I have studied the markets long enough to know that I don’t need to own the next big thing to earn a very good return in stocks, says @contrarianEPS in an exclusive interview with CNBC-TV18.com.
Pithy and witty observations on the market, usually laced with sarcasm, have earned @contrarianEPS a huge following on Twitter. No highfalutin quotes on investing, or stock recommendations for that matter, just plainspeak. “Don’t follow my views, but at least start doubting others'” reads a line on his Twitter page.
CEPS prefers to remain anonymous and that was the condition for this interview with CNBC-TV18.com . In response to an email questionnaire, CEPS talks of investment philosophy, stock market journey, mistakes that new investors must avoid and essential reading to sharpen one’s ability to spot investment opportunities.
Below are the edited excerpts:
Your Twitter handle says ‘Full time in equity investing’. When did you start investing in the stock market?
I started investing full time after 2004. Before that, I would invest occasionally, but mostly in blue chips. I was fortunate enough to have built a decent pile of savings, and besides, I had family funds as well. So my focus was on compounding my wealth. The return on my investments has been better than that of an index fund, but the gap has narrowed over the last decade. In my early days of investing, like many others, I too felt that earning above-market returns was no big deal. Having been around for a long, I have learnt that the market eventually catches up with you.
What motivated you to become a full-time stock market investor?
When I started off, I used to put in so much effort for growing just 30 percent of my total networth. I had inherited some real estate investments, but those were yielding peanuts. I soon realised there was no point in beating the market by 7-10 percent, when close to half my networth was locked in low yielding assets. I decided to shift those investments into companies I understood better than the rest of the market. It also required a mindset change because I had to accept the risks that came with putting in a lot of money in stocks. I had a few sleepless nights early on, wondering if I had made the right decision. Now stocks don’t keep me up at night, Twitter fights do.
What are some of the common mistakes, according to you, that most newbie investors make, and how can those be minimised?
Buying stocks without research: There are whales in the market who are much ahead of us in knowledge, analysis, information, experience. Most of us can’t win the game over the very long term. Put the bulk of the money in index/mutual fund/through advisor and invest only a small portion using own research. As you gain experience, you can manage more and more wealth on your own.
Falling in love with stocks/narratives: You are in the market to earn money, not have a relationship. This doesn’t mean you sell out your HDFC, Nestle etc, but be objective. Analyse numbers and see how the stocks are priced. Look at the past, no company grows to the sky. There is a price to buy and a price to sell. Whoever doesn’t believe that has either an incentive or is an idiot.
Short termism: Equity must be held for the very long term. You can change stocks, change funds but don’t bail out on equity. Short term bets make people either greedy or fearful. The market is not going to shut down tomorrow. You will get many opportunities in future to exercise your greed and you will earn good returns if you’re fearful enough.
Not booking losses: Some companies simply can’t get out of the mess they have gotten into, however hard they try. The reason(s) could be anything. You have to book your loss and find another company to recover your money and compound it further. I sometimes wish I had exited some companies earlier instead of holding on to them in the hope of recovering my investments. That would have certainly improved my overall portfolio returns. To use a cricketing analogy, you can’t score off every delivery. And there will be the occasional unplayable delivery that gets the best of batters out.
You have written in your blog that value investing is not necessarily about buying stocks cheap. What is your definition of value investing?
At a philosophical level, value investing is buying […]
Protected by Patchstack