Monday, October 17, 2005

Ruminations Over Ten-Baggers

Charlie Munger has said, "There is always somebody who will do things better than you."

Understanding this is very important (I feel from my personal experience) The reason is Human mind is a system programmed to get feedback from things that are around it or variables of the same system, in this case, human beings . In the process the degree to which it gets influenced is erratic. This is the cause for various types of misjudgements or biases, I feel.

Last week I was in Mumbai. I asked somebody whom I know if I can sit at BOLT (Equity Trading terminal) for 3 hours. He agreed and it was there that I learnt an important lesson and I would love to share it with you.

What Led to The Lesson:
The room comprised of mainly day traders (Speculators). The BOLT also had a Technical program. They ran through the charts of stocks that had in essense proved to be Ten-Baggers in the last year or so. They were all also ruminating over the fact that they were in it until it was a double bagger and things like that. The fact that struck me was that they did not care about value at all. What was it worth? That was not on their minds and yet the ruminations!!!

Lesson Learnt:
Coming back to Munger's words, understanding those lines eradicates deadliest of seven sins, Envy. What has envy got to do with Investing? Much to do I feel. Because the returns that we are going to make are to be seen in relation to that of markets and people whom we like or envy(compare to). When we try to compare only the results we miss on the causes and concentrate on the effect. Thus we end up comparing two different variables that constitute a system but in essense have no connection between them.

I think is the best way to deal is to compare our result with the result we intended to seek out, based on the intrinsic value & the purchase price of our stock.

We should seek to recieve what we deserve rather than what we desire. This applies to everything we do, but more so importantly in Investing. Because markets honours humility over the long term, nothing else.

All said and done, Habits dont go away easily and also nothing comes easy. So it is either we learn to change ourselves to the need of the system or contradict the system to find ourselves removed from the system. When ever I am made to choose between contradiction and harsh reality, I have reminded myself

"Contradictions Do Not Exist"(If interested read the article on contradiction & one liners)

I posted this article in the noon, I came across the following words in the Security Analysis (1934) that seemed relevant to the current topic, hence the update:

"The potential profit to be taken into account is not the maximum figure which might conceivably be reached in the market, but merely the highest figure which the operator is likely to wait for before he closes his position. Once a given profit is taken, the additional profit which might have been realized becomes of merely academic interest"


Blogger Shai Dardashti said...

Excellent insights, Arpit. Thanks for sharing!

- Shai

9:35 AM  
Blogger George said...

I second Shai's comment. Thank you for sharing this article for the 30 Days to Becoming a Better Investor project.

9:38 AM  

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