Especially during the bad times, because that is when the conviction in one’s ideas and approach gets tested. This is even more true in the case of investments because one is exposed to a constant barrage of news about companies, markets, the economy, domestic politics, geopolitics, etc.
Also, one’s investment portfolio is a number that always stares in the face of a nervous investor, and with all the noise around, the triggers to sell and run are omnipresent.
Did a new variant of the virus cause a sudden spike in infections in a country? Did the central banker, whether the Federal Reserve’s Chairperson or Reserve Bank of India (RBI) Governor, say something again on raising interest rates? Did that cause yet another round of concern in the stock markets?
In these turbulent times, the prudent investor is well served with a philosophy that keeps calm amidst the chaos. This is possible only with a high-quality portfolio that enables one to sleep well, even if the markets were to shut down for some time.
Peter Lynch once remarked, “Success depends on the ability to ignore worries of the world, long enough to allow your stocks to compound”.
Without a principled investment philosophy that guides their decisions and keeps them focused, investors are likely to succumb to the mentality of the herd which can take them over a cliff.
In the Indian markets, we are seeing how herds are swarming around a particular group’s stocks driving its price-to-earnings ratios into several hundred, even as most of the group companies carry debt far in excess of their equity base.
A philosophy that enables ‘Quality Investing’ is more important than strategy or tactics. A strategy can change over time whereas philosophy is underpinned by strong principles that guide in decision-making.
There have been several cases of promising stocks that show sudden spikes, only to…
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