What makes Buffet succeed where most of us fail i.e. in Equity investment ?

Hi Friend,  

If we want to learn something we would do well learning it from the best. 

As far as Equity investments are concerned there is no one better than Mr.Buffet. 

It is not his Billions that made him great, but his character and his thought process that are instrumental in making those Billions. 

Here is how he overcomes what fails most investors, in his own words.

• Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.

• We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

• A public-opinion poll is no substitute for thought.

• Wide diversification is only required when investors do not understand what they are doing.

• Risk comes from not knowing what you’re doing.

• The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.

• There seems to be some perverse human characteristic that likes to make easy things difficult.

• It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.

• You only have to do a very few things right in your life so long as you don’t do too many things wrong.

• Chains of habit are too light to be felt until they are too heavy to be broken.

• It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.

Check whether we are practicing any of these and if not ask yourself this question, "Am I eligible to be rich"?

Happy Investing.

The Three mistakes to avoid for getting good results in Equity and why land is not that safe?

Hi Friend,

How many times have we encountered our own “Homegrown Pundits” (that often happens to be - our “well wishers”, relatives, colleagues and even passer byes etc.,) who vouch for the “huge risk” in Equity? 

How many times have we heard these very “homegrown pundits” vouch for the “Safety in Real Estate”? Countless, isn’t it? 

The feelings about these asset classes are so closely linked that even the mention of the word “Equity” forces us to think about the “Sweet memories / Safety” of Real Estate.

Obviously, if even the thought of Equity as an investment, forces  us  to invest in land, then Equity should have given us or  at least a majority of  people who invest in Equity,  a  bad experience. 

Let us look into the three main reasons due to which most investors failed to get good returns in Equity investments.
  

Any failure in Equity investments should have any one or a combination of the following ingredients.

Doing it oneself:

• It is hard to believe but often each individual is his / her own best enemy as far as investments is concerned.

• The reason is we don’t ask ourselves “Whether I have the required expertise to do investments myself ?”

• It especially holds true in Equity investment ( which obviously is much more complex than many people think it is and requires specialized knowledge than many people think it requires).

• If we don’t do it right, how would we get good results?

• How can we avoid this pitfall? Mutual Funds give us an option to invest in Equity by hiring a Fund Manager who is good at his job or at least better than ourselves in handling Equity investments.

Investing in Equity when every other person on the street is comfortable with Equity (by the way this generally happens at market peaks):

• Investing in Equity is more about temperament of our own selves than it is about intelligence.

• Let us look into what Mr. Warren Buffet has to say about handling one's own temperament in equity investment. “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”.

• The above quote also answers the question of "when is the best time to invest in equity?". We have to “look around ourselves and ask 'how many people are willing to invest in equity at that particular point in time?'. If a majority is not willing to invest, it might be a good time to invest. 

• That is how Buffet made his billions, by investing in equity when no one else is doing so.

• But, my uncle / aunt / brother / sister / friend.. Says……Yeah, got it. 

• Here is what Mr.Buffet has to say “A public-opinion poll is no substitute for thought”.

• What he means by that is “don’t wait for consensus that often happens at market peaks with disastrous results for you. If you have conviction, go ahead and invest”.

• Obviously one needs conviction to invest in Equity when no one else is doing so, isn’t it?

• Don’t forget “your uncle / aunt / brother / sister / friend…” may not be the best advisers on earth. They certainly are not better than Mr.Buffet (in accumulation of both knowledge and consequently wealth). 

• Instead of giving you a bit of clarity they may confuse you even more by multiplying your confusion with their own confusion.

Investing in Equity for short term say 3 Years are below: 

• This sin can not be forgiven and hence the losses that people incur in Equity investments. When you say “Equity” it should mean “10 years or more”, the longer it is the better it is.

One might ask, “why should I invest in equities with these hellish conditions- have to wait for 10 years, have to have courage, have to have patience etc. I have land to invest  which is far safer…….”

Hold on; hold on, if you want to be financially safe without compromising the quality of your life and want to be rich, Equity is the only option in the longer run. 

Land may not as safe as you are thinking it to be. 

Let me explain this to you.

Concentration risk in Land: 

• By nature investments in land requires a huge amount of capital to be invested in a single location or may be  in a limited number of locations (generally 2 to 3 where you live or where you have relatives to take care of these investments), meaning almost all your investment is concentrated.

• If there is an economic down turn in these limited locations, obviously your entire investment in land is locked up (anyway land itself is illiquid and such down turns multiply the risk) and it may not be useful to satisfy your needs.

• Mutual Funds help you diversify your investments across many locations (obviously companies in a Mutual Fund portfolio operate across the length and breadth  of the country- so there is no single location concentration) and across industries as well.

• Each Mutual Fund invests in 30-40 companies and by having 3 to 4 funds in your portfolio you may be owning around 60 to 100 or even more unique companies that have fantastic track record and operate in a wide range of industries and geographies. Can land beat this kind of diversification?  

Legal risk in Land: 

• How many times have we heard about “Double Registrations in Land”? “Legal issues due to encroachment in Land etc.,”? Not very rare, Isn't it?

• These issues are mainly due to land being un-regulated / laws being not so clear in Land. 

• The value of investment in land may become “Zero” if there are legal issues. 

• No such issues exist in Mutual Funds which are highly regulated. You can have peace of mind in Mutual Funds as no one can “occupy/double register” them. You can have good returns too if you invest for the long term.

Finally, you can live without touching / feeling one of those pieces of land that you own regularly, but you can’t live without Equity / businesses, not even for a single second (the clothes that we wear, TVs, Computers etc., are all manufactured by businesses after all). 

Mutual Fund units are as “Physical” as any piece of land. We may not see the businesses underlying in those Mutual Fund units. But, we can feel the products of those businesses each minute, every day.

Happy Investing.