More on Investment

“Give a man a fish and he’ll have a meal. Teach him to fish and he’ll never go hungry” – This ancient Chinese proverb, like all wise sayings, is timeless, just as valid today as it was a thousand year ago.

Ask anyone who has gone fishing. He will tell you that it is very complex. It is an art as well as a science. Learning to do it well does not happen overnight. A top fisherman draws on his technique, experience and more important on patience. An amateur meanwhile relies on luck alone. He may be successful once in a while, but in the long run the top fisherman always succeeds.

Fishing closely mirrors the business of investment.

For many, investing is shrouded in mystery and fraught with danger. A hard nut to crack. They feel it is the preserve of a gifted few.

It is not. Like everything else, sound investing can also be taught and learned. It is a myth that only financial professionals can understand the nuances of the stock market. You too can do it. All it requires is sound fundamentals, common sense and perseverance. Experience helps, but that will come automatically. What is more important is the willingness to learn from the mistakes. Remember when you were a child. What did you do when you fell down as a toddler while attempting to walk? You just got up and tried again making minor adjustments. So it is in the stock market.

I shall elaborate on a FAQ mode:

Q: What if I get hurt?
A: Play for meaningful stakes. Do not expect to invest a few dollars and hope for a fortune in return. It happens only in lottery and gambling. But then you know the odds in favour of it. Million to one?

If an amount is so small that its loss won't make any significant difference, then it isn't likely to bring any significant gains either.

Put your money at risk. The degree of risk you will be taking will not normally make your insurance company run for cover. Do not be afraid to get hurt a little.

Q: Should I worry?
A: Of course. Worry is not a sickness while investing. It is rather a sign of health. If you are not worried, you are not risking enough. (Zurich Axiom 1)

Q: Should I invest spread my investments?
A:Do not put your eggs in many baskets. Ever seen the juggler in the circus who performs with balls. He has with him few balls. If he increases the number of balls, he loses control and his entire act falls flat.

Same is true of investment. Remember KISS, an acronym for Keep It Short and Simple. KISS your portfolio. Have a limited number of companies in your portfolio. Do not subject to the allurement of extensive diversification. If you have a wide portfolio, the losses and gains tend to cancel each other. It is best to put all the eggs in 3-4 baskets and watch them closely.

Q: When should I sell ?
A:Sell too soon. Don’t hope for winning streaks to go on and on. Don’t stretch your luck. Expect winning streaks to be short. When you reach a previously decided-upon ending position, cash out and walk away. Do this even when everything looks rosy, when everyone else is saying the boom will keep roaring along. (Zurich Axiom 2)

The only reason for not doing it would be that some new situation has arisen, and this situation makes you all but certain that you can go on winning for a while. Except in such usual circumstances, get in the habit of selling too soon. And when you have sold, don’t torment yourself if the winning continues without you. It is better to take your profit too soon. Decide in advance what gain you want from a venture, and when you get it, get out. Do not be a greedy monkey. Remember what happened to Isaac Newton.

Q: When the ship starts sinking, do I hold on?
A: For heaven’s sake don’t become a martyr. You are not the captain of the ship. So jump. Don’t pray. (Zurich Axiom 3).

Accept small losses cheerfully as a fact of life. Expect to experience several while awaiting a large gain. Learning to take losses is an essential speculative technique. MOST never learn it. Take losses at once and move on. Take small losses to protect yourself from the big ones.


Beware of the three common demons,
Post bail out dissonance – fear that the stock might turn around once you quit.
Unwillingness to divorce - you have emotional attachment to certain stocks. You may not want to relinquish them.
Vanity – bailing out most often means that admitting you have made a mistake in the first place in acquiring them. Do not be obstinate. You are in the business of investing to make money, not to assuage your ego.