A Retail Stock Investor: Time is on Your Side

For a change, my fight from Chicago left on time, actually in a hurry due to an impending snow storm. I have been to O’Hare many times in the past but have never seen this urgency by the flight crew to take off. I love it as it gets me home in time! Well it reminds me about another thing I love, the return on my stock portfolio. Don’t we all like it? No wonder CNBC is such a profitable channel. However, sometimes I wonder if it is the real return that satisfies a common investor or the excitement to pick a successful stock to beat the market [read fellow investors].

I first got interested in stocks when I was a sophomore at IIT. The dot-com bubble had markets in a secular bull run and I was cultivating ambitions to get rich, quickly. After devouring most of the top-selling stock analysis books, and regularly reading “The Economic Times”, I started thinking of myself as a stock market expert. I didn’t have any money to invest but I was advising people on stocks. Thanks to the booming market, many of my predictions came true, further strengthening my confidence as a stock picker. I didn’t even wait for my first paycheck to start investing and some early successes further led me down that path. The dot-com crash was the first real blow to my portfolio and confidence. I lost 70% of my investment in a few weeks. In next eight years, I endured three stock market booms, two crashes, and two failed attempts at creating investment management companies with some very smart people in the trade. Not that I have done and seen everything but I believe I have gained slightly more exposure to stock market investing than a typical retail investor. I learned some lessons the hard way but I am glad I learned them early.

This blog is not about rules of investing, although I can probably write a thesis on my experience in this subject. My objective is to highlight two key points, which I believe every common investor should know while investing in stocks. First, a common investor has no advantage in the market except for being patient. By the time CNBC runs a story, smart money has already acted on it. Experts outdo retail investors on research, access to information and trading tools by a wide margin. However, everything is not lost for retail investors. Time is on our side and it is a big advantage. Not having to report returns every day, week, month and quarter is a great advantage that no professional investor has in the market. The mantra is to buy good companies when they are selling cheap and sit on it. Trust me that is the only way for us minnows to make money in the market. Second, don’t fall for multi-bagger or trading stories. I know for sure, if someone can consistently make money in the stock market, I will probably see his picture in Forbes before meeting him in person. Look around, even the savviest investors couldn’t make money forever. Warren Buffet is an exception but even he had his down years, albeit I will make a case that he made money by following a common investor’s  “buy and hold” strategy. So next time you hear somebody consistently beating the market by trading or flipping stocks – acknowledge, congratulate and carry on with your boring buy and hold strategy.

The stewardess has already told me thrice to shut down my computer so I will end my post here. Finally my rocky plane ride is coming to an end. Unfortunately a rocky stock market is here to stay but there is a hope for all of us to make stable returns.  Buy cheap, hold for long and sell for profit. Make some money folks!

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3 responses to this post.

  1. Posted by Shimta on February 26, 2011 at 3:04 am

    Now tell us what good companies are selling cheap :)

    Reply

  2. Posted by Amir on February 26, 2011 at 2:11 pm

    Good blog RV! Few more tips: It pays Big time to be a Contrarian investor, and timing your investments to your convenience, perceived value and patience. Also, there is no substitute for fundamental analysis wrt business model, competitive landscape, regulations, barriers, etc.

    Reply

    • I believe in contrarian investment philosophy but it is hard to follow. It is not easy to have faith in a company when negative news is doing the rounds and everyone on the street thinks it is going belly up.

      Reply

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