Money never sleeps!!! Every crisis brings an opportunity. Anyone can identify a winning stock, but the great investors differentiates themselves through superior individual position sizing.
Money has a metaphysical like attraction to places of it's best possible use. This is one of the powerful correcting forces of capitalism. Take advantage of it.
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First we need to understand, how capitalism functions?
To say it in a simple manner, capitalism is pretty much a survival of the fittest system and is usually loved by the rich and hated by the poor. Similarly financial markets ultimately take money away from mediocre and stagnant businesses (you might have observed that why a stock price of a particular stock hardly moves in-spite of good numbers or stop moving once the numbers starts coming in) and redirects it toward growing, profitable ones (have you observed a stock doing nothing for 2-3 years suddenly moves to 2-3 times in few months, it is because money is chasing the future earnings of this stock which is about to come). Money never sleeps. Every crisis brings an opportunity.
A crash in one area of the market establishes the foundation for a boom in another. A company’s rising cost is another company’s rising revenue; a company’s declining revenue is another company’s declining cost. Money has a metaphysical like attraction to places of it's best possible use. This is one of the powerful correcting forces of capitalism. Take advantage of it.
So, next time when you hear about recession or market crash, think again, where the money is going to flow? At present money is flowing in to Indian markets where growth is.
Money will chase some or other asset class where growth is. Money will move to a country or industry or sector where growth is. May be that is the reason why Indian market outperforming while global market falling into recession or under the fear of recession caused by rise in interest rate or inflation. No stock or market moves without any reason, it is we who need to decode ahead of time and try to understand the reason for market movement when things are not clearly visible. Remember that, once the story is out and everyone knows it, the opportunity will be gone. When there is dawn, you need to predict ahead that day light will come and position yourself. There is no intelligence in predicting a day during day time:-)
If you remember, during Mar-Apr 2020 when the fear of Covid-19 strike Indian market, we fell down to Nifty 7500 levels from Nifty 12,500 levels in just 1-2 months while the number of Covid cases in India were hardly 100-500 in Mar-Apr’20. It means market factors worst cases very fast, similarly market factors best cases too at the first hint. By the time we saw peak numbers of 3-4 Lacs per day Covid cases in India, our markets were already up close to Nifty 14-15K. So, next time do not give any argument that economy is bad, jobless numbers are high, things are not looking good but why market are moving up. This is because we as a human being see the present movement but market move in the future. To win in this market, you need to be one step ahead. You should be a futuristic or have a vision to see the things ahead of the curve.
What does it mean? It means it is not an event which causes pain the market but a fear of event, just like human being, stock market also adapts to new normal and start marching ahead. As on today, we are at the right place (India), at the right time (when our country is likely to witness 8-10% GDP growth) under the right leadership. This is the time to be eternal bullish on India for next couple of decades.
Success Mantra for Huge Wealth Creation = Identify few great businesses (~15) trading at reasonable price + Have courage to allocate descent capital (~6-10%) + Have patience to hold it for long haul (~5 years).
Everyone knows that to become a successful investor, we needs to have these 3 qualities:
1) Knowledge & Skill – To identify the right stock at right price. One can have around 15-16 stocks in their portfolio where 80% capital invested, rest 20% can be invested among another 15-20 stocks with tracking position so that one must not miss any great opportunity.
2) Courage – To do descent capital allocation (minimum 3-6% and max 10% in a single stock) or accumulate big quantity / sizable position in a stock (1% or more stake in a company) and
3) Patience - To hold that stock during ups and downs (minimum 3-5 years or max 10 years) of the market and not sell in panic or exit early.
In my opinion, out of the above 3 qualities the most important one is – COURAGE
Courage means going into the unknown (like investing in emerging micro, small & mid-caps) in spite of all the fears. When you go into the uncharted sea, like Columbus did, there is fear, immense fear, because one never knows what is going to happen. You are leaving the shores of safety (safety of blue chip or large cap stocks). Going into the unknown (like investing in potential multibagger stocks) gives you a thrill. For the first time you start feeling that life or investment is not a just a boredom but an adventure.
Courage is risking the known for the unknown, the familiar for the unfamiliar, the comfortable for the uncomfortable, popular destination to some unknown destination. One never knows whether one will be able to make it or not. It is gambling, but only the gamblers know what life is.
Excessive diversification is the best way to admit that you have no idea what’s going to happen in the future. Too much diversified portfolio (means if your 80% capital is invested in top 15 stocks it means your portfolio is diversified but it’s acceptable) indeed may reduce your overall level of risk, it also may correspondingly reduce your potential level of reward.
Statistic says that, holding 8 stocks eliminates 81% of the risk in owning just 1 stock, and holding 32 stocks eliminates 96% of the risk. So, it is better to own just 8 stocks in a concentrated portfolio with 10-12% capital allocation in each stock -OR- allocate 80% capital into top 15 stocks which is a good diversification.
According to the late management guru Peter Drucker, “Efficiency is doing things right; effectiveness is doing the right things.” In investing, the latter refers to picking the right stock and former refers to appropriate allocation. Anyone can identify a winning stock, but the great investors differentiates themselves through superior individual position sizing.
When you find a great idea, buy enough of it to make a meaningful difference to your life. Success in investing boils down to how the great ideas are executed, that is, initial allocation and subsequent pyramiding.
It is not the frequency of winning that matters, but the frequency times the magnitude of the payoff.
-Sanjay (WhatsApp Only to +91 9354179604)