Like many other Indians, I entered the stock market during the Covid pandemic. During this period, the investment world was filled with an astonishing amount of euphoria. People were uttering magic spells like "shorting", "upper circuit", "Lower circuit", "IPO", and many more.
Within a short span, I realized I am ill-equipped for this journey. I cursed myself for not taking the elective paper on stock market investments taught by one of the stalwart professors during my college days (I still feel sorry for that). The urge for learning was at its peak; I took a few online courses and started reading a few books. In contrast to the people around me, I couldn't digest the frenzied state of excitement. I could connect with the adrenaline rise of a video game but couldn't with investment.
For me, risk and euphoria are not the same. Going for calculated, emotionless investments contains the essence of risk but not the intoxication of a gamble. Somehow, I prefer the first one to the second. On the other hand, all the WhatsApp communities I joined and social media handles I followed were celebrating something I couldn't comprehend, the sheer pleasure of "magic spells". I desired to be part of trading as an emotionless act of growing my wealth. However, listening to those conversations about trading made me feel like a stranger. I kept my mouth shut; I was even kicked out of a few groups for not playing my part. To be frank, I was afraid to drop a word in those groups.
In that confused and desperate moment, a book I was reading started to sound different from the surrounding war cry of trading. For the first time, I started feeling a connection with stock market investments. Let me put my takeaways from The Intelligent Investor by Benjamin Graham.
When a person buys shares of a company, the fundamental is that he or she becomes part-owner of that company. Like in many other areas, people, especially the experts, forgot the fundamentals and believed they were traders. In Graham's narration, a trader trusts in the quoted price of a stock rather than the real value of the company. A part-owner looks for the achievements of the company and the people who manage the establishment that he/she is investing in. Part-owners are not there to make a quick buck or for "once in a lifetime deals" but are interested in the long-term growth of the enterprise. When Graham explained the difference between a part-owner and a trader, I understood my urge to enter the stock market was to become a part-owner rather than a trader. Unfortunately, all the places I turned to for information bombarded me with advice on trading and that was the reason I felt so alienated.
At the time I'm writing this piece, the market is quite bearish after a long bull run. People are worried about seeing their hard-earned wealth getting shrivelled into red-coloured negative numbers in some apps. As per Graham, if your investor journey was far away from speculation and strongly founded on the long-term return, you can ease the perplexion of the market correction, crash or recession. For an investor, a bearish market is an opportunity to buy more shares and that should be the only reason to follow the ups and downs of the market. On the contrary, a speculator who obsesses about the ups and downs starts forgetting the company they are investing in and just limits their focus to the share price.
Graham writes, “Nothing in finance is more fatuous and harmful...than the firmly established attitude of common stock investors and their Wall Street advisers regarding questions of corporate management.”
In contrast with the common market understanding, Graham's idea of wealth creation is not through buying and selling stocks but through holding and earning dividends on that stocks.
Also read: The lessons to be learnt from Benjamin Graham, the father of fundamentals-based investing
Another book that aided me in my pursuit to become a boring investor is The Little Book of Common Sense Investing by John C. Bogle. The title is antithetical- this is not a little book by any measure! John put forward similar thoughts on buying and selling. As the level of stock selling and buying increases, the cost increases. In investment, everything that increases cost is your enemy.
Name it brokerage commissions, management fees, sales loads and all expenses attached with stock movements and mutual fund transactions. Another hidden expense is capital appreciation taxes. The trades one thinks are profitable might not be actually profitable, considering the expenses attached to them.
I always wanted to be a boring investor. I believe in the idea of sharing risk but never have I considered investing as a replacement for gaming or gambling. For me, money is not a means to earn money. As Ghazali pointed out - money is a symbol, an abstract measure, having no qualities of its own, whose value is only maintained by constant motion. In the end, I want to become a part-owner of hundreds of companies that creates real wealth.
Also read: Investing legend John Bogle, who disrupted mutual fund industry with common sense, dies at 89