This is the personal note that I thought to share with you after reading your emails.

The ability and skills required to become successful investor is achievable by everyone. The most important two requirements required in this profession are loads of commonsense and your judgement skills.

There is no institute in the world which teaches you how to invest in the market. In my profession, I have seen people coming from different fields of education (accounts, economics, law, engineers etc) and involve themselves professionally in managing others money. The very close to share market education available academically in the world is CFA (Chartered Financial Analyst) for the analyst and fund manager, which requires a serious amount of work, but completing it reflects the persons ability to apply for themselves to a task than to his or her ability to invest.

What I will be sharing in this post is the basic requirement anyone needs to start with investing. These are not hard and fast rules that you need all of those qualities, but if you miss any, you can work on it to build them consciously.

Confidence

‘All you need is ignorance and confidence and the success is sure’ – Mark Twain

As an investor in share market, what you subconsciously do is take decisions, the decisions to buy and sell any stock. It is vital to understand that generically these decisions are not white and black in nature.
Market is like flowing river and changes continuously its nature. Few times it will look like calm running water and same can change itself as a killing machine. You need to draw lines when to swim and not in those conditions.

You might come in the situation where a streak of decisions you take turn against you. This can dampen your confidence of taking right decisions. The only way to keep your confidence running is to identify and accept your mistakes and rectify them. Even professionals make mistakes including me. Let me give you an example, if you are a regular reader on my blog then you would have noticed that last year I was pitching a lot on ONGC and was arguing that it is trading at bargain.

But after time passed and the fog got cleared in understanding the plans of Government of India, we found it was a bad investment decision for our fund. The very next day we offloaded our entire position from our portfolio and were lucky this time that we didn’t incurred any losses.

That does not mean that ONGC is a bad investment for everyone. Our expectations were not inclining to its future growth in its values. Our judgement in this decision has worked for us for a while, but time will tell if we were right or wrong in regards to long term.

Competitiveness

There is a cat and mouse race within professionals in the market. Everyone wants to be first in this race. Like professionals, retail investors also need that spirit to beat the market. This is the only profession where your performance can be tracked every minute. My personal suggestion would be not to participate or evaluate your performance in this race for short term. In the bull market, you will notice lots of food is on table. But you can only outperform in long run against market if you know how to beat them in bear market.

Very few fund managers reported over all performance for previous year in positive territory. The same rule applies to you, how did you perform last and previous year? Don’t slack on your underperformance. Try to identify what you are doing wrong or where did you make mistake. Don’t let that fire of beating the market in all the trends extinguish. If you lack this competitiveness then it is better to search professional manager who can take care of your investments.

Curiosity

All the successful investors are always hungry of information. Investing in share market is all about coming across ideas that lead you to investigate further before you take any decisions.

A quality company is the one who does its business efficiently. Where, the management understands how much capital to allocate on inventory and how much to invest in any new factory or plant etc. The financial statements reflect those qualities of business. This is where our quality ratings help us to identify business.

But not all A1 companies could be always worth investing blindly. But it is a good start to investigate further about business with those quality ratings. As soon as quality ratings change (which do not so
often), I become curious and try to dig more information about the company and try to find if it’s worth investing.

You do not need to know everything about the company. Instead of understanding their day to day activity, I would prefer understanding business. Try to put effort in understanding how profits are generated by the business.

Independent thinking

Value Operations punch line for any investors are to think independently. In the bull market everyone outperforms with the market. But very few people are able to extend their performance in long run because they think independently.

Few of the great investors I have met in my life behave in quirky way. They have their own style, not just as investors but also in their personality. The best quality that I like about them is that they have enormous ability to absorb in various forms and uniquely process that to come to their conclusions.

In this jungle of information, it is important that investors absorb and process that information independently rather then the way journalist or management wants shareholders or investors to absorb in certain way.

I still remember an interview of Mr Jhunjunwala previous year when one of the journalists questioned him about the Titan Industry and was pointing out on various hurdles like gold rates and dampness in revenues that company is facing and raised doubts of its future prospects. Mr Jhunjunwala very modestly replied to them that he is not worried about all those issues as long as management is generating returns in range of 27-30% on its equity.

Modest

This is more to do with human’s personality. Be modest and register when you have picked up a bad company for investments. Everyone makes mistake. In search of extraordinary business, my personal stats tell me that I find one out of four companies that I stay invested for long time (7-10 years). There is no harm in accepting your mistakes. You will learn most from your mistakes.

Patience

If your performance is best in stock market then I am pretty sure you have very little to do in the market. This is unlike virtually with any vocation in life, whether it be medical, political, legal, business or education, where the harder you work the better you should perform.

If you have done your homework and chosen your stocks carefully then you will enjoy extended periods of profitable investment where you have to do very little to invest. In these circumstances stay alert and focus on new ideas and keep your ongoing research and investigations on them. Sometimes you just don’t need to buy and sell to make money.

The fourth quarter and yearly financial results season has just started and I will do my best to cover as many stocks as possible. Meanwhile if you have anything in your mind or want to share your research work with all the other readers, feel free to email me or post your comment on company you want me to talk about below. I will do my best to cover them in future.