FIVE Investing myths which are damaging your portfolio CAGR.
A long thread (1/21)
A long thread (1/21)
1. Patience/ Behaviour/ EQ:
Before appearing on “CAT” or “UPSC”
a.Get enough sleep
b.Drink water
c. Be calm
d.Don’t waste much time on single question
These advices work only if your exam preparation was right
There is no point in being patient after buying Yes bank
(2/21)
Before appearing on “CAT” or “UPSC”
a.Get enough sleep
b.Drink water
c. Be calm
d.Don’t waste much time on single question
These advices work only if your exam preparation was right
There is no point in being patient after buying Yes bank
(2/21)
First learn Accounting/ business analysis/ Risk management/ Position sizing. Only then being patient works if you are a direct stock picker.
For MF/ ETF investor, EQ is the most important thing.
"Never stop SIP. Put lumpsum when there is blood on the street."
(3/21)
For MF/ ETF investor, EQ is the most important thing.
"Never stop SIP. Put lumpsum when there is blood on the street."
(3/21)
2. “I hold this from a much lower level”
Remember one thing, your Hold or Sell decision does not depend on your purchase price.
Year 2020: Stock A at Rs 100, Stock B at Rs 200. You bought stock A
Year 2021: Stock A at Rs 500 (gone 5x for you) and stock B still at 200
(4/21)
Remember one thing, your Hold or Sell decision does not depend on your purchase price.
Year 2020: Stock A at Rs 100, Stock B at Rs 200. You bought stock A
Year 2021: Stock A at Rs 500 (gone 5x for you) and stock B still at 200
(4/21)
Now if you believe in next 3/5 years Stock B will go 3x and stock A will go 2x.
If you don’t switch (keep holding A) and it goes 2x, it is 10x for you and you can brag about it.
But if you switch (sell A & buy B) and it goes 3x, you would make more money.
(5/21)
If you don’t switch (keep holding A) and it goes 2x, it is 10x for you and you can brag about it.
But if you switch (sell A & buy B) and it goes 3x, you would make more money.
(5/21)
I would prefer more money than bragging about 10x
Your Hold decision depends on future outlook of the business/stock not on purchase price
Confession: Almost everyone (including me) is a victim of this bias. For example, I won’t buy IEX at this price and I still hold it
(6/21)
Your Hold decision depends on future outlook of the business/stock not on purchase price
Confession: Almost everyone (including me) is a victim of this bias. For example, I won’t buy IEX at this price and I still hold it
(6/21)
Possible explanations: Winners mean you tracked them for long, at the first sign of business downturn you can recognize & exit.
Winner with good position sizing makes you love it and selling becomes difficult.
(7/21)
Winner with good position sizing makes you love it and selling becomes difficult.
(7/21)
3. Dividend on initial investment:
You bought a stock at Rs 1 and gone 100x in 10 years, stock price is now 100 and pays Rs 1 dividend each year
You get your initial investment as dividend each year. 100% dividend yield, Great compounding, but does not make much sense
(8/21)
You bought a stock at Rs 1 and gone 100x in 10 years, stock price is now 100 and pays Rs 1 dividend each year
You get your initial investment as dividend each year. 100% dividend yield, Great compounding, but does not make much sense
(8/21)
The fact is current price is 100 and you are getting only 1% yield.
It does not make much sense to hold this business (because of 100% yield on initial investment) unless you have positive outlook on the business/ stock price
(9/21)
It does not make much sense to hold this business (because of 100% yield on initial investment) unless you have positive outlook on the business/ stock price
(9/21)
Buffet can't sell his coca cola beacsue of hugeee position even though it has given 1.13% CAGR over last 23 years.
But We can sell such stocks in our portfolio.
Disc: Coca Cola dividend yield is better than US bond yield (10/21)
But We can sell such stocks in our portfolio.
Disc: Coca Cola dividend yield is better than US bond yield (10/21)
4. No of mutibaggers:
A got two 5x in last one year and B got four 5x in last one year.
It does not mean B did a great job over A
Assuming both had equal size portfolio at starting if A allocated 5% in each business and B allocated 2.5% in each, both did equally well
(11/21)
A got two 5x in last one year and B got four 5x in last one year.
It does not mean B did a great job over A
Assuming both had equal size portfolio at starting if A allocated 5% in each business and B allocated 2.5% in each, both did equally well
(11/21)
Mutibagger without position sizing does not move the needle much.
Confession: Deepak nitrite is a 10x for me with poor position sizing.
(12/21)
Confession: Deepak nitrite is a 10x for me with poor position sizing.
(12/21)
5.Reducing volatility of your portfolio:
Holding HDFC bank, HUL etc along with small/mid caps so that in bear market you don’t lose much money (low percentage loss).
They act as shock absorbers.
(13/21)
Holding HDFC bank, HUL etc along with small/mid caps so that in bear market you don’t lose much money (low percentage loss).
They act as shock absorbers.
(13/21)
I disagree with this. Unless you are managing public money or emotionally unstable your goal is to generate max CAGR.
Over a period of 10 years
A: Earns 25% CAGR and in between portfolio was down 60%.
B: Earns 15% CAGR and in between portfolio was down 20%.
(14/21)
Over a period of 10 years
A: Earns 25% CAGR and in between portfolio was down 60%.
B: Earns 15% CAGR and in between portfolio was down 20%.
(14/21)
I would prefer “A” any day.
If you build proper conviction, you won’t lose sleep just because Mr. market disagreeing with you temporarily.
(15/21)
If you build proper conviction, you won’t lose sleep just because Mr. market disagreeing with you temporarily.
(15/21)
Now 5 quick bonus points for beginners especially who started in 2020
(16/21)
(16/21)
If you realize you made a mistake, accept it and sell.
Don’t wait for the stock to go to your purchase price.
And I request you with my folded hands, don’t average down in such cases.
(17/21)
Don’t wait for the stock to go to your purchase price.
And I request you with my folded hands, don’t average down in such cases.
(17/21)
No matter at what price (Rs 4 or Rs 40000) you buy, you can always lose 100%.
Don’t look for margin of safety in penny stock prices.
(18/21)
Don’t look for margin of safety in penny stock prices.
(18/21)
You aim to buy good business run by good management available at non expensive valuation.
Large/Mid/small caps categorization are exaggerated by MFs to launch multiple schemes & gather AUM by showing the return of best performing scheme.
(19/21)
Large/Mid/small caps categorization are exaggerated by MFs to launch multiple schemes & gather AUM by showing the return of best performing scheme.
(19/21)
Don’t leverage or call yourself genius before you see at least one bear market.
Avoid twitter geniuses. People who are naming stocks everyday on twitter, go and check their tweets in March, 2020.
(20/21)
Avoid twitter geniuses. People who are naming stocks everyday on twitter, go and check their tweets in March, 2020.
(20/21)
Learn accounting before reading your 5th book on investing philosophy.
Don’t try to be a novel writer without learning alphabets.
(21/21)
Don’t try to be a novel writer without learning alphabets.
(21/21)
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