Only a very small % of investors are successful. Get maximum benefit with the right temperament as an investor without reacting immediately.
How much should one churn the portfolio? How many times does one buy and sells stocks?
This is perhaps the only reason why so many PhDs’, and finance experts, or for that matter only a minuscule number of people are truly successful in the art and science of investing. Everyone knows how to read the balance sheet, P&L, return ratios, etc, why do we have only a tiny percentage of investors who are truly successful?
The clue to it perhaps lies in the statement above made by Warren Buffett.
How many people can take it when a stock they buy falls 50%? How many people can take it when their portfolio doesn’t do anything for 3 years while the rest of the market rallies? One’s brain starts playing tricks and doubts and loss of self-belief sets in. Isn’t it? That’s when even the seasoned fund managers might sell the stock which is 50% down or change the portfolio which hasn’t performed for 3 years.
I am not saying that one mustn’t sell the stock down 50% or change a non-performing portfolio. However, the reason for the change should not be pressure and the trick of mind play. Here is where ‘TEMPERAMENT’ comes in. The reason for the change must be a clear-cut reason that the stock one holds no longer fits into the investment philosophy that one has. The investment philosophy can be anything- growth versus value, great brand, etc, however, one should have the ‘Temperament’ to stick to the investment philosophy in adverse situations, come what may!
If one has that temperament and nerves of steel, he perhaps survives to see that the stock that he bought with particular philosophy rallies 3 times after falling 50% or the portfolio that didn’t perform for 3 years suddenly gives great returns in the next one year more than compensating for the 3-year underperformance. Hence the lower churn that a fund manager has (the number of times one buys and sells stocks) is an indication of his temperament and the belief the fund manager has in his or her own investment philosophy.
Hence the lower churn that a fund manager has (the number of times one buys and sells stocks) is an indication of his temperament and the belief the fund manager has in his or her own investment philosophy. Investing is a game of patience.
FAQ’s
What is Warren Buffett’s famous quote?
The most important quality for an investor is temperament, not intellect- Warren Buffett
Why is temperament important in investing?
Successful investors have very high level of patience and hence always outperform others.
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Cheers,
Fund Manager Akalp Gupta,
Founder at StockInvest2Grow.com
P.S. At StockInvest2Grow, we are helping our investment partners/investors reach the same goal: build a strong investment portfolio.
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