Weekly Insights #37- Maturing as a Stock Market Participant
Key realizations over 9-year market journey
2023 marks the completion of 9th year of me being full time into the markets.
If I look back over these 9 years, there have been certain points in time wherein a realization changed the way I approached & participated in the markets.
My initial 3 years in the market were around Trading. And I think 90% of new participants enters the market through trading on the back of lure of quick gains; same was the case with me.
Within trading as well, I started with the most risky approach of FNO, then move to a lower risk cash based positional trading (thanks to me coming across the work of Mark Minervini). And then shifted to a slightly longer time frame trading on the back of getting introduced to William O’Neil’s work.
By the end of 3rd year, two important realizations marked my move from Trading to Investing ie. from a technical based approach to a fundamental based approach.
After taking N number of trades, analyzing them and also looking at some of the big moves of the past, I realized that I was looking at it backwards. Price movement or pattern was an outcome of a company’s fundamental performance and not vice versa.
And thus, a better edge would be to figure out the fundamentals of the company which in the future will lead to a strong price action.
2nd was reading an article that was talking about how there are many examples of billionaire investors, but hardly any example of billionaire traders, which made me realize that I was playing a game that has historically shown high mortality and is a more difficult one.
So, in my 4th year, I shifted to a more fundamental based approach.
Reading the book of Mr. Basant Maheswari further solidified my belief that I am moving in the right direction. His book showed how investing based on fundamentals can create substantial wealth; all the examples being in the Indian context further increased the conviction on fundamentals being the right approach.
However, my journey with fundamentals started with a quantitative approach looking more at reported numbers and figuring out the right investment.
But doing so for a year or so and again reflecting on the past winners, I realized that I was again looking at it backwards.
Like how technical setups did not dictate the future performance of a company, similarly past & current numbers did not dictate the future numbers to a large extent.
It was actually the qualitative aspects of the business & company that leads to a company reporting a certain set of numbers and these numbers would then eventually create a price trend.
And with this realization in my 4th year in the market, I started focusing more on the qualitative aspects of a business, using current & reported numbers to substantiate these qualitative aspects and using technical or price trend as a confirmatory tool to see if the market agrees with my thesis.
The journey over last 5 years has been to figure out the key qualitative aspects that will drive a company’s earnings growth. And this has been based on the learnings from live investments made over the years and looking at what worked & did not work for other past case studies.
And this overtime led to our 6-Key focus area framework, as I found that one or more of these qualitative aspects were recurring elements in big winners.
So, the broader theme over these 9 years have been to zoom out and think & approach the market more from a 1st principles perspective. And that is what I believe is a sign of an investor maturing.
Another important theme has been to keep reducing the risk quotient, increase the repeatability quotient and increase the longevity in everything I do in the markets.
I believe that anyone who stays long enough in the markets will do very well. The biggest mistake people make is trying the reduce this time-period required to achieve the success and in process gets burned.
That’s it for this week; due to some travel plans, I would be skipping new post for 2-weeks. Next post will come out on the 1st week of 2024 which would be around reflections & learnings of 2023.