Samir Rachh, Fund Manager at Nippon India Mutual Fund, shares investing insights from his career to help you become a smart investor
The most fundamental thing about investing in the stock market is to recognise and realise that when we buy shares, we don't just pay the price but we also become a partner in that business. It's obvious that while becoming a partner, one would want to get associated with good people and good businesses. There is no point in partnering with people who are not honest, not capable, not passionate, not responsible, and those who are not savvy financially, business-wise and otherwise. Also, there is little sense in partnering with businesses which are not good. This means businesses which have limited growth prospects, poor return on capital employed, no free cash flows, and which are heavily dependent on the government, etc. Thus, the quality of promoters and business are two most important things.
This is the game of buy and hold
Honest persons and good businesses are not very common. Hence, if one is lucky enough to spot them and invest in them at a good price, the worst mistake one can then make is to sell them early just because the stock has done well or it has become somewhat expensive and can go through some short-term correction.
The worst investment mistake one can make is to sell one's real winners early in trying to take a quick, short-term profit or just because of the fear of losing some money in the short term. In this business, most of the money is made by holding for the long-term good companies with good promoters and a good business.
Target price is important but not the end of the game
Most investors, when they buy any stock, have a certain target price in mind based on some analysis and expectations. But once stock reaches its target price, it's not the end of the game. Overall, we are fortunate to be investing in India, a country which still has very high growth potential. Many times, it's difficult to comprehend what could be the possible upside when one buys stocks but if one holds on for long, many times the quantum jump which winners can provide would surprise us. Thus, it's important not to limit oneself with the target-price mechanism as the eventual gains could be much, much better than your original target price.
It's important to recognise mistakes early on and cut them
In investing, chances are high that out of 10 decisions one takes, three-four would turn out to be bad for various reasons. The earlier one recognises one's mistake and cuts them off, the better off one is. Otherwise, the amount of time and energy mistakes would take will make you miss some other good ideas where one could have otherwise devoted the same time and energy.