"Down and Out" said my friend on the phone. I got really worried and asked him "Why, whats wrong?". He said he was very sad over the stock markets and was wondering how many years would it now take for him to recover his capital?
In an attempt to cheer him up, i said " Yeah the markets are down, but why don't u Invest now in a very systematic and small way for the future?", to which pat came his reply "Who has got the funds?"
I was now really stunned. I had always advocated ( not my original idea though :) ) people not to be fully Invested and retain some cash. When i questioned him, he said he had bought heavily close to the peak and as soon as the market started to fall he has kept buying hoping to average it out.
Now please, for heaven's sake never Panic when u see the price of stocks coming down. Check out as to why they are falling. If the factors are very strong and the selling is very heavy WAIT. Wait till u find the selling dries up and all the bad news gets factored in. For example, you can now wait till u see how the US bail out scheme is implemented in case if u r now looking at US markets. Never Panic and buy for the sake of AVERAGING.
Buy because u feel that the business is great and a great opportunity exists. Never buy for the sake of Averaging. In case if u get to know that u have done a mistake, Be bold and try to trim ur losses rather than holding on to the losses.
Remember Investing as they say is like Gardening "Remove ur weeds and let the flowers grow". So don't panic and be patient. Analyse businesses and then hold on. You will definitely hit on a phase when there is not much happening in the market and the market meanders without any direction. That is the time in which u slowly enter and then accumulate during the consolidation phase.
To quote Buffet here "The man who cannot watch his stock beaten into half his price without losing his composure is not good enough to be in the markets" So cultivate Patience and Courage along with Knowledge. Investing is as much about emotion as it is about Intelligence.
The greatest Investors have all been emotionally very strong.So the first step would be to prepare urself emotionally to be an Investor. Be courageous to admit ur mistakes and trim ur losses. Have the Conviction to hold on to businesses if u feel after ur analysis that they are really good.
Finally Never be tempted to put all ur money in either because the markets are too good or because u want to average. Always have Cash in hand. Savings to cover all ur needs and contingencies and then of the remaining disposable Money, Invest 75% and let the 25% remain as cash.
I know it is easier said than done, for I am stuggling to fight off these demons of Panic and Greed and hold myself.But remember that when u win over Nature, the rewards are extra ordinary.
P.S: First Step in markets is to prepare Emotionally and the first step towards a peaceful India is to Kick the current ruling Government out of power. Seems like they have forgotten that it is their duty to protect the people of India.
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