“It Is Not The Time when You Enter The Market But How Long You Stay Invested”
- one of the most inspiring and greatest quotes of Warren Buffett that I have come across in my life.
In today’s episode we shall be discussing on what is real investing, and why real investing requires a lot of grit and stubbornness.
Investing vs Trading: First of all, we need to understand what is real investing and how it is different from trading. Both investors and traders make money from the price movement of the security, but the investor aims to get larger returns by buying and holding the security over months and years. On the contrary, a trader aims to enter and exit the positions in shorter time frame.
An investor takes advantage of the price movement, dividends, stock splits, the company’s growth and profitability, over a long period of time, therefore ruling out the inevitable market fluctuations.
Problem with beginners in the stock market: People enter the stock market thinking that the market is for earning money in the short term, but soon realize that it is a misconception. Stock market is not a place to earn money rather it is a place where you can grow your money.
Beginners sometimes, believe that timing the market is easy, and keep waiting for the price to fall thereby losing out on the opportunity to buy a good security, or keep waiting for the price to rise beyond their targeted price, and eventually sell at a low.
Why you should require a lot of grit and stubbornness: The stock market never remains stable, it fluctuates up and down. Equity markets plunged by 40% in Mar’20 due to the COVID-19 crisis, but those who remained invested soon saw the markets more than double from these lows in less than 1 year.
Similarly geo-political events, government policies could suddenly can change suddenly, testing the investors nerves and patience. Real investors have the patience to wait for the market reversal, as they always do, and sometimes with a rally.
Disciplines to maintain for real investing: An athlete trains himself by setting milestones, building his stamina, knowing his strengths and weakness, before he takes a long race – actually creating and sticking to a plan for winning the race. Similarly, a real investor creates a long term investment plan, sets the goals, risk tolerance and relentlessly follows the set path.
As the markets change, a real investor avoids temptations, waits for the right opportunities to buy and invest without fear, and exits as per the set plan without being greedy.
This is the discipline that pays off eventually.
Being a successful investor, requires grit and patience. The more disciplined approach of setting financial goals, doing enough research, investing through SIPs, maintaining the right asset allocation, giving longer term horizon are some of the key characteristics of real investors.
We hope you have learnt something new today, as it is our constant endeavour to educate and make an ‘investor’ a ‘sound investor’! Happy Investing!