Few months back after the market crash many people contacted me to learn about investing in stock market.
And it seemed very easy to advise them on how to begin investing.
I explained the concepts of Moats, Business mindset, Fair Valuation, Quality of management etc. briefly during a phone call.
My general advice to people who would asked me should they start investing was that even you can do it.
But unfortunately I was wrong.
I know it sounds demotivating but the reality is that, it’s VERY VERY difficult. (That’s intentional)
Unless you have the curiosity and the passion to enjoy the learning process, you are not going to make it.
Stories like, “if you would have invested in __ company you would have become very rich” are very misguiding.
This would lure you into investing in stock market but in reality finding such businesses and having them as a meaningful part of your portfolio is very difficult.
The main question one should ask that whether one would be able to hold a company for so long?
If anyone says it’s easy and shows that they are making money, sooner or later, they would run out of luck.
Especially, don’t listen to people who started investing during a bull run and have never faced a bear market cycle.
Why I say it’s difficult?
Curiosity
“You need a lot of curiosity for a long, long time.” - Warren Buffett
“Without passion, you don’t have energy. Without energy, you have nothing” - Warren Buffett
These statements made by Warren Buffett have huge life lessons in it.
Curiosity & Passion plays a vital role in investing.
Curiosity will make you continuous learner and passion towards it will make you enjoy the process.
If you have them both for long term then you would do very well in investing.
But why do you need them?
Investing in stock market is same as buying out businesses.
Now, before buying a business one has to do a lot of analysis.
Understand why a business is superior than other players, how does it maintain its margins, quality of management, how is the sector doing, what is the scope of growth for the company, etc.
To find information for all these (list is not exhaustive) you need to put in a lot of effort and one would only do that if you were curious or passionate about investing and not here for just becoming rich.
Getting rich is obviously the main goal here but I feel it is the fruit you get for partnering yourself with superior quality businesses.
One has to read annual report, con-calls, article, interviews of management, etc. for past 5-10 years to get this information which I just mentioned.
I would also recommend to read one of my previous essays where I shared some insights on the mindset required.
Now if you are here just for money then it would be very difficult for you to keep grinding in the process.
Plus, even after doing your thorough analysis still there is no guarantee you would succeed.
You will have your own set of failures.
Mental Pressure
Now getting information about companies requires hours/days of research and until then you experience FOMO (Fear Of Missing Out).
When you see other people making money then you go through a lot of pressure to invest too and ride the trend of rising prices.
It might look easy on paper that why would one invest just because everyone is buying but in reality this is what happens.
The pressure is not just from missing out, its also from getting criticism.
Now to handle that criticism one must have a solid conviction on the company and that would happen only after putting hours of research which would lead us to back to Curiosity and Passion.
Opportunity Cost
At the initial stage when you would have come across something known as investing in stock market there is high probability that you might have got interested in making quick money.
You might also succeed in it. But you need to ask yourself is that sustainable?
There is a huge opportunity cost here.
As Scam 1992 (TV Show) got released many people started dreaming of entering into the stock market and getting rich.
Rs100, 1000, or 10,000 absolute profit might look very fascinating for beginners but don’t forget the reality behind it.
Don’t skip your studies just to earn money from stock market.
Stock Market needs time. With experience you would understand what things work for you personally.
I used to follow cigar butt approach investing for 1 year in a falsehood believing that Warren Buffett still follows it.
Don’t run behind short term money.
You might be able to earn few rupees here and there by trading but the opportunity to learn is what you are missing out if you skip studies just to trade in stock market.
Movies/YouTube portray getting a 9-5 job as hell.
Getting a job is not always a bad idea, instead it is a good idea most of the time.
People see ‘average’ life as something downgrading or which is looked down upon.
But sooner you realize the cost and capacity needed for reaching the ‘top’, you would start appreciating the reality.
I am not saying don’t try things and just sit within your limits, that would be terrible.
I just want people to know the other side of the argument too (which is probably the reality).
My Experience?
I will be very honest with you.
I have been investing for past 2+ years (I know that’s quite less) and my interest recently peaked after the market crashed in march.
Suddenly so many companies were available at very attractive valuations.
When this happens, nobody needs curiosity/passion, one would automatically start analyzing companies as the opportunity is sitting right in front of you.
So, I had invested in CCL Products (India) Ltd.
It was my biggest position and I had huge conviction in it but soon I realized that I had made an error in my analysis and my original thesis is no longer valid, I sold my position.
Now, after selling that company my motivation too went down.
I started introspecting and started to feel that I stand nowhere in terms of knowledge people have out there.
I had sold my highest conviction stock which was majority of my portfolio during a bull run.
Now, I am just sitting with huge cash position with no ideas to invest in.
Not getting ideas could be due various reasons:
- Rising of Stock prices would have taken away all the good opportunities out there,
- My method of analyzing companies could be wrong, or
- I am just lazy (Or, busy with work)
I feel all of the above reasons are currently playing out together.
Inshort
If you are not curious and passionate about stock market investing then do yourself a favor, maintain distance & stay safe. One would be far better off by just buying into Index Fund through the mode of SIP.
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