5 Signs of Maturity as An Investor

1. You Care Less about the Stock Market, You Care More about the Fundamentals

It is hard for anyone of us to predict the stock market direction. Two days, USA President Donald Trump raised tariffs once again. The market got spooked and stocks fell across the board. A day later, the stocks recovered.

But what happened in between? Thousands of articles being written about how this could spiral out of control and how this is the start of a market crisis.

What’s their value-add?

You stopped consuming too much financials news which  adds close to zero value to your life. Instead, you start to focus on understanding a business better.

Will the business open more stores? Will the business continue to grow its revenue? What is the barrier to entry for this business? Is this management the right management?

The answers to these questions tend to be more financially rewarding as opposed to reading fleeting financial news.

It is easier to predict whether a business is going to grow in the next year as compared to how is the market going to change in the next year. You are buying a business, you are not buying the stock market.

2. You Stopped Playing the Market Because You Know You Will Get Played

There are so many investors who try to time the market so much that they either miss on great opportunities or suffered tremendous losses. You could be doing intraday trading on stocks or options. When you give yourself such a short time frame to be right, you are setting yourself up to big failures.

The stock market may be voting machine in the short term, but it is a weighing machine in the long term. Focus what matters in the next 1 – 5 years, not focusing on things that matter in the next day.

You should never sell your stocks because of a single irrelevant bad news then buy back once things become rosy. That’s not just the nature of proper investing.

What if, the company reported a new collaboration or positive earnings during bad times? Even in harsh market conditions, the company could have significant rise in share price. You would miss out on the potential gains.

In most instances, investors love to play God and try to predict market movements.

A thought:

“The stock might drop a bit more tonight, let’s wait for a while before buying.”

If the stock does not drop and rises instead, it is very difficult to buy the stock psychologically. One should never count the small differences if you know the upside is tremendous.

Stop playing God and focus at buying businesses with reasonable valuations at different tranches. Be prepared to do what’s necessary when situations happened instead of predicting situations to unfold.

BONUS STORY

Peter Lynch ran Fidelity Magellan fund and he achieved a return of 22.5% from mid-1981 to mid-1990. A dollar invested would become six dollars after 9 years.

Surprisingly, most of his investors LOST money! You read that correctly.

Despite knowing they had a superstar fund manager, they still tried to time their purchases in his funds.

When his fund performed very well, most bought more into his fund.

When his fund performed very badly, most sold his fund.

These are very typical herd mentality behavior.

Any investor who did nothing would make 22.5% for 9 years instead.

Doing nothing is often the single most difficult decision. In the stock market, however, inaction may be the best move.

The fact is if you sell out of a stock/fund because it is paper loss, then you never truly understood what investing is all about. You are not long-term focused, you would not have the courage to average down. When the stock is up, you will complain and feel left out. When it compounds further, you will left out in the entire wealth creation process.

3. You Are OK with Temporary Losses, But You Hate Poor Fundamentals

When you are dealing with losing positions, you are likely to feel sad. To some extent, you may feel you are stupid for not “timing” your entry position correctly.

To be honest, I have had positions where I lost 20% on them after buying it. It took me 1 – 2 months before I was profitable on those positions. I was okay because I know those companies are good companies purchased at reasonable valuations.

Take a deep breathe and tell yourself no one can get it perfect all the time. Even if you get it perfect all the time, you still need to sell it at the perfect timing. Tough life, isn’t it?

Come on! Take it easy on yourself. Once you decided that this is a good buy and you have done your work, it is perfectly fine to have temporary losses.

Over the long term, the share price will reflect the earnings growth.

After maturity, you know that a stock does not represent the overall health of the business. A stock is influenced by several factors which has absolutely zero correlation to the business.

A stock that falls 20% does not mean the business lost 20% of the staff or its capability.

“At almost every all-hands meeting I say: ‘Look, when the stock is up 30 percent in a month, don’t feel 30 percent smarter. Because when the stock is down 30 percent in a month, it’s not going to feel so good to feel 30 percent dumber,’” Bezos said Thursday during an interview at the Economic Club in Washington, D.C.

— Jeff Bezos, founder of Amazon.com

“I would be disgusted if somebody ever celebrated our market cap,” Nadella told the publication, adding that valuation is not a “meaningful” benchmark. He continued to say that celebrating such a milestone would mark “the beginning of the end. At Microsoft we have this very bad habit of not being able to push ourselves because we just feel very self-satisfied with the success we’ve had,” he says. “We’re learning how not to look at the past.”

— Satya Nadella, CEO of Microsoft

BUT what you will NOT tolerate is seeing your portfolio of companies reporting bad results continuously or taking too much debt for non-profitable projects.

A deterioration in company’s fundamentals will cause REAL and LASTING changes in the share price.

If a company earns lesser, of course, it should be worth lesser. It’s logical.

As opposed to earlier example, the announcement of trade war will have nothing to do with the sales of Colgate, which is owned by the listed company called Colgate-Palmolive.

You will be ruthless to some of your positions when the earnings fell and the management could not remedy their sales.

4. You Become Less Stubborn and You Dare to Face Up to Reality

In your earlier days, you do not want to cut your stock loss even after knowing that the business is deteriorating. You still give yourself a false hope that the business would turn around.

You are paralyzed.

Now, you are willing to admit wrong and do the corrective action to salvage back whatever capital you have. You are willing to treat it as a learning lesson and move on.

You do not blame yourself because you know there are better companies out there.

Emotionally, you do not fall in love with any companies. You want to see numbers for confirmation.

I had a chat with someone who bought SGX-listed Telco called Starhub at a high price. They do not have enough cash flow to sustain their dividends and share price is falling.

I call it this facing up to the truth and reaching maturity. Maturity is never about age. It’s possible to be investing for 5 years but committing the same mistakes over and over again.

Maturity is the acceptance of past mistakes, removing the chains of self-guilt and creating a brighter future for yourself.

5. You’re Investing to Make 10X Your Money, Not Making the Small Crumbs

In your lifetime, you start to recognize truly exceptional growth companies do not appear every day. You start to recognise big opportunities like this.

Instead of investing without a strict criteria, you decided to invest in the BEST companies.

Instead of making 20% happily then sell the stock, you decided to adopt a different mentality now.

Instead of spending so much of your brain cells going after small crumbs, you decided to adopt a different mentality now.

A different mentality to make the big money.

When you find a strong company that ticks all of your checklist, you decided to hold on for a long period because you know the business is going to worth so much more in the future.

You won’t let instant gratification or short term greed PREVENT you from making the big money.

Although it is tempting to lock in your profits, you chose not to. You practice delayed gratification. 

Investors who RESISTED locking in their profits from 2008 to 2019, they enjoyed a 36x increase in their wealth.

Sounds simple, but it takes maturity for you to recognise the money is best kept in the company instead of cashing it out.

To cash out a business that is growing well is a silly move.

You’re playing in the big leagues now.

Maturity is never about how much you have in your portfolio.

Maturity is about your investment framework and behavior. In it for the big money.

Imagine you spent 5 hours analysing a company…

Does it make sense for me to analyse a company that is going to make 20% or 10,000%?

You will start to think about what kind of companies you want to analyse so your time is well spent in relative to the money you are going to make off your research.

Ending

Invest in nothing but the BEST! If you cannot find the BEST at good valuations, wait.

Take good care of your portfolio and I hope to see all of you soar!