Well, the most ‘difficult’ thing to do in investing is not finding the next multibagger, (it is difficult but stands second on the list) it is to do nothing.
Not only in investing this thing even applies to life.
There will be so many things which requires no attention or no change but people due to free time tend to mess up things and fill up their metal space on thinking about such things.
Let me give you my example, first which is outside of investing
So, I maintain this blog and till now I have decided to not advertise on my blog.
Which means I don’t need to make it according to the google ad sense terms.
I don’t have to make it attractive so as people like the visual of the blog.
I don’t need to maintain a email list for getting more traffic, instead I maintain it to interact with people who have similar interest.
I could do what I want which is focus on my content.
Another example is related to Investing
The most common mistake an inexperienced investor or even well-known one like Prof. Sanjay Bakshi make is not holding on to the stocks long enough.
An inexperienced investor tends to get influenced by the noise around them, quite easily.
They listen to people who have not put in the effort or does not have the stomach to build conviction over a company’s performance.
The most common term used these days is, “Nobody ever lost money taking a profit.”
Well, such a statement could be very useful for a trader or a short term investor. But not for a long term investor.
The mindset of a long term investor is quite different from a trader.
A trader’s research is heavily relied on price of the stock whereas for an long term investor it is the quality of company’s fundamentals which could able them to sit long enough.
Long term investor rides with the company’s ups and downs. They invest as if they are buying out the whole business and not back on if the price of the stock falls 10%-20% or even 50% without being any change in their research thesis.
It is not like that only inexperienced investor sell out early. Even the experienced one’s do.
Prof. Sanjay Bakshi in his article, What Happens When You Don’t Buy Quality?; And What Happens When You Do?, accepted his mistake he made in the stock Bosch.
(He also made the same mistake in Eicher Motors Ltd)
Later by 2015 the stock price of Bosch reached the high of around Rs.27,000.
If he would have held the stock which he bought at Rs.215 then in four year he would have got 100 times + return on his capital.
(Please note, 100 times which means more than 10,000%)
Let’s have a look at this famous Marshmallow experiment.
In the video below, children are made to sit alone in the room with one marshmallow in front of them. Now, if they wait long enough they would be rewarded with another marshmallow or they could eat the one in front of them right away: link
So, if you have seen the video you could see that it was very difficult for the children to wait and if they survived, their quantity of marshmallow would double.
Some children just give in and take the bite. Some do not.
Something similar happens in the investing world.
The only difference there is instead of marshmallow, its the craving for booking profits and instead of children there are adults in the game.
Inshort
The most difficult thing to do in investing is not finding the next multibagger but to hold them, that is by doing ‘nothing’.