Millions of people try their luck in the stock market, but very few actually make money.
It’s not the mathematics or the knowledge of finance that matters; there are some other factors that drive success in the market and no else can reveal this better than Ashish Chugh, the veteran Delhi based investor who always talks sensible thing whether it’s euphoria in the market or carnage.
He is so calm and composed as if like a saint who has obtained salvation or moksha! The best part is that he is always eager to share the secrets of his success on a platter absolutely free!!
Nowadays he stays away from the television and limelight but whenever he speaks one can’t just afford to miss it.
Only a Guru who himself knows the secrets and obtained success can guide on the right path. It becomes all the more important when suddenly everybody is bleeding in the market mayhem. Let’s know what he has to say.
First, temperament is the most important. It is something more important than the education and degree. How you behave when euphoria in the market and how you react when the stock market is going through a phase of extreme pessimism and depression in the bear market is what matters the most.
The second and the most important thing is the ability to remain comfortable when miserable— matters a lot. As an investor you will go through a prolonged phase of a bear market when you’ll find that your investments are bleeding. Portfolio may be down by more than 50%.
That is a point where your patience is tested as an investor. This is like an exercise—to enjoy the fruits of an exercise you need to go through a phase of discomfort. Same applies to investing also. If you really want to enjoy the fruits of higher investment returns, you must go through the bear phase of the market cycle.
Third, one should take the onus of his actions. Rather than blaming Mr. Market, you should take the onus of your actions. You can’t blame broker, analyst or anybody else. So, spend more time doing your homework.
Fourth, don’t clone big investors blatantly. Whenever a big investor takes a position in a stock, retail investors scramble to buy it. This is not an advisable action at all. The focus should be on selecting those stocks that will elicit the interest of big institutions in the stock.
Fifth, the biggest lesson I have learned is to invest in a good management. This becomes all the more important when you’re investing in a small cap. Very little information is available in the public domain regarding these managements. In that context, you should observe the actions of the management in the last 5 years closely. A good management has always a skin in the game. So, the promoter’s stake should be very high in the company.
Sixth, they should be able to grow business consistently with no equity dilution. They should grow business with internal cash flow and may take a reasonable amount of debt.
Seventh, if a company is sharing the benefits with investors through dividends and share buybacks, it’s a good sign of ethical management.
Eighth, Stocks should not be construed as merely a ticker symbol. You have to consider it as a part of a business. Without holding stocks for a considerable time, you can’t create wealth.
Ninth, one should always focus on both valuation and growth of the business. Earlier I used to look to buy value stocks, now I have realized that a value stock will always remain a value stock if there is no growth.
The common characteristics in all those stocks that have turned multibagger are that they have consistently clocked growth in sales and profitability. A growth stock may have slightly higher valuation, but it is worth it. And if you are able to buy it at a reasonable valuation, nothing can be better.
Tenth, Understanding the risk factors in the business is extremely important. I’m always looking at the downside if things don’t turn the way I expected. It is important to know how much money you can lose if your investment doesn’t perform.
The biggest returns come when a stock is out of favor and facing a temporary negative sentiment. I love picking the mis-pricing theme when picking a stock. Mis-pricing can be due to a variety of factors. Some of them can be genuine and some may be market perceptions. If the negatives are of short-term or curable, I’ll go for it provided other criteria are met.
Thanks sir for your wisdom for novice investors like us!! This becomes all the more important when market is panicking.
(The blog is inspired from his recent interview with ET Money Podcast)