ExpertDabbler

It’s been a long time since I wrote a post. I did nothing special in the meanwhile. Visited a few temples - Siruvapuri and Thiruvanai kovil and did some reading.

The most interesting of the reading was ‘Fortune’s Formula’ by William Poundstone. The book talks about Kelly criterion, Edward Thorp, and Claude Shannon (we owe a lot of things we take for granted in our daily life to Shannon).

This month also completes my 16 month experience in active stock market investing. The whole idea started since some of my folks were spending 100 USD per month on playing poker. ‘If they can afford to lose 100USD per month, they might as well give me that money so that I can lose money in the stock market’ was my thought.

How about the experience? ‘Well it depends’ would be my answer. We definitely made some small money but that did not happen easy. This 16 month time forced me to read lot of stuff which I was not exposed to. I’d like to think I am wiser for it.

I learnt that even average investing (forget market beating investing) requires lot of effort, reading boring annual reports, boring magazines, boring business dailies, boring balance sheets, boring books authored by Graham, Buffett, Munger, Mohnish Pabrai. I would not have bothered to read any of those if only I had not invested my own hard earned paisa in this. So in that sense its work. Nothing comes free.

There were lots of ‘gut wrenching’ near misses. Stocks I had planned to buy suddenly went up by 5 times in a short time frame. Some which I lost hope and sold had promptly doubled as if waiting for my sale. Things like these makes you look stupid (and rightly so) but will keep happening anyways I think.

If you have access to CNBC, please tune yourself out of it. You are much better off watching Midnight masala. (one of my standard recommendation, nothing against the CNBC folks)

Same goes for BUY/HOLD/SELL recommendations in papers. The news papers ignore a stock when its trading at 30 Rs, and give BUY recommendation when it has reached 100 in two-three months time. I can quote actual examples.

Help yourself by ignoring ‘target price, stop loss’ expertise offered by technical analysts as well.

Don’t worry about beating the street, beating the koyambedu market etc. Most of the businesses are more cyclical than we would like to believe. What goes up comes down and what comes down goes up in about 2-3 years time. 90% of the listed businesses which get thrashed by the market will eventually survive, turn around and perform good, reach a peak, only to turn loss making in a few years time (app. 3-4 years time). So please go against the ‘BUY SELL recommendations. People who told you to sell DLF for 130Rs will ask you to buy the same DLF for 400 Rs in exactly 2 months.

If your bank gives you X% and you can make 2-3 times of X% then you are doing good. Such a lenient outlook ensures the following

you wont get acidity
you can sleep peacefully at night
you won’t do margin trading, in your pursuit to beat the market.
you wont ‘diversify’ - the less stocks you have in your portfolio, the better. three or four should be okay for the long term.

I did close to 30% in this time frame but could’ve done lot more if only I had controlled the ‘animal spirits’ in me better.

Advice:
Put your money directly only if you like the process - struggling with lot of boring material, reading well into midnight and making calculations, and more importantly have lots of patience.

If you want to make money in the market without any big effort, please invest periodically in any of the index funds (the timing is perfect when CNBC screams, ‘the world is gonna end tomorrow’).

I know that I’ve been ranting more about stocks off late. But I guess its only natural. This is just one phase of my life. For now I am obsessed with this. Not sure what will capture my interest in the next six months.

Plans for this weekend:

- I tried to write a review for Fortune’s formula but did not come out good. Hopefully should complete it this weekend.
- will probably do the same as last week, some nearby temple visit, some reading and more sleep.

Happy weekend!

This entry was posted on Saturday, June 6th, 2009 at 3:59 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.