Why success can be so elusive in stock markets?

or actually I should say – consistent long term success !

Most first time investors who started investing into stocks post March – April 2020 must be laughing reading the title of this post.

For them, stock investing is the easiest game in town. Infact many of them must be seriously thinking of permanently shifting their careers. To them, I have nothing much to say at this point 🙂

For rest of us – who have spent few years investing, have seen few cycles, have dabbled at various strategies – we know that stock investing is extremely difficult. Consistently outperforming investors are far and few and most of us at best are average performers.

We are aware that our below par performance is attributable to our own indiscipline on various counts.

Idea of this post is to expand on some of the key reasons that I felt impacted my own performance over the years. See if they resonate with your own experience as well.

Arrogance that I have cracked it

Over the years, I have tried many investing strategies. In the beginning, pure value buying (based on low PE multiples), then growth, then momentum and then a mix of some.

Every time, the chosen strategy worked on some stocks giving me a false comfort that I have cracked it.

Result – I became complacent – something that market just hates !

When the strategy worked on some stock, I tried to do copy/ paste on identifying similar other story and then given my confidence on the chosen strategy, I increased my bets. Some examples –

  • When the value buying worked on PSU banks in 2006-07, I expanded the same towards other Public enterprises e.g., REC
  • When the growth strategy worked in case of Bajaj Finance in 2009, I expanded it towards a highly priced FMCG stock
  • When the pharma theme worked based on some technical analysis, I extended the same towards another sector

There was nothing wrong as such with any of the above approaches. However, what was wrong was my complacency and impatience – that if something has worked 15 days back, it should work again and that too quickly.

This led me to become over confident, take on leverage and compromise on my risk controls. Results – you can very well imagine !

Pressure to outsmart peers

Stock investing is very unique. There are tonnes of easy distractions e.g., social media, business channels, whatsapp groups.

Everyone provides stock tips and inadvertently some of them are bound to do better than your own holdings. Worse – all pricing and performance information is available easily with few clicks.

Problem accentuates when these stocks were recommended by your close friend – so you know that he might be holding it and you are not.

Result – doubt on own investing strategy, jealousy, unnecessary improvisations and never ending search for perfection.

This was a major issue with me in the initial years. However, over period I have taken various measures to address this and now more or less I am in control of myself.

  • Have completely stopped watching business channels.
  • Don’t do any discussion of stocks with my close friends.
  • Have accepted that neither I can nor it’s required to hold every winning stock.
  • Mistakes are inherent part of investing and I can never be correct on all my stock picks.
  • Portfolio management is much more important than stock picking.
Too much focus on headline indexes

Our stock increases by 15% and we do a quick profit booking.

Reason – we feel market is overheated and is due for a correction soon. So better to play safe. One can buy again when the market corrects.

Problem is – this approach just does not work in long term.

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch

There are n numbers of variables that impact stock markets and it’s impossible to track all of them and/ or try to figure out their implications on the broader markets.

Yes, if overall markets will correct, our holdings are bound to suffer. However, the focus should be to invest in stocks that provide higher margin of safety than to try catching every small index movement.

Fact remains, most of the wealth in stock markets has been created by investing into quality stocks and not by predicting the index movements.

Our inability to sit idle and not do anything
  • Not to buy, when there is no reason to buy; and
  • Not to sell when there is no reason to sell

Most of the times we buy because we can not see cash lying idle in our bank account and we sell because we are sitting on some unbooked profits.

Result – we lose our discipline of both investing and exiting.

Either in a hurry we pick up a dud and then keep waiting for it to recover our cost or we sell out a multi bagger. Both negative for our overall portfolio returns !

Social taboo associated with stock investing

People in general still consider stock investing to be a satta.

This is true for even people who have been investing for years. There is still this perception that market is managed by some operators and so whatever you do, you can not beat them.

Beauty is everyone believes so – retail and even some institutions !

This unshakeable belief does creates it’s own challenges in terms of seriousness, discipline, persistence and hence long term commitment in some cases.

I do understand that some individual stocks can be managed. However, for someone to manage the whole market on a sustained basis…. it’s impossible.

I hope, you found the above useful and could relate with some of your own experiences.

Stock investing is a very unique activity. Every now and then one feels to be on the right path when suddenly everything becomes hazy again. Game is to stick on – opportunities will keep presenting themselves !

Some other interesting articles you may want to read –

Stock Investing: My game, my rules

Stock picking is not the key… Capital allocation/ management is !

Management commentaries and what I make of them

Illustration Credit: Vecteezy.com

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Arvind Malhotra
Arvind Malhotra
2 years ago

Thanks Nitin for this latest blog. Sharing your personal experiences is good learning to face & manage market challenges. Though as you have emphasized, it boils down to self-discipline in the broadest term.

2 years ago

Great article 👏

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