What makes one a good investor?
Ace investors say hard work, honesty, long-term perspective and an easy-to-understand investment methodology are important elements to become a successful investor
Deepak, who worked at a property brokerage firm and earned Rs 70,000 a month but he almost had no saving except for his provident fund and an insurance policy after working for over 7 years. He lived in a rented house and was not very disciplined when it came to making his monthly budget.
When he fell ill and could not continue with his job for a brief period then he realised that he should have saved more aggressively in this period.After a few months when Deepak came back to his job with a determination to multiply his excess money from stock market.He bought 100 shares of Lupin at 15,00 in January when the scrip was at
its peak and the stock's rally ended as the company like many other pharma companies were finding it difficult to get approval for their products from the US authorities.
He sold the stock at half the price he bought.He invested in Indo Count Industries stock at over Rs 201 a piece on advice from his financial adviser at a brokerage, the stock headed downward and he did not exit at the right time, therefore, incurring a huge loss.
On the other hand, Basant, a quality control professional at an apparel export house, earned the same amount as Deepak, but he was quite well-positioned financially because he maintained pragmatism.
Basant, from a remote village in Uttar Pradesh, came to Delhi in 2007 and worked for unorganised (textile production) sector units for 2-3 years and then he pursued a apparel management course with the money he had earned from his exploitative job.
He joined an export house for Rs 30,000 per month in 2010 and now he earns Rs 70,000 per month.
By the time he has bought a 2-bedroom flat in Noida extension for Rs 43 lakh with a bank loan and he is paying EMI of Rs 23,000 per month. Besides that Basant has mutual fun of 5,000 every month and since he bought ready-to-move flat he saved Rs 10,000 as rent and putting that money in two accounts -- PPF and recurring account.
Though Basant is a conservative investor, his disciplined savings habit helped him to be in financially better placed than he was in 8 years ago. On the other hand, Deepak remained in the same place.
This is not the one-off case, many young professionals think that now they are young therefore spend their entire money on enjoyment.
Some of the great investors have advised that one should invest at an early age so that their investment multiply more times.
Warren Buffett, the celebrated stock market investor, told a bunch of young people,"If you've got anything you really want to do, don't wait until you're 93." Buffett said that you don’t have to be a genius to be a good investor, but there is a lot of hard work and due diligence involved.
Investing is about minimising risk to generate wealth over the long term and not generating short-term profits. “By the age of 10, I’d read every book in the Omaha public library about investing, some twice. You need to fill your mind with various competing thoughts and decide which make sense. Then you have to jump in the water – take a small amount of money and do it yourself. Investing on paper is like reading a romance novel vs doing something else. You’ll soon find out whether you like it. The earlier you start, the better,” Buffett said.
He said credit cards aren’t your friend, if you’re willing to pay 18% on a credit card, you will not come out well. He himself, despite being one of the richest persons in the world, leads a very simple life and advise people to spend within their limit. He said one should not borrow money to invest in the stock market.
Buffet does not advice in favour of investing in mutual funds. According to him these instruments incur a lot of expenses.
"Diversification is protection against ignorance. It makes little sense if you know what you are doing."
He advised investors to pick a broad index like the S&P 500 not to put money in all at once.
"Do it over a period of time. I recommend John Bogle's books — any investor in funds should read them. They have all you need to know."
“If you invested in a very low cost index fund – where you don’t put the money in at one time, but average in over 10 years you’ll do better than 90% of people who start investing at the same time.”
“If you like spending 6-8 hours per week working on investments, do it. If you don’t, then dollar cost average into index funds. This accomplishes diversification across assets and time, two very important things.”
"Imagine that you had a car and that was the only car you'd have for your entire lifetime. Of course, you'd care for it well, changing the oil more frequently than necessary, driving carefully, etc. Now, consider that you only have one mind and one body. Prepare them for life, care for them. You can enhance your mind over time. A person's main asset is themselves, so preserve and enhance yourself."
However, many like Charlie Munger, who works with Buffett at Berkshire Hathaway, is a big critic of Buffett's (value investing) style of investing.
Ace Indian investor Rakesh Jhunjhunwala advised to be disciplined and having a game plan to be a good investor. All people who made money on the stock market have waited for the right opportunity and their wealth is the result of compounding money. Buffet earned only about 20% return on yearly basis.
Like other Buffett and Jhunjhunwala, Lou Simpson, the Vice Chairman of GEICO, also advocated in favour of long-term investments and opined against diversification.
He said attempting to guess short-term swings in individual stocks, the stock market or the economy is not likely to produce consistently good results. Short-term developments are too unpredictable. “An investor is not likely to obtain superior results by buying a broad cross-section of the market."