A thought or two on equity investing in India (Part 1)

A thought or two on equity investing in India (Part 1)

Disclaimer: Equity investing has risks involved. Your investment capital may go to zero. Investment is strictly at your discretion. Author of this article is not responsible for any monetary gains/losses you may incur. The author is NOT SEBI registered.

Equity has been an interesting wealth builder for people. While traditionally, real estate would have been a place to put a bulk of your disposable income, with the recent bull move, many are drawn to direct equity investment. I try to put my thoughts around equity investing in this and next few blogs. 

Read through these scenarios and think to yourself what would you do in these cases:

1. You buy a stock and within 2 weeks, your investment value is down by 25% (or play the opposite scenario: up by 25%)

2. You buy a stock and within 2 weeks, you read news that a famous fund manager has recently sold a huge chunk of their holding in this company (or play the opposite scenario: the fund manager has recently bought a huge chunk of this stock)

What individual investors usually fail to understand is that equity investment is super personal. They also end up asking wrong questions (to themselves and to the "experts" in social media). "Which stock to buy?" "Should I sell xyz stock right now?" "What is the target price for abc stock?" etc. 

There may be 3 ways to increase your net worth via equity investing

1. You buy a stock, keep it for a relatively long term and enjoy the dividend it pays

2. You buy a stock, keep it for a relatively long term, see the value of the piece of business you own appreciate over time- because the business is doing well

3. You buy a stock, the price of the stock goes up, you sell it to make money

There is no right or wrong way among the above three. You can probably use the combination of above three to increase your net worth. 

I enjoy going to two mom-and-pop shops near my home. One sells groceries and the other is a bakery. Nothing special goes on there, but I enjoy watching them sell. Both are relatively small in size. I go to the grocery, get milk, ice cream, snacks, vegetables. I go to the bakery, get bread, cakes and guess what, this bakery has a small unit where they sell fruits and vegetables too. Both shops have similar traits. Both are literally mom-and-pop stores. Owners are the workers there. Both focus on fast selling. Whatever the customer wants is right in front of them and is quickly packed, weighed and given. Both use their limited space very well. They don't just sell what a typical bakery or grocery store would sell- but something more. Both have a car and a scooter. Car used to get things from wholesale market and scooter used for home delivery within a few kilometers- usually done by an assistant worker. 

Why is this topic even relevant to this article?

Owners of both the shops have made pretty good amount of money for themselves. Both have survived for a long time even though bigger malls and online shopping have risen in popularity. To add to this, both shops are right next to each other, selling many common items too!!

There are a lot of things to learn from this and apply in our equity investing- I will probably use my next blog for this. As you might realize sooner than later, my intention is not to provide stock tips, but to slowly enable the reader to ask the "right questions". It might take a few blogs before we reach this stage, but hang in there! 2 minutes of reading a week might not harm you!

Recently, I have gained a lot of interest in watching interview of many Indian fund managers. Available for free on YouTube and usually are knowledge rich! Also, I have loaded up on a number of books on my Kindle app. Many a times, I don't even bother to check the name of the author. I read a few pages available as sample and if I like it, I hit buy. They are not usually pricey. 

A few points that I strongly believe in (and end this blog at that. Yes, I will probably write shorter blogs, each blog appearing like a teaser, but collectively delivering some value)

1. Learning direct equity investing is a slow and interesting process (provided you are really are into it). The "kick" it gives you is slow and pleasurable. If you want a quick high, drink a carbonated drink/vodka/have sex.

2. Like any other skill, you need a keen interest and practice to master the skill of equity investing

3. Equity investing is more of an art than science. It probably needs 10% mathematics (that you learn when you reach middle school) and the rest is your interest, practice, lot of relevant reading and watching. If some of these points seem repetitive, they probably are, for a reason. 

4. There's a lot of noise around you. You become better when you master the skill of picking useful information from this noise

More to follow in my next blog. Happy investing!