If you want to be a successful investor, there are three ways of investing.
- The Intellectually Difficult Path
- The Physically Difficult Path
- The Emotionally Difficult Path
The Intellectually Difficult Path.
The most difficult path that is pursued by very few investors who have a profound understanding of investing, who knows how different businesses work, how economic policies and market forces affect the business environment.
Investors like Buffet, Munger and a few others fall into this difficult path. Here the name of the game is patience. Such investors are always on the lookout for good opportunities and bargain prices. They are not perturbed by events, news that create short-term volatilities.
These investors always believe that opportunities will be always there and will wait for the right moment. They will never buy anything on impulse. They are also emotionally strong, and this is the reason why they are able to exercise such restraint.
The Physically Difficult Path
Due to the volatility in the markets, most of the investors fall under this physically difficult way of beating the markets. These investors are always busy in finding the next best stock to make money and they are overloaded with information.
Day traders and momentum investors also fall under this category. They always look for market news, political developments, monsoon forecasts, inflation figures, budget outcomes, GDP growth, etc.
They tend to time the markets on news and spend their entire day on gathering info and make decisions based on that info. The physically difficult path assumes that there are a lot of opportunities out there and you must keep digging hard to be successful at investing.
The Emotionally Difficult Path
This is the straightforward path that simply works out with a long-term investment policy that is right for you and commit to it. But again, it is not easy to control your emotions and go against the herd mentality.
When your friends or relatives or broker tell you about a great investment opportunity and say it is a great time to buy, don’t buy. When analysts on TV tell you that market is going to crash, don’t sell. When your neighbors exit the stock markets, don’t follow them.
This path too lays on the virtue of patience and the long-term approach to investments is the only strategy that can enrich and increase one’s wealth. All we need to learn to think with our emotions rather than have our emotions do the thinking.
References : Notes from Stocks to Riches by Parag Parikh