Posted by In the Part 1 of this post I discussed the factors which enables an investor to make money in the market. Finding a wonderful business alone won’t make you rich. Because, more or less everybody knows which these companies are. Read Part 1 here.
Those factors were: buying at right price, buying a large quantity and giving time to your investment to grow. In order to get good at these factors there are certain qualities that an investor needs to develop. We will look at those qualities in this post. Let’s go.
1. Buying at right Price
This takes nothing but patience. You have to wait for an Event. An Event is something negative. A short term problem – It can be in the overall market, the sector or the company you are investing in – that will go away after some time. Always remember good price is often accompanied by some bad news otherwise why will the stock go on sale.
You need to develop this patience to get that discounted price. You imagine the market as a pitcher that throws ball after ball to you and you just stand there looking for the right one. Buffett does this all the time.
2. Buying Large Quantities
This takes Courage. To buy a large quantity you need to have faith in your analysis and reasoning. And after that, it needs a ton of Courage to buy that large quantity. It comes by reading about the company, gathering as much information as you can about it and being clear about why are you buying it.
But no matter how much analysis you do and how much you know about the company there comes a time when you have to swing. You won’t have every information and the time will never be perfect. You will have to swing on the basis of limited information.
What you can do here is to buy in parts. Since you do not know how low a stock can go it is sensible to spread your order over a period of time so that you can get the best average price.
3. Giving time to grow
This again needs Patience. Once you have bought a large quantity at right price, you now have to sit back and relax. Let your holdings grow. Let your company do the business and let the market realise the true value of your stock.
Keep up with the news about your company and attend the quarterly conference calls. But do not go out and try to trade every news & every small move. Accumulate more on corrections. Keeping up with the news will build confidence in you that you know the latest news about what is going on with your company and the sector.
So, having Patience & Courage are the two qualities an investor must have. Apart from it there is a third quality. Vision to see the future of the company.
This vision comes with time and by reading a lot about the company. With time you become a kind of expert in your circle of competence which allows you to assess the future position of the company you are investing in.
So, those are the three qualities.
Vision to see the future of the company. Patience to buy at right price. Courage to buy a large quantity. Then again Patience to hold on.
Every great investor has developed these qualities in them. It comes by spending time in the market.
Happy Investing!