"I should buy stocks before the markets run up." "I should sell stocks before the markets crash."
Are these thoughts worrying you while at work, or keeping you awake at midnight? If yes, congratulations! You are a normal human being who is driven by the two emotions of 'fear' and 'greed' when it comes to money-related decisions.
Indeed, these are anxious times for all investors. Nobody knows quite what to expect from the markets over the next few days, or even months. Will the Sensex continue its dramatic climb, as it has since March? Or will it take another staggering drop as it did in the week after the Budget was announced earlier this month? I don't know either!
So why invest in stocks at all, when things are so uncertain all around? And what does one really make of what's going to happen next given that the markets are an extension of the collective psychologies of all speculators and investors that make it?
See, whatever the experts on business channels say, we need to realise that the market is a highly inefficient place to be in. Stocks that we buy and sell are the same that are sold and bought by someone else. In this case, either we have the correct information about the stock and are subsequently buying or selling it, or the other guy is better placed than us to be selling or buying the same stock.
In simple words, when the market provides us with the right kind of opportunities, rather than acting on our own discretion, judgement, and knowledge, we often tend to do what others are doing. So where is the advantage? How do you find and act upon those wealth creation opportunities that others will realise later and by then you would have made your buck...safely?
The answer lies in having full control of our emotions and investing in the right kind of stocks with utmost discipline. Keeping emotions out of the picture while researching companies and valuing their stocks is the best way we can identify the right kind of investment opportunities.
When intrinsic values (determined by business strength, earnings quality, management's long term vision) of fundamentally sound companies do not change but their stock prices come off by 10%-12%, there is only one thing we as an investor should do - take advantage of the irrationality that is prevalent.
After all, as Warren Buffett would confirm, great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause stocks to be misappraised
Are these thoughts worrying you while at work, or keeping you awake at midnight? If yes, congratulations! You are a normal human being who is driven by the two emotions of 'fear' and 'greed' when it comes to money-related decisions.
Indeed, these are anxious times for all investors. Nobody knows quite what to expect from the markets over the next few days, or even months. Will the Sensex continue its dramatic climb, as it has since March? Or will it take another staggering drop as it did in the week after the Budget was announced earlier this month? I don't know either!
So why invest in stocks at all, when things are so uncertain all around? And what does one really make of what's going to happen next given that the markets are an extension of the collective psychologies of all speculators and investors that make it?
See, whatever the experts on business channels say, we need to realise that the market is a highly inefficient place to be in. Stocks that we buy and sell are the same that are sold and bought by someone else. In this case, either we have the correct information about the stock and are subsequently buying or selling it, or the other guy is better placed than us to be selling or buying the same stock.
In simple words, when the market provides us with the right kind of opportunities, rather than acting on our own discretion, judgement, and knowledge, we often tend to do what others are doing. So where is the advantage? How do you find and act upon those wealth creation opportunities that others will realise later and by then you would have made your buck...safely?
The answer lies in having full control of our emotions and investing in the right kind of stocks with utmost discipline. Keeping emotions out of the picture while researching companies and valuing their stocks is the best way we can identify the right kind of investment opportunities.
When intrinsic values (determined by business strength, earnings quality, management's long term vision) of fundamentally sound companies do not change but their stock prices come off by 10%-12%, there is only one thing we as an investor should do - take advantage of the irrationality that is prevalent.
After all, as Warren Buffett would confirm, great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause stocks to be misappraised
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