stocks for long

The Indian markets have had downward movements in the last few days mainly due to the fall of rupee relative to dollar; but there are always other factors too. The media, as usual, has been going crazy, and naive investors are wondering whether to buy, sell, or keep quiet. Someone said it long back: it is human nature not to be able to sit quietly in a place. There is nothing new here, or elsewhere. The US markets have not been any different. 

While I note that it is possible to find stocks to buy in every market, bull, bear, or volatile, there are times one could do well if one was able to sit quietly for sometime. In investing, there aren't exact rules to follow other than this one: buy low, sell high; or sell high, buy low. There are many ways to achieve this. The game is therefore more of an art than science. 

People think that they can make money by always being active in the market. Yeah, they can, but the chances of consistently being successful in the long run is much limited. That's the reason why there have been very few successful traders and speculators. If we check investing patterns of the rich, we can find that most of them did well by staying in the game for a long, long time. Many of them have had almost all of their wealth tied to one or two businesses, and yet the outcome turned out to be quite good. The reason is simple: they focussed on their businesses rather than anything else. 

It is stupid to argue about things that are not in our control. For instance, oil prices and currency fluctuations. We have witnessed these things, and more weird ones, in the past. Yet, businesses have prospered. It is therefore much better and easier to concentrate on the businesses we like, pick the stocks, and be part owners and enjoy the ride as long as we continue to like those businesses. Let the managers worry about how to deal with: the operating, financing, and dividend decisions. When businesses are good and managers are honest and able, there is little we can and should do to alter. Buy right, and sit tight: There is much money to be made when we don't interfere with the compounding math. 

Alas, not many can understand this simple, yet powerful game. Get rich quick is what lures them; nothing can be worse than one's neighbor getting rich. Even Gekko would have probably agreed that envy is worse than greed. 

When markets are overpriced, it is better to pick a book or go out. When they are underpriced, it is better to buy our favorite businesses at prices that we like. When markets are volatile, either sit quiet, or simply set up a program to buy the index itself periodically. In fact, index buying is great for people who do not understand the game. Such buying will ensure that prices are averaged out and returns are satisfactory. The only condition is that the index buying period should be continuous and for a very long period. 

Of course, there are times when I like to indulge in trading. After all, I find markets fun all the time. The capital allocated to trading is tiny, but it lets me have fun. And that's the key. We should not allocate a significant amount of capital to speculation; that will be silly. 

It is easy to summarize: Select the businesses that we like to buy. Wait for the right price; let the wait be for long, no problems; there aren't penalties. Keep a good portion of capital for this. In the meantime, set up a program to buy the index each month irrespective of market prices. That way, we are in the markets all the time. When the price is right, buy the stocks, and hold for as long as the businesses are sustainable. The idea is to hold both stocks and index for a very long time, preferably more than a decade. Sell stocks when the underlying businesses no longer possess long term competitive advantages. When the selection is proper, such situations should be rare. Do not look for hot tips; do not follow anyone's stock portfolio. These are stupid ideas. Someone else's conviction will not do any good to us. Being in business is a long term game; so is being in stocks. 

Want to have fun? Go out and enjoy. Pick a book and read. Indulge in hobbies that make you happy. Want to trade in markets? Allocate an insignificant portion of capital, and speculate to glory. 

To make decent money from markets is not very difficult with right behavior. There isn't complicated math here. Think long; think long term, and it should be fine. And if we stop comparing ourselves with others, we should be fine too.