Recently we picked up a few stocks
which had been hit badly (during the rupee weakening episode). We also
suggested these to our friends and regular members of the blog. Very unfortunately
for them, the stock went down after we asked them to buy. Their reaction was
that of surprise and shocked that we had gone wrong. Things can always get bad before
they look better. One of the stock we bought was the work-horse HDFC Ltd, which hit a low of 560 recently and
moved up 18% in a matter of 45 days. Let me admit that I could not catch the
bottom of this stock, but I did buy it relatively cheap that assured me safety of capital that we generally look for while investing. This is the second time that
market has given us such buying opportunity in general this year, one can't rule out a third.
The lesson in this is to always preserve your buying power. Keep the power dry
and be ready to invest when the rare opportunity comes by.
You can't make out the bottom of the
stock, but when the recovery begins, the price moves up like it did in the last
one month. And at that point more people want to buy those gems pushing prices
even higher. The other Pharma stock that also tanked, is still around those
levels we bought, making it still a great buy at these prices. Again when the recovery
happens, competition from others will make it far more expensive and at those times, one could be selling. It does not matter if the stock corrects by 10% when you are
so sure that the stock has a killer business underneath. All we need to ensure
is that we monitor the business fundamentals continuously for the several
filters we keep. If that changes, then we sell and look for new value.
Invest as if you are handing over
the portfolio to your next generation, then you would look for those companies
that will grow for next 20 to 30 years and small fluctuation in prices will
stop bothering. Selling a stock shall not be because its price tumbled, but an
irreversible damage has happened to the business, or the model is no more
viable in the new economy.
Our investing mind is wired to get
us into trouble investing, hence always do the opposite of what a regular mind
would direct you. Contradict your action with what the impulse side of your
brain exhorts you. Last 3 years have been tough to investors, especially if you
had not invested in the right stocks, those who were rightly invested, have
stood to benefit.
To be financially free, we need to
change our mind set from net income to net-worth. We need to start the month by
saving for the future financial freedom. You don't invest what is left; you
spend what is left after investing. Income and wealth are two different things
after all.
