Trading is good for your broker and banker -- they both make money on volatility. You make money on patience.
Simple, sharp and witty... P V Subramanyam offers 12 mantras to become a successful investor
1. More than 90 per cent of Warren Buffet's returns can be explained using compound interest, patience, and time. More importantly 99 per cent of his current wealth has been created after he reached 50 years of age.
Learn compounding and patience. Nothing else matters if you want wealth.
2. Transaction costs, management fees, etc. are a reality of investing. So a fixed fee is better than a variable fee.
Paying fee is fine, but you need to decide what works for you.
3. More data you have, generally you are more confident about your prediction. Accuracy is not necessarily connected to volume of data.
4. Watching the ticker channels is voluntary. Using that noise is even more voluntary. Remember they have to sound smart and YOU have to make money. Divergence of requirements.
5. I have seen the personal portfolios of many brokers -- very very few have the patience EVEN in their personal portfolios. Clearly what you do full time spills into your portfolio.
To build a portfolio, you need to be away from the trading terminal.
6. Trading is good for your broker and banker -- they both make money on volatility. You make money on patience.
7. Talk to people who have a dramatically divergent view. Come away angry, but at least you have a different point of view. Much better than talking to your fans / friends / reportees who do not wish to offend you. They are normally boring too. And they hurt your portfolios. Those who challenge you are the guys adding value to your portfolio.
8. Management does not always know what it wants. Bear Sterns, had a constant fight with the Fed for more leverage. So did Lehman, so did Merrill Lynch. All of them were destroyed by leverage.
If you are leveraged, it is worth seeing what these financial geniuses did to themselves. Nothing amusing.
9. A good company with good management bought at a wrong price can hurt for long periods of time.
10. One very big Indian company with a fantastic reputation these days reeks of corruption. By the time YOU know about it, its PE (price earnings multiple) would have come down 50 per cent. Your portfolio could hurt by the fact that you are late to act. Acting too soon can also hurt. Ha! Investing is not easy, is it?
11. Investing in equities is not fun, not easy, it is very boring, but hey for me it has been profitable. Please choose your own poison.
12. The REAL RETURN in a GoI Bond of 30 years, by definition, is NEGATIVE. In equities it is in the range of 19 per cent including dividends reinvestments. Tell me which is riskier?
Photograph: Chris Potter/Wikimedia Commons