What a beginner should avoid while investing in markets?

Investing can be simple but definitely not easy. There is too much of noisy in today’s world. Loads and loads of information flows relating to companies and markets. More than thousands of people share their opinion on news channels, on internet, some people criticize a particular stock and also a particular investor. It creates a confusion for The Solo Investor to what to should listen too and what decision to make. To simplify all this, first The Solo Investor should know what to avoid in stock markets. This will clear the way for some important aspects of investing. Following are the things a beginner investor should avoid in investing:

1. Avoid constant monitoring

The constant movement of the ribbon from right to left on a news channel or a website, the quick changes of the price of stocks and daily news of how much up or down market opened or closed provide too much data on movements of stock markets. The more interesting thing is, if we consume that data, we tend to believe that we are more informed. Use such information during a chat and sound smart. This data is nothing but all the views of participants in the stock market which determine the price at the current moment. And if a stock doesn’t behave as we want it to, we might get afraid and sell it. This usually doesn’t end well for us.

The best way to avoid such situations is imagining that we bought a house. After 2 days the broker says that the price of the house has decreased by 10% and after 2 more days the price decreases 10%. We won’t go out and sell the house quickly because we know such fluctuations are part of the real estate market, it is just that unlike this example, these changes in price movement are slow and over a long period of time. But the prices of the stocks move continuously, but remember it’s just the price moving and not the actual business value. Hence random stock market fluctuations are not that important once we have a long term view for our investments

2. Avoid people on news channels

The people or are on the news channels all the time and giving stock calls do that because that is how they earn their money, by giving calls. What if their calls do not workout as expected? Well it wasn’t a guarantee, was it? Some “experts” also give their industry ideas and business views. While some of them are really helpful, most of them are not. Basically it is your money and you should not listen to someone who tells what to do without knowing your financial situation. These guys have nothing to lose no matter what your investment does.

Some genuine investors come on TV and share their views about the market. But be cautious, why would anyone give their best ideas in a market. Even if a well reputed investor gives his views on TV, acknowledge it, do your own research and if it seems good investment, then act.

3. Avoid forecasts

Morgan Housel in his new book The Psychology of Money said, “33 recessions lasted a cumulative 48 years. The number of forecasters who predicted any of those recessions rounds to zero”. Most of the forecasts we see are nothing but extrapolation of the past. There is a tendency of humans to think the future could be similar to the recent past. This can be justified in normal times until something happens which proves the forecasts wrong. And most of the forecasts do not take such things into account.

No one had any idea that the world economy might see a disastrous halt and that to so quickly due to corona virus pandemic. And at the bottom of the markets, no one new that markets would recover so quickly. People tend to assume that something that has happened in the past will continue to happen in the future, until it doesn’t. Hence it is better to avoid forecasts and stick to our philosophy, principle and be prepared for any situation.

4. Avoid Euphoria

Euphoria is present in the market when it feels like nothing can go wrong. Stocks only go up and everyone is making money. When the person you know has no knowledge of the markets, gives to tips about stocks. This happened during the great depression of 1929 where people took out loans and invested that money in stocks. Because why not? stocks only go up and we can make a quick buck. We all know how that ended. The IT boom of late 90’s was similar. Anything with dot com in their name or just a company who is related to the similar industry, the stock of the respective company went up. In the aftermath, many people and institutions lost money and many IT companies went bankrupt. That was one of the biggest euphoria of the history.

Tulip mania and south sea bubble are past examples of the history. If you think you have to be genius to invest in the stock market and require a high IQ, Newton, one of the greatest scientist lost money in the south bubble too. Mostly it all comes down to “THE GREATER FOOL THEORY”. No matter at how much of a high price you buy, there will another fool who will buy from you at a higher price. This doesn’t end well. Valuations of the markets matter, if not now then eventually they do. Hence avoid things that are too high.

5. Avoid competing for returns

Charlie Munger said, “Someone will always be getting richer faster than you. This is not a tragedy”. This words couldn’t be more true. There is no reason to compete with someone in getting rich or getting higher returns. This can cause you to take undue risks and most importantly you would never be satisfied. W

We do not have any assets to gather like funds managers, nor having shareholders to answer which would cause us to compete for returns. Which ever return could satisfy your needs and is above inflation is a good return.

5 points to remember for The Solo Investor

1. Know yourself

Investing basically is less about the markets and more about you. Hence, invest accordingly to your own unique needs and your ability. Needs can be figured out by giving them a serious thought. What about ability? Am I competent enough to invest into mutual funds? Or can I invest directly into stocks? Do I have the skill? Answering questions like this and more similar to the above ones may help to select a particular process to make investment decisions. This would help the solo investor to choose between an aggressive style or defensive style. By looking at the words used, it can be interpreted as aggressive style has more returns than defensive style. This may be right or may be not. The decision to choose between the two should not be depended on expectation of higher returns. It should be depended on what kind of person the solo investor is. For example, if the solo investor can commit a nice portion of time to study business and conduct his own research, aggressive style can be good for the same. If the solo investor does not want to use his valuable time going through lots of texts, annual reports and business data, he can choose the defensive style. If solo investor has emotions in check and can think more rationally, go for aggressive. If you cannot sleep peacefully with your investment decision, go defensive.

2. Investing is not a competition

The Solo Investor manages his own money. He should not be competing with anyone in regards of generating higher returns. Every person’s risk taking ability is unique through which investment decisions are made. Hence a person can generate better returns than others. This can be attributed to many things, his skill, his financial position and most importantly, his luck. Others can try to learn form that person and develop similar skill. Their financial position could also be similar to him but it is almost impossible to have a similar luck. There are many investors who use many differents methods of investing. One reason can be to generate higher returns, but an important reason is that the method works for them. These methods are developed by various unique experiences those investors have had in their respective lives. It is difficult to copy those. Most importantly, in investing business, professional investors have to generate better returns than their peers for various reasons. These reasons can be to keep the clients invested. To attract more clients and more money. They can also receive the pressure to perform from their clients or employers. In short, professional investors need to show the returns to other people. The Solo Investor does not have to do any of that. He is under no pressure to perform and can separate investing and his own personal life. He can also enter into some unconventional positions without needing approval from others. Hence, The Solo Investor should try and manage the risks, improve the investment process and focus less on competing for returns.

3. Set short term and long term goals

One of the most important thing to consider during making an investment decision is what is the time horizon for which we will remain invested. As we know our life is uncertain and anything can happen anytime, so we might not know when we will require the invested money. Even though such events are unpredictable, we can be prepared for it. That is where setting our goals comes into picture. When we set goals for our investment, we get an idea of the time we would remain invested. So if a goal is set which has a period of less than 3 years or similar, we would wish to invest in less volatile and more safe investment options. If a goal is beyond such a short period of time, we can choose investment options which can be volatile. 3 years is just an example, it can be 2 years or 1 year according to the investor. Setting such goals and preparing for the same gives us a big opportunity. It prevents us from being a forced seller. For example, I have invested money in equity mutual fund and during economic downturn I lose my job, I would have no income and have to use some money from my investments. What if the market has also tanked that year, it may be possible that I would have to withdraw my investments when they have negative returns. I won’t even get the amount I had invested and only part of it. Even though I had a vision of 5-6 years to remain invested, due to conditions which are not in my control, I was forced to sell my investments when they should not have been sold. Preparing goals and acting accordingly might prevent the above scenario.

4. Differentiate between luck and skill

I actually do not have much to contribute in this discussion because there are many other people who are smarter and more intelligent then me on this topic. I would just say what I know here, luck and skill should not be confused with each other. A good decision can give a bad result because of bad luck. A bad decision can give a good result because of a good luck. Confusing the result a 100% outcome of our decision could be very wrong. Even a good decision can give us a bad result. If we do not consider the factor of luck in the outcome, we might change a good decision making process. The more worse situation is, if a result is good despite taking a bad decision without taking luck into consideration, we might keep making bad decisions and the future outcomes would be terrible. Luck does run out sometimes. The best way to deal with such situations is, consider the decision and the result two different things. I read this Annie Duke’s book ‘Thinking in Bets’. Good decisions can create bad outcomes and bad decisions can create good outcomes. Give luck it’s fair share of credit.

5. Patience

Have patience. Investing is an activity which gives result after a substantial amount of time. There can be various things in between which would enable us to change our decisions, but if the process is good, we would come out just fine. Avoid the noise. Be rational in making an investment decision or any decision in life. Don’t follow someone into making a decision because their story is different then ours. Stick to the goal and have fun. Wait for the opportunity, prepare for it and as as soon as it presents itself, grab it. Remember, the solo investor is not managing other people’s money. Hence, he can be patient without giving into the demands of generating returns.

Investing for oneself

Investing is a solo act

In today’s world for an individual investor (or as I like to call us solo investors) many investment options are available. Additionally many investment management companies have created products on such options and raised investment alternative numbers to more than thousand. When I think about investing, I get overwhelmed on seeing such different options to invest. Even though I have some investing knowledge I get this overwhelming feeling of where to invest? in what to invest? for how long to invest? I then wonder, if this is my condition to choose an investment option, what would happen to people who have no basic knowledge of investing? Wait a minute, do such people really give a thought to such things or just chase whatever is popular? The best way to filter out so many options which I have found out is to just look at what I want. You see, investing is very different for each individual. No matter how much some people are alike, they have different needs and are at different life stages and have different conditions. Hence no matter for whosoever so many numbers of products have been designed, I know that I should just find and stick to such products which match my requirement. Here comes the general investment steps to define the investment goal, track it, if it goes out of our expectations then correct it. Which is actually correct though.

Investing is more about oneself rather than the investment alternatives. Hence in a simple thought, every one is a solo investor. Investing solely as they are unique in their needs, expectations, behaviour, knowledge and so many things which contribute to their uniqueness. This is the reason why I can’t copy any popular investor. Even though I do copy him, I would make sure his investment decision would match my needs, which seldom happens. Simply because, they are more knowledgeable, more skillful, have more temperament and patience and most importantly they have different need. Some invest for themselves and some invest for clients. Their client’s need is going to be different then mine. This makes investing a solo act.


Who am I?

Seriously, I ask this question whenever I would consider an investment. I started to ask this question to myself when I read The Intelligent Investor. In it Benjamin Graham talks about two types of investors, Defensive Investor and Enterprising Investor ( Aggressive Investor ). Which investor you become is decided by the amount of time and effort you put in studying the investments. This explains very well about the investment options I should go into. If I am not putting the required effort in studying the investments, I should go for the defensive approach. If I am willing to put in the effort, I should go for the aggressive approach.

Here the defensive approach does not mean using more of the debt investments and aggressive approach does not mean using more of the equity investments. A defensive approach can have more of the equity investments and vice versa. (Though I feel investing aggressively in debt is a not that useful).

Hence, the question comes, who am I? The defensive investor or aggressive investor. I may be anyone but the important thing is, each solo investor might want to ask this question to eachself. ( I will talk about the two types of investor in more detail next time).


Finally, investing is done as per one’s need and focusing on what one actually is. After this, one can look for the investment alternatives which suits both the factor.