Charlie Munger, the legendary investor, says “What good is envy? It’s the one sin you can’t have any fun at. There are two keys to success, mastering emotions and taking good decisions.” Sincerely translating the above principles into your actions will lead to paramount success. Sky is limit, just go, grab it.

“In your life you only get to do so many things and right now you’ve chosen to do this, so make it great.”- Steve Jobs

This article is submitted by www.moneyworks4me.com