Following Warren Buffett blindly is akin to driving on Indian streets by blindly following the road signs
January 06, 2022 / 09:51 AM IST
Inspired by Morgan Housel’s brilliant post “Short investing rules”, I have come up with an own version of short rules for the common man to invest in the Indian stock market. By no way are these rules gospels of truth, nor have they been validated for their accuracy. These are based solely on my observations, learnings and experiences of investing in the Indian stock market over the last two decades.
- Do not follow Warren Buffett blindly. It is equivalent to driving on the Indian streets by blindly following the road signs.
- Put yourself in the role of a Sherlock Holmes or a Hercule Poirot investigating a financial mystery when you are studying the annual reports of some of the Indian companies.
- Like the Kurunji flower (Strobilanthes kunthianus) which blooms once in twelve years, finding a truly outstanding company run by an honest and competent management is also a rare event. If you happen to find one such company then bet your house on it.
- Investing in the Indian markets solely based on bookish knowledge or the wisdom shared by foreign investing Gurus is equivalent to appearing for a mathematics exam by reading the science textbooks.
- Stock market is like a giant financial Chakravyūha. Easy to enter but difficult to exit. If you enter the markets without adequate investing skills and knowledge then you may end up being a “financial Abhimanyu”.
- “Minimum Government, Maximum Governance” is a popular political slogan which is equally applicable for the individual investor. Seek to invest in companies that have minimum Government holding, interference and regulatory oversight.
- When you find that the promoters (or their family members) love hobnobbing with Bollywood film stars and celebrities then double up on your normal due diligence before investing in such companies.
- Asking stock brokers financial tips for long term investing is equivalent to a sheep asking the butcher health tips for a long life.
- Do not blindly join the passive investing index bandwagon; Fund managers in India have routinely outperformed the broader markets and over a fairly long period of time.
- If there is a sudden action in a particular stock counter for no apparent reason and you suspect that some trades are being done based on non-publicly available information then probably you are right.
- When a market expert or a pundit appears on media and recommends a particular scrip as a “Strong buy” then shorting or even selling that scrip may not be a bad idea.
- Just as you would not attempt to do a surgery at home, you should also not attempt to do a financial surgery at home (if you are not professionally qualified). Half knowledge is a dangerous thing and it’s more rewarding in the long run to pay a certified financial adviser for professional advice.
- Never discuss your portfolio or your trades publicly even if you don’t believe in the “Nazar lagna” (evil eye) concept.
- Seek for a mentor or a true friend (not one with vested interests) to bounce off your investing ideas.
- Stronger the connection of a business with a single political party then greater should be the caution you must observe before investing in that stock.
- The crowd is mostly right. If you still want to bet against them then better check your facts and reasoning a dozen times before you go contrarian.
- If you go contrarian then Mr. Market is more likely to turn around and veer towards your contrarian position as a large cruise ship than like a small speed boat. Be patient.
- While analyzing a business let us say you have come up with 5 positive scenarios and 1 negative scenario that might possibly happen; Be ready to welcome the negative scenario as invariably it will be the first to arrive.
- If you have analyzed a stock and then decided to give it a pass, be also mentally prepared to face the scenario of your rejected stock idea doing spectacularly well in the short term. Avoid any feelings of regret and move on.
- The price of a stock will continue rising while you are still contemplating to buy it. And the price may promptly start falling post your actual purchase. Do not be interested in a stock when everyone else also seem to be interested in it.
- There is nothing called as “Free Lunch” across the whole of the financial industry and it’s for you to figure out the hidden and implicit price for things given to you free.
- Use television more as a source of entertainment and less as a source for your investing ideas.
- Sometimes the accuracy or completeness of your analysis has no bearing on the money you eventually make or lose on a stock. Good luck and prayers do matter.
- Whenever someone offers you a scheme for doubling or tripling the money in a short time; remind yourself that they are talking about their money and not yours.
- Only a handful of people will really want you to succeed in life and in investing. Find your real well-wishers early.
- Karma now works in a much shorter cycle time than before , more like T+1 or T+2. Bad things done in the market will come back to bite you pretty quickly. See Good, Be Good and Do Good.
The unwritten rule and the one which has not been mentioned above is that for success in any field including investing “Hard work” is mandatory. All the midnight oil burnt and the early morning lost sleep will eventually pay off.
Hard work + Humility = Success.
John C Bogle famously quipped “Learn every day, but especially from the experiences of others. It’s cheaper.”