How To Invest
Stocks
Mutual Fund
Knowledge
Mar 22,2024
390
In general, quite a few people are obsessed with beating the market. This thought probably holds true for fund managers, for whom their entire job revolves around beating the market. If they don’t beat the market, the fund they are managing will stop getting inflows. So, they will do anything to report better than the market returns. To them, it may look as if the market is their number one enemy.
For individual investors, the perspective should be different. Attempting to outperform the Market is similar to trying to conquer the ocean, a task one is bound to fail.
To understand the market, we can explore parallels between navigating the stock market and sailing the ocean, here’s how.
Rather than viewing the market as a friend or enemy, we should see it as a force to be respected and to be navigated, just like a captain is alert and cautious while sailing the ocean, investors should exercise prudence in their investments.
The market, like the ocean, is ever changing. Sometimes, changes are visible, sometimes they are not. One should stay afloat and follow the principles that govern investing to harness the potential of the market to reach our financial goals. Just like a sailor trusts his compass to guide him whenever the waters are choppy, we as investors should trust our investment process and allocation whenever the markets become volatile.
Also, when the ocean stirs up a storm, every ship and boat is tossed around. But it is only the best ships which survive the storm and get back on course. The smaller boats can sink and can also be lost forever. Similarly, in investing, we should never keep all our eggs in one basket and we should have a diversified portfolio, even across asset classes. Remember, having a fleet of small boats never makes a strong navy. Similarly, having a portfolio which is spread out only among small companies will not protect you from market downturns. Always keep the fundamental guiding principles in the back of your mind, which are:
- Don’t try to time or predict markets
- Invest based on fundamentals, which is based on the fair value, or the intrinsic value of a company, and not on the Greater Fool Theory way of Investing ( which suggests that there will always be a person who will buy a stock at an irrationally high price)
- Never put all your money in equity. Put some in other safer asset classes. This gives you the option of funding your goal and preventing anxiety when the markets are irrationally down and helps you can add equity at very attractive discounts. And lastly,
- One should always build a strong portfolio with majority of strong company stocks and only a few small companies
In the end, the market, or Mr. Market, as it’s called, is simply a vehicle that makes it possible for us to achieve our financial goals. By understanding and respecting its nature and having a Co-Captain as your fiduciary advisor, we can navigate its waters with confidence and sail towards a brighter future.
So, the next time we find it tempting to try and beat the market, we have to remember the wisdom of the high seas. Ride it, do not try to beat it.
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