There is nothing other than Investing which could mesmerise, yet confound and perplex you, all at the same time. The Stock Markets are up nearly 40% from the March 24th lows, some stocks are up 100%, the economy seems to be troubled, Covid-19 cases are on the rise in India and US, so are we in a Bull Market or is it a Bear Market Rally?
The Bull Market or Bear Market will depend upon what position psychologically you take more than fundamentals, which makes it the most interesting part in the Investment process. Economists are crying out, yet the market is puzzling, Quarterly results will be bad, the markets have discounted it and it is moving up like a rocket not waiting for any more clarity.
In no other business, you get into the game after 40, rather than investing, the older you get the better you get at investing. This is the most fascinating part of the game, you wait for getting older because as you get older, you would have seen at least 2-3 recessions over a period of 2 decades and probably 2-3 stock market falls which has cemented your learnings. Experience is one of the most important valuable assets in the journey of investing, nowhere else can experience be such a valuable asset as much as in investing.
Lowest probability of events will happen, Warren Buffet compounded his money at 20%, Jim Simons did not follow any of the methods of Warren Buffett and yet he compounded his money at 66% from 1988. Jim follows only a quant method, focussing on price and volumes and exploits the inefficiencies of the market. Warren Buffet focuses on fundamentals of buying an asset for what it is worth, and holding for a long period of time, both are extremely successful yet diverge on the process they follow, the most critical thing to note is control is the cornerstone of both individuals.
Most companies want to grow, most companies want to deliver shareholder value, reward employees and achieve success. Majority of the listed companies fail to meet their cost of capital; this is the biggest oxymoron of investing.
Investing is all about human behaviour, the collection of individuals, collection of institutions and collection of events will determine the trajectory of the market, this is probably the only reason market inefficiencies exist in the market.
Investing is a very good teacher, one day it raises you to the sky, the other days it teaches you to be humble, it raises your arrogance fooling you to believe it’s all skill and one day it teaches you it’s all luck. The learning process never ends and the battle of luck and skill keeps on continuing without an end in sight.
In investing, the news drives the markets, but the news has an effect on price and not on what the asset is worth. They key to understanding what will make you wealthy. Price gyrations test your mental fortitude more than anything else.
In the Investing world, the icons are all above the age of 40 or 50 years, unlike sports where its only young people, in business especially tech world, prodigies have been young. The crucial reason for that is compounding, which works on time and whatever the method you try you can’t compound beyond a point without time. Warren Buffett earned the majority of his money only after the age of 50.
Investing is spectacular, people are handsomely paid, fees never stop as oracle of Omaha states, but underperformance continues for long periods till the client is frustrated and withdraws his money, this is the only business where probability is against the fund manager yet the confidence to deliver is the highest.
Investing is a knowledge driven, hard game, yet the majority of the people play the short game of trading which merits no knowledge of fundamentals, only the understanding of price and volumes or some directional movement. The tug of war between short game and long game continues only because humans are impatient and want gratification quickly, even though the odds of creating wealth in the long game is a foregone conclusion.
Investing is a combination of probabilistic outcomes with deterministic inputs. How much is deterministic and how much is probabilistic is subject to debate, like the skill and luck debate, how much of investment is skill and how much luck? No one knows, this is what makes investing a brilliant game of intrigue.
Investing is the only game where a school dropout can go on to beat someone from the Ivy league university, or even people who are professionally qualified with finance certifications. This can happen only in this profession, as IQ counts for little, behaviour counts for most. IQ is genetic, probably behaviour may also be genetic?
Investing has fascinating stories of rags to riches, and riches to rags. Probably no other profession produces so many fascinating uplifts and down-lifts as much as investing.
Investing is a money game, and whatever profession you are in, you can’t be out of the money game, this was the most brilliant piece of advice shared with Ramaswamy’s daughter (Krushna Iyer) by Lauren Templeton when she wrote to her in United States asking for advice on investing.
To conclude, money is close to oxygen on earth, as far life is concerned, it hurts when you don’t have it, its absence is felt more than its presence. Investing is married to money, and like any marriage the long game works, the longer you’re married the happier you tend to get even after differences, and with investing it’s the same, the longer your invested the larger will be your investment account with all the trials and tribulations of the relationship.
Authored by Tanvi Mehta, Ramaswamy Ranganathan and Sudaarshan R.