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44 Insights on the Stock Market For The Smart Investor

Principal consultant with 20 years experience in financial industry
Dec 30, 2017 12:41 PM 9 min read
Editorial


It’s that time of the year when we indulge in the annual exercise of making New Year resolutions, ranging from exercising regularly, eating healthy, learning a new skill or to quit smoking.

 

What about someone aspiring to successfully invest in the stock market? Here is a list of 44 ideas to help you to be a smart investor. The ideas also double up as an intelligent investor’s manifesto of sound investing practices.

 

The secret of getting ahead is getting started. Although no one can make a brand new beginning, anyone can start from now and make a brand new ending we always dreamt off.

 

A quick word before we begin

 

Before we start with the New Year resolution ideas, few quick thoughts from my side:

 

  • Most of the ideas are inspired by my readings of the timeless wisdom shared by our Investing Gurus. The list is not something that I sat and dreamt on. However, if you find any of the ideas to be poorly worded or framed then the blame is completely mine
  • The ideas are listed here in a random order and not in any particular order of importance. You are your own best judge to choose the idea(s) which will give you the highest payoff. You may choose to follow any, many, none or all of them. E.g. Idea no. 26 may be more useful to you than the idea listed at no.1
  • Pause and take a moment to reflect on each idea before proceeding to read the next one. Each one of them, I believe, are very potent on their own. Let not the sheer quantity of ideas listed bog you down
  • I wish to emphasize that New Year is just another pretext to start something good. Every day is a good day for starting sound investment practices
  • Lastly, I strongly believe, the list of ideas can also serve as a collection of sound investing practices which can be referred to and referenced anytime. Bookmark this page and revisit it as and when you feel the need

We are good to go.

 

Resolution Ideas

 

  1. I will only invest in shares of companies whose business model I can easily understand and are well within my circle of competence
  2. I will generally invest with a long term orientation of few years as I am quite confident that over the long term, the returns of from owning quality businesses acquired at reasonable valuations are fairly predictable
  3. I will always insist on a sufficient“Margin of Safety” while making an investment as the return of capital is more important to me than the return on my capital
  4. I will strive hard not to be a market timing genius, instead be invested in the market riding on quality business acquired at a reasonable valuation having a reasonable runway of growth ahead of them
  5. I will strive hard to learn lessons from my past investment mistakes. Even better, I shall try to learn from other people's mistakes as it is highly unlikely that I can commit all the mistakes by myself and more importantly, it is a lot cheaper
  6. I will rigorously study and analyze companies to find good businesses to invest at attractive valuations and in case I don’t find any, will happily let my money stay in the bank
  7. I will constantly remind myself that I am in for the long haul to get over the “itch to do something” and hence will patiently wait for swinging hard only at the “fat pitch” which is well within my zone
  8. I understand that even the most seasoned pilots refer to their checklist before take-off. Similarly, irrespective of the number of years I have spent in the market, I will always refer to my investing checklist before buying or selling any security in the stock market
  9. I will display flexibility and humility to cut my losses quickly as I understand that a 100% success rate is not a realistic goal as all the investment ideas may not pan out the way it was originally envisaged
  10. I will always keep sufficient capital as reserve ready to be deployed at a short notice for quickly taking advantage of the bargains Mr. Market throws up suddenly and once in a while
  11. I will do all my homework along with a rigorous analysis before taking up a position on a security as I understand that investing in a hurry may lead me to repenting in leisure
  12. I will not involve in the foolish and ultimately a futile pursuit of buying a security at an absolute low and selling it at an absolute high as this can be done only by absolute liars
  13. I will work, work and work putting in the long hours while burning the midnight oil as I clearly realize that investing success is 99% perspiration and 1% inspiration
  14. I will strive hard to have an independent line of thinking while analyzing businesses for investing and hence will try to read more annual reports instead of analyst reports
  15. I remember the adage “If you don’t know where you are going, you will probably end up somewhere else” and so will clearly write down my investing goals that I wish to pursue in the stock market 
  16. Before I invest in a security, I will write down my investing rationale on a piece of paper to check if I have the necessary clarity of thought and also to help me validate again whether the investment rationale is still compelling enough
  17. I will not let emotions like fear and greed get in the way of my decision making as I am aware that investing decisions are best done without hindrance of any emotions and with a “business like” state of mind
  18. I will accord significant importance to the investment process as much as I accord importance to the investment outcomes as I am confident a sound investment process will eventually lead to profitable outcomes
  19. I will act decisively with speed and with deep conviction when the opportunity presents itself as procrastination may prove costly in the market, undoing all my hard work
  20. I will strive hard to continually increase my investing capital by spending “what is left after saving” rather than saving “what is left after spending”
  21. I will not involve in the futile activity of trying to predict the future of the stock market, economy, share price, GDP, Inflation or any other macro factors nor will I pay heed to any of the forecasters as I am aware that no one can predict the future with certainty
  22. I will avoid wasting my time watching 24x7 financial news and instead spend my time reading good financial books (at least 1 book a month)                                                                                        
  23. I will never seek advice on what to buy or sell from any broker or market participant just as I would never ask a barber for advise on whether I needed a haircut
  24. I will avoid “Tips”“Inside Information” and “Fads” like the plague as these are some of the sure shot ways to lose my money in the stock market
  25. I will scrutinize and pay a close attention to all types of fees, charges and commission incurred as a part of the investing process with a sharp focus on continuously reducing my investment costs
  26. I will do at least a half-yearly check of my investment portfolio to see if the current investments still make sense based on my original investing rationale and also to see if any asset reallocation is required
  27. I will not focus solely on the nominal returns I make on my investments instead I will focus on my total real returns after taking into account the fees and inflation
  28. I will try to be a smart contrarian as I realize that following the popular opinion of the crowd with a herd mentality and then expecting to outperform the market are both mutually exclusive 
  29. I will never borrow or use leverage to invest in the market as leverage when combined with a bad investing idea is a deadly combination to wipe off my investment capital
  30. I will seek an optimal balance between too much diversification and too little diversification based on my risk profile to protect my portfolio against the various market vagaries
  31. I will refrain from trading too much and too often as I know that excess activity is the enemy of investment returns
  32. Just as I don’t check the price of my house every other day, I will refrain from checking the stock prices often as the prices in the short term are a reflection of the whims and fancies of thousands of participants reacting to information / misinformation
  33. I understand that risk is not a random number but a permanent loss of capital and hence will not try to speculate, guess or take a long shot as they all invariably tend to miss their mark
  34. I will clearly articulate and describe in writing my investing strategy as I am aware that a lack of clarity or a difficulty in explaining my strategy indicates that I am not sure of what I am doing in the market
  35. I will be a keen student of the market striving to constantly improve by being engaged in continuous learning as this is very crucial for excelling in any field including investing
  36. I will strive hard consciously to increase my circle of competence by gaining proficiency in one additional area every year as a larger circle of competence widens the areas where I can search for profitable investing ideas
  37. I will try hard to avoid financial jargons, complex algorithms, fancy sounding Greek symbols and complicated metrics for my investing as I believe that simplicity is the ultimate sophistication
  38. I will constantly remind myself of the cardinal principles of reversion to mean as well as the story of cycles in the stock market because a bull market will follow a bear market followed by another bull market
  39. I will not fall prey to greed and other “get rich quick” schemes as I understand that successful investing needs time for the power of compounding to work its magic
  40. I will choose my investing role models and friends wisely as my choice of investing heroes and friends I hang out with have a significant impact on the type of investor I eventually turn out to be
  41. I will eat healthy, exercise regularly and sleep well as I understand a healthy body is necessary for sound investment decision making
  42. I will readily share my investing experiences and knowledge with others instead of hoarding it as knowledge multiplies on sharing and leads to wisdom
  43. A loving family and good friends transform making a living from the markets into a pursuit of a meaningful life and being truly wealthy. For that, I will specifically focus on having a work life balance and pledge to spend quality time with family and friends
  44. Just as a fisherman puts a small part of the days catch back into the sea as a token of thanks, I will give back to the society at least a small part of what I make from the stock market as a token of my thanks and gratitude

Final thoughts

Unlike a general New Year resolution which gets slowly forgotten when the New Year party and celebrations wear off; an intelligent investor should exhibit tremendous discipline and focus to follow the resolutions diligently until it becomes a way of their investing life. While these resolutions per se will not lead to an investing success, they will certainly provide you a solid platform to help you build one.

As we relax, rejuvenate and take stock of the year that passed by; eagerly awaiting the New Year with hope, excitement and aspirations to fulfill our dreams; I sincerely hope these resolution ideas will be of some use to you.

Happy investing and have a wonderful New Year. 

 

Originally Pubished in Stock and Ladder