Risk comes from not knowing what you are doing

“Risk comes from not knowing what you are doing” ~Warren Buffett

I am always captivated by the wisdom with which this Old man approaches stocks and Investing. Truly he is a legendary investor. He approaches stocks with a very clear mindset.

Investing is basically providing capital to a wise and competent entrepreneur to exploit a business idea to create massive wealth. Without investors, we wouldn’t have the modern, technologically advanced world that we have today.

I have provided my capital (nearly 2 lac.) to Indigo Airlines. The entrepreneurs there, Mr Rahul Bhatia, Mr Rakesh Gangwal, Mr Aditya Ghosh and the management are using my capital to make air travel accessible to everyone in India at the lowest cost possible. This is how a country makes progress. My money, along with thousands of other shareholders money, is contributing to the prosperity and development of my nation.

Also, I am making a handsome 31% return on my investment plus 3% dividend.

We as small retail investors should always know that there is a company behind a stock. A stock is not just a piece of paper or some ticker on trading terminal whose price moves up and down every day.

A stock is a small piece of ownership in the company. 

We should understand what we are doing when we buy a stock. We should buy ownership in a company whose business we clearly understand, we should pay a price that is reasonable and we should stay invested as long as the reasons for which we originally bought continue to exist.

Unfortunately, most of the investors in the stock market don’t approach investing like this. Rather than staying updated with what is going on with the company, they stay updated with what is going on with its stock.

We should try to improve our understanding of the business of the company that we have bought as much as we can. The more we educate ourselves about a company, the more will be our conviction in the story of the company and this will help us to hold the stock when other people are selling and even buy some more at a discount.

This is exactly what happens in the market. A wise investor always buys when other people are panicking. Because that wise investor knows what he is doing. He has evaluated the true worth of the company and what it can do in the years to come.

I understand that as long as IndiGo continues to make money my investment will not go to zero, in fact, it will grow bigger and bigger.