My Learning Journey in Equity Market: Four learnings that took my portfolio from -37% to +100%
It all started with a simple question: can anyone make money in the stock market?
This was the question that led me on a journey to learn about the equity market. I read books, took courses, and spoke to experts. And what I discovered is that yes, anyone can make money in the stock market.
But it’s not easy.
The equity market is a complex and ever-changing beast. To be successful, you need to have a deep understanding of how it works.
In this article, I’ll share my learning journey with you. I’ll share what I’ve learned about the market in the past five years and how I’ve been able to turn my losses into profits. In the beginning, my portfolio was earning about -37%, and today, some of my best stocks are above 100% and the average returns are +20%.
Beginnings with Blunders
Like everyone else, my journey began with blunders. I invested money in stocks referred by so-called analysts, trade experts, friends, and suggestions from various platforms. All of these people made money but surprisingly I didn’t. Some stocks performed well but some tanked and the average portfolio returns fell by 37%.
The surprising fact was that the experts published their reports indicating that they were about 70–80% right in their recommendations. Maybe I did something wrong.
First Steps towards Awareness
After a stint of 2 years, I decided to leave equity investing for good. I paused investing for a period of six-eight months during which I did not make any trade. I kept checking my stocks and they somehow moved sideways.
But I did enroll in a few courses, read some good books, and started taking notes on my own understanding of equities. This learning phase is still going and I have started seeing results in my investments. Here are the four learnings that have changed my investing style and taken me from loss to profit.
Four Learnings
No one Knows Mr. Market — You better learn for yourself
The majority of investors who lose money in equity markets are those who buy stocks on the recommendation of someone else. We tend to think that the next human knows the market better than us. While the fact is “The market is adapting in nature and rarely repeats any move.”
Every day is unique and every event that happens across the world is new. The way people respond to the event is also new. Though there are psychological patterns that can be predicted, but no one knows for sure if the price of a stock would rise or fall. People only make predictions based on their understanding and these predictions often fail.
Thus, the next person knows the market just like you. You both are dependent on the randomness of this nature and you both can fail. Every time you invest in someone else’s recommendation, you are walking the path that they have imagined. If that stock doesn’t give returns you would not know what to do with it. Even if it gives a return, you would not know if a 10% return is good or if the stock would rally to 100%. In essence, you are just following someone and people are bad at following. You are always going to miss the entry and exit points and struggle to make profits.
On the other hand, when you select a stock based on your own research, you will know why you have selected it. This knowing gives the courage to hold the stock in tough times and also add more if the standards of selection are still applicable. Moreover, you can always refer to your selection criteria and cross-verify if the stock is still worth holding. Thus, you will hold the stock even when it gives 80% returns because you know the selection criteria are still valid and the stock price will still rise.
Don’t fall for technicals: Value Investing is the only real investing
In the rat race of making money fast, I also started learning technical parameters to judge a stock movement. I started adding money into the market but rarely made any good profits.
The markets move so fast that an average trader can’t cope. It takes a toll on mental health, physical health, and happiness. On the other hand, fundamental investing which is also termed “value investing” is a slow and healthy process. You are not required to sit at a computer for 5 straight hours. You are also not supposed to panic and look continuously for stock price rises and falls.
Value investing demands you to select stocks that are expected to go up in the coming times. These are companies with great management, good returns, healthy profit, good consumer feedback, technologically safe, and placed in a secure environment. It is not a task of one day but it takes weeks to study a company.
I now start with domains to see if any technology or sub-technology is expected to grow in the coming times. Then, I select the companies working in those technological areas. Once I understand the entire ecosystem of companies that are working in that domain, then I start looking for selected few companies which have good management, consistent record of ethical practices, good financials, and other fundamental factors.
Finally, I select the companies that are trading at low PE. At the time, there is hardly one company left after these filters and studies and that itself is trading at premium prices. I just mark it on my daily screens and don’t invest in it.
Know why you invest in a certain company
Even after learning and investing in really good companies, I struggled to make consistent returns because I eventually forgot why I got in that stock. That’s why it is really important that you keep a note for yourself which clearly indicates what you saw in the stock.
Sometimes it is their debt restructuring, future potential, no competitor in the market, good management, low PE, etc. You cannot recall the primary reason for the selection of any stock after months. All stocks start looking the same because they all have good parameters. That’s when it starts creating trouble, now you don’t know when to exit one.
That’s why I now invest and save my notes. I write the primary points that the company satisfies. To check if I should stay invested or sell it, I look at my selection criteria and cross-verify them.
The next discipline is to follow your own standards. You never know if selling that stock would mean potential loss or profit but you need to stick to your standards otherwise you won’t be consistent in your returns. Also, when you follow a standard, you will understand whether it’s good or bad. But if you don’t follow it, you won’t be able to find any flaws in it and you will again be fishing in randomness.
Don’t Dilute too much, Don’t check too much — Practice Discipline
Lastly, even after selecting a very good stock, there are always chances of stock price fall. You should not worry about such daily, weekly, or monthly falls. Let the market do its thing. Your job is to research and select something. Checking it every day won’t compound your returns.
Also, don’t dilute your portfolio too much. Stick on the good stocks (ideally 15–20). Investing in 50 companies would add a lot of effort on your end and you wouldn’t be able to keep track of the development of all companies. Eventually, you will stop being strict with your own selected parameters. That’s what will get you in trouble.
It is not wise to invest all your money in 2–3 stocks. Also, It is also not wise to spread it in 50+ stocks. Select a number that you can deal with. Based on the time I have after doing my job, I can hardly research about 10–12 companies and that’s why I never invest in more than 15 at a time. Some people have enough time and energy to keep track of 30 companies and they should go for that number. But never dilute your standards to add more stocks to your portfolio.
Equity investing is fun when you know what you are doing. Why you are doing it and When you should stop?
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