The most difficult skill in Investing is NOT the ability to find a great stock.
It is to know WHEN to sell the stock, and when to hold it, in my opinion.
Let me explain.
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It is to know WHEN to sell the stock, and when to hold it, in my opinion.
Let me explain.
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We keep reading - if you had invested Rs 10000 in xyz stock in 2010, you would have made so much wealth.
But what happens if you remove the benefit of hindsight.
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But what happens if you remove the benefit of hindsight.
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Take Bajaj Finance for example. The stock was available at Rs 7 (adjusted for bonuses / splits) in 2009. Yes, you read that right!
Now assume someone bought it at 7. Do you think they would have held on till today?
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Now assume someone bought it at 7. Do you think they would have held on till today?
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The investor would have seen the price go to 20, 50, 100, 1000, 3000, 7000
Also a decline from 4800 to 1800 in 2020
At what point do you think the investor would have had enough?
Sitting tight on a stock is easier said than done. Behavioral biases would not allow for it.
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Also a decline from 4800 to 1800 in 2020
At what point do you think the investor would have had enough?
Sitting tight on a stock is easier said than done. Behavioral biases would not allow for it.
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Add to that survivorship bias. We keep talking about Infosys, HDFC Bank, Asian Paints, Bajaj Finance, Titan.
But for each of these, there is a Unitech, Punj Lloyd, Idea, Suzlon, Yes Bank, which promised gold but went to dust
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But for each of these, there is a Unitech, Punj Lloyd, Idea, Suzlon, Yes Bank, which promised gold but went to dust
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And others which seemingly were great but stopped going up at one point. Whirlpool, Biocon, Maruti, Tata Motors, Lupin, Nerolac, Hero Moto, Godrej Industries, Sterlite Tech, Symphony, Avanti Feeds are some of the names that have a negative 5 year return as I write this.
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How does one know when the stock has done enough.
So to me, the toughest skill in investing is to know when to sell a stock. You can learn a lot of concepts to identify great companies.
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So to me, the toughest skill in investing is to know when to sell a stock. You can learn a lot of concepts to identify great companies.
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But only those who can master when to sell and when to hold a stock can really create a process around creating wealth.
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