Fast and steady...

Practically, the first thing equity investors learn about investing is that to make money, they have to 'buy low, sell high'.

In fact, here's an old Wall Street joke that would have been a cliche if it weren't so true. A beginner asks an old-timer, "How do you make money in the market?" The wise man answers, "Nothing could be simpler: buy low, sell high." The beginner asks, "How can I learn to do that?" The response: "That takes a lifetime."

That's not a joke, but investing advice is packaged as a joke. The question is, what is that advice? What does the joke try to teach us? Unfortunately, most investors take it to mean that the way to make money is to time the markets. In reality, the lesson is that you CANNOT time the markets. It's impossible to learn even in an entire lifetime. And yet, that's what investors keep trying to do.

Considering the impressive growth of Indian stock markets in recent decades, it's surprising that any equity investor could have lost money. The statistics are compelling: market values have multiplied 2.2 times in five years, 3.2 times in 10 years, five times in 15 years, 15 times in 20 years, and 18 times over a 25-year span. Logically, one might assume that in such a thriving market, an investor need only participate and adhere to fundamental principles like avoiding poor investments and maintaining a diverse portfolio to accumulate wealth. While this is true in theory, most investors find the reality quite different.

Many investors veer off course, often influenced by their brokers or the prevailing short-term focus in market-related social media discussions, leading them into speculation and rapid trading. Others neglect crucial aspects such as thorough research and proper diversification. Consequently, substantial losses often occur early in their investment journey, prompting them to either abandon investing altogether or drastically alter their approach.

I believe one of the fundamental reasons so many people have trouble investing in the stock markets is that they have severely flawed mental models of what determines a stock price.

The most common model is: 'There are people who know when a stock's price is about to rise. If one of them tells me, then I can make money.' This is the 'tip' model of the stock markets. It isn't so much a mental model as the lack of one. A little broader than the 'tip' model is the 'operator' model. Under the operator model, people believe that there are people ("operators") who manipulate stocks and what one needs is to figure out what the operators are doing and then somehow manage to ride the stock while the operator is pushing it. This model might be realistic for fringe stocks but it's actually useful only for the operators themselves. The individuals who believe in it end up being the 'greater fools' that the clever operators need.

The psychological factor that underlies both these models is the fear of the big guy. Investors believe that there are others-professional investors of some kind-who possess some magic that the small guy cannot access. This is partially correct. I mean, there is magic in investing well, but the small guy can also master it and become a magician.

You just need a handful

If you put together a portfolio of five to 10 high achiever stocks, there's a decent chance one will be a 10-, a 20-, or even a 50-bagger, where you can make 10, 20, or 50 times your investment. With your stake divided among a handful of issues, all it takes is a couple of gains of this magnitude in a lifetime to produce superior returns.

One of the oldest sayings on Wall Street is, "Let your winners run and cut your losers." It's easy to make a mistake and do the opposite, pulling out the flowers and watering the weeds. If you're lucky enough to have one golden egg in your portfolio, it may not matter if you have a couple of rotten ones in there with it. Let's say you have a portfolio of six stocks. Two are average, two are below average, and one is a real loser. But you also have one stellar performer. In other words, you don't always have to be right to do well in stocks.

Summing up, this leads us to a few steps: identify likely stocks that will do sustainably well, research them, buy them and track them. The question is, how can we do all this without putting in the kind of time and effort that a professional can? I'm sure you know the answer to that.

This is exactly what Value Research Stock Advisor does for you. It gives you not just a list of stocks to buy but an investment thesis. More than that, our researchers and analysts keep re-examining the thesis and keep it updated and fresh, so to speak. Members get not just the 'what' but the 'why.' You need all the help that you can get. That's the role of Value Research Stock Advisor. We don't pretend to make all the decisions for you-we are your research assistant team, but our goal is to make you the investor.

Let me just recap what you get when you become a member:

• Access to all our stock picks
  
• Selected stocks from our recommendations. Use this set to start building your portfolio right away!
  
• The complete investment thesis for all recommended stocks so that you understand why you are investing
  
• New recommendations as soon as they are released
  
• Continuous updates and analysis on all recommended stocks straight from our dedicated analyst team
  
• Tools and data to research and analyse any other stock

To start immediately, head over to valueresearchstocks.com, read the details and become a member.

Also read: Picking up the momentum