Sunday, March 28, 2010

Journey So Far - Part 2

I promise this is going to be the last post on my personal experience and soon I shall get posting about 'Stocks'.Carrying on from where I left in the last post,soon after reading that quote from Buffett I got my hands on The Intelligent Investor. I found it a very enjoyable,absorbing and enlightening read(many people feel its too boring).It just made so much sense and the principles laid out were timeless even though the book was written more than 50 yrs back. Ben graham must have been a genius to have come up with something like this which made investing look like more science than art. No wonder Buffett held it in such high opinion. I believe any investor or anyone having anything to do with stock markets and investing would be well served if they read this classical work. Ben graham could easily be credited to be the founder of Value Investing even though he didn't call it that. I was an instant value investing convert after reading the book.

This book served like a catalyst and I was soon reading a lot of books on Investing particularly Value Investing. It was a very steep learning curve and as I read more ,I learnt  about mistakes I had already committed in buying certain stocks. I was caught in a catch 22 situation whether to read more books or get down and do the hard work of researching stocks.  Let me confess I took the easier route of reading books which was any day much easier and enjoyable than going through annual reports and other documents. Due to this I ignored doing much work on stock research and paid the price as the markets rebounded sharply.

As the markets started going up ,due to lack of research I sold a lot of stocks early and also missed out on picking up good stocks at depressed prices. The bounce in the market from March 2009 onwards was totally unexpected and took me by surprise. I was still in the process of learning and by the time I could differentiate a bad business from a good one ,the stock prices had already run away. I was kicking myself for not having started learning Value Investing much earlier than when I started. However as the smart investors say,one shouldn't get impatient and the market always gives opportunities. As the markets continued to rise,I was still looking for value stocks and found that one could still find them in the Small and Micro Cap space. I was also simultaneously reading books and blogs and was having all kind of ideas in my head ultimately going nowhere. However I was lucky to not suffer many losses and come away with decent gains in most of what I bought. Since I had entered the market at such depressed levels there was no way I could have made losses.However the question remained whether the gains were due to my stock picking skills or due to luck(most stocks have doubled from their lows and anyone picking random stocks could have fetched handsome returns).

Coming to the present ,I am still looking for bargains but am hardly finding any given the current valuations of the market.A lot of ideas like Quantitative vs Qualitative investing and small/micro cap vs large cap are going on in my mind. I have developed a bias towards small and micro cap stocks as I feel that this is an area where individual investors have an edge if they do their homework. However the problem with them is the low liquidity which also affects Bid-Ask spreads and the volatility. Additionally in India with the low standards of disclosures and transparency it becomes really hard to get information on small /micro caps(sometimes its hard to get just the Annual Reports). Even if one does find Annual reports they hardly contain any qualitative data.However I strongly believe that there are a lot of hidden gems to be found in this space and  I shall  strive to do that through this blog. I have also been pondering over how I can adopt a Quantitative approach with above market returns. This has the advantage of being free of behavioral biases and less time consuming which is very important for investors like me having day jobs.

I have started this blog with the aim  of documenting my reasoning and thought process and bringing discipline in my investing .I enjoy investing for the intellectual challenges it provides me more than the monetary gain(also believe that the process is more important than the outcome).Enough of talking now,time to get to work. I will try and post some stock ideas in the coming days and also hope to have rewarding discussions with other investors. If you are reading this,thanks for dropping by and surviving my long and boring posts,feel free to give your feedback.
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