In the world of investing, success requires a lot of personal qualities and behaviours. more than just luck or timing. This blog will explore how the deadly combination of long-term focus, continuous learning, and passion are essential ingredients for any investor to achieve long-term success in the stock market. (Featured image credits: https://www.pexels.com/photo/person-holding-white-chalk-625219/)
Hi, This is Venkatesh. I write on Personal Finance, Stock Investing, Productivity and Time Management. You will be interested to read more about me and the purpose of my website.
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Long Term Focus
This is closely related to the idea of patience that we discussed in an earlier blog. There are many approaches to stock investing. One of them is long term investment where you invest in companies that are expected to grow their earnings in the years to come. This increase in earnings leads backed by growth leads to PE rerating which gives you better returns. However, I wish to add a caveat that the earnings growth must be supported by other factors like good management, huge opportunity size, competitive advantage etc.
Business focus on Long Term
This growth in earnings does not happen overnight or in a few quarters. This would take a few years. Here comes the importance of long term focus. Long term perspective requires patience an essential quality. This Long term focus helps to overcome short-term market fluctuations.
Business and companies focus on the long term. Passionate managements do not think about the next quarter are not even one year. But for a decade. They have a vision of where their company should be in 10 years. Accordingly, align their present-day actions. As investors, you are sharing a seat in the journey of the company along with the management. So, you also need to have this long term focus to reap the benefits from a company’s growth.
Why is this important?
A long-term focus is important in investing for several reasons:
Time in the market is more important than timing the market
Trying to time the market or predict short-term fluctuations can be challenging and can result in missed opportunities. Growth of a company takes time. It does not happen in a quarter or even in 1 year. Even for a company growth at 25%, it takes some 3 years to double its revenue. Only investing for the long term you can benefit from the growth of the company.
Reduces emotional decision making
Investing can be an emotional rollercoaster, with markets fluctuating up and down. By focusing on the long-term, you are less likely to make emotional decisions based on short-term market movements, which can lead to buying high and selling low.
Provides time for research and analysis
Investors have more time to research and analyze potential investments. This results more informed investment decisions and a higher probability of better returns.
Better Alignment with Company Performance
Companies often make decisions with a long-term focus, such as investing in research and development or expanding into new markets. By holding investments for the long-term, investors can align themselves with the long-term goals and performance of the companies in which they invest.
Passion
Passion is a strong emotion that drives individuals towards achieving their goals. It helps you keep going regardless of the challenges you encounter in your path. When you have passion towards something, you love doing it.
Why is this important?
A few characteristics of investing are:
- A long-term focus is needed as the outcomes take years to materialize. Although it’s easy to discuss long-term focus in a blog like this, it’s much more challenging in reality.
- Markets will experience significant volatility, resulting in your investments dropping.
- Your conviction on the stock idea will be tested during the years of holding.
- Sometimes your thesis may prove incorrect, resulting in potential investment losses.
You will see that there are periods of up and down in this long journey.
How does passion help you?
You need to stay motivated during difficult times in your investing journey, you need stamina, interest, and motivation. Passion is a powerful force that helps you focus on your investment goals and persist in your journey despite challenges and setbacks.
In investing, it is also important to have a strong drive to continuously learn, research, and improve your investment approach. Passion can help cultivate a deep curiosity and interest in the stock market and the companies you invest in.
Successful investors have a passion for investing, and eagerly seeking out new opportunities, ideas, and experiences. Passion also complements the trait of continuous learning, as it motivates you to spend more time studying and analysing companies. This leads to a deeper understanding and expertise in a particular area of the stock market, ultimately enabling you to make better investment decisions.
My Own Experience
After suffering a significant loss in the markets in 2009, I remained out of the market until 2012, occasionally buying and selling. However, my passion for reading led me to devour books on investing, which helped me learn and grow. I enjoy exploring new things, learning from my failures, and stepping out of my comfort zone. These qualities, combined with my investing knowledge, allowed me to re-enter the market in 2014 and jump-start my second innings in investing.
During this phase, my focus shifted from making money to learning more and experimenting with new investments. I developed a passion for spending time learning about specific sectors or companies, building a portfolio around them, and waiting patiently for my investments to grow.
Of course, there were failures and bad investments along the way, but I used them as opportunities to improve my framework. This passion for investing has sustained me for over a decade, and I continue to enjoy it, regardless of the outcomes.
Continuous Learning
Continuous learning is another vital quality for success in investing. This is because the stock market is constantly evolving and changing. As investment philosophies, investment landscape, and companies in which you invest are continuously changing, learning is perpetual and essential. This evolution has become even faster in recent years.
To keep improving your investment skills, you must continually acquire new knowledge about investing, new investment opportunities and industries. You can gain knowledge through various means, such as reading books and journals, as well as interacting with market experts and veterans.
Benefits
This personal quality brings in multiple benefits
- Keeping up with new investment opportunities and identifying potential risks.
- Continuous learning enables you to refine your strategies and framework with new ideas – Critical quality to long-term investing success.
- You also gain insights into your biases that may lead to poor decisions.
- This quality improves your analytical skills, enhances your understanding of financial statements, enables you to interpret strategies from financial statement analysis and helps you to form opinions on accounting quality, future growth, and more.
- You stay updated with the latest trends, news, and developments in the market.
All these lead to a deeper understanding of the companies they are invested in.
In summary, continuous learning is essential for investors to make informed decisions, minimize risks, and maximize returns over the long term.
My Own Experience
When I started learning about investing, I read 8 to 10 books by Benjamin Graham, Peter Lynch, and Philip Fisher. At that point, I felt like an expert and believed I knew everything. However, I encountered difficulties in applying my learnings in the “Indian context”. To gain insight from Indian investors, I turned to books authored by Shri Parag Parikh, Basant Maheshwari, and Saurabh Mukherjea. Another source was media appearances of Rakesh Jhunjunwala, Ramesh Damani, Raamdeo Agrawal, and Saurabh Mukherjea. As my learning journey continued, I gradually realized how much I didn’t know.
These experiences allowed me to not only gain a deeper understanding of investments and also of myself. Consequently, I developed an investment framework that was tailored to my individual needs and limitations. Despite my 11 years of experience in investing, I still feel that there is much more to learn.
Note: I am in markets since 2008. However, till 2012, I was investing without knowing anything. I was also briefly out of the market from 2009 to 2010. Only after 2012, I started to learn about investing. The above reference to 11 years in investing is from 2012, the year when I started to learn about the markets.
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