5 Big Investing Lessons from 2014
These are the investing lessons I learned in 2014 based on my investments and trades. Hope you find them useful.
NIFTY and SENSEX gained about 30% this year – no mean feat. NIFTY moved from 6200 range to 8200 range and SENSEX from 21000 range to 27000 range. Rupee remained fairly stable between 61 and 63. Interest rates remained stable too. Inflation eased gradually. We got a stable government.
This was an excellent year for the bulls. The bears got slaughtered.
As we close out the year with a bang, here are my personal lessons investing lessons learned. Hope you find them useful.
Investing Lessons from the Bull Run of 2014
- Never fight the tape – yes, I have heard this many a times. But this year just reinforced it. Do not fight the trend. If you go against the market (as a contrarian), especially when the undertone is so strong, do it at your own risk. There were several times this year when I shorted NIFTY (with a tight stop loss of course) thinking that the market has run up a LOT and there has to be a short term correction. Market proved me wrong most of the time.
- Stocks bought 2-3 years back are the best performers – Stocks that I thought were undervalued a few years back (Cadila, Kajaria Ceramics, Amara Raja etc.) turned out to be my best performers. I was losing money in Ashok Leyland for several years, but this year made up for all the losses. Lesson I learned is, have conviction in your long term stock picks. There may be years where they do not perform, but if the fundamentals of these companies do not change, don’t sell them even if the stock price underperforms.
- A bull run is a great time to clean up the portfolio – high tide lifts all boats. That applies to the stock market too. When the going is good, even the stocks with poor fundamentals rise. I got an opportunity to sell a couple of stocks that turned out to be bad decisions.
- Learn to Ignore noise – Talking to CNBC TV 18, Rakesh Jhunjhunwala, arguably India’s most successful investor made the boldest prediction of all – that NIFTY could reach 1,25,000 by 2030. One strong government and the tone of the entire investing community changed. Everybody was so pessimistic about India a couple of years back that NIFTY hit 4800. Now the pendulum has swung in the other direction. Even if Jhunjhunwala turns out to be right, it’s not really actionable today. It’s best to ignore noise, and focus on the fundamentals. On the up or down, the market will catch up to the fundamentals.
- You cannot enter a bull market – By the time you realize it’s a bull market, the time to enter is over. Hence, the best time to put in new money is when the market is not doing so well. That is the time to identify good strong companies, trading at low valuations and make your bets. Once the bull market starts, these will turn out to be your start performers. There are research reports out there that if you are investing for the long haul, it doesn’t matter much if you enter at the top of the market. My experience tells me otherwise.