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It can keep going up or keep coming down!
As an investor, no matter how much money we have, how much knowledge we have, how many courses we have taken or how close we are with good mindset investors, the fear and greed never go away!
Inside Community Newsletter # 3
As my day job, I made an HNWI buy UBL at Rs130/sh in May’23.
This guy had a portfolio of Rs6bn and have been investing in the market for more than 15 years now! So, he knew almost everything about the stock market – but knew very less about his mind which was about to play a very stupid game with him.
His allocation towards the bank was too low this meant two things:
- He was hit more due to the market’s fall since the banks came down less than the overall market and
- He was pissed more with the market
UBL had paid a dividend of Rs11 the preceding quarter and it was clear from the analyst briefing notes that they might continue doing it.
This meant that the dividend yield was 34% which is huge coming from a stable bank.
But still the stock didn’t stop falling!
It kept coming down and touched Rs110/sh – dividend yield of 40%!!!!
I asked him to buy more to which he said “whats the point – what if it comes down to 90? – lets wait”
And this is exactly the game I want to talking about so that’s its engrained in our heads.
Tricks our minds play
As an investor, no matter how much money we have, how much knowledge we have, how many courses we have taken or how close we are with good mindset investors, the fear and greed never go away!
We will never be able to buy at exactly at the bottom and sell exactly at the top.
With every buying we will be fearful that it might fall down further or stop going up and with selling we will be greedy that it might keep going up!
There is not perfect time!
The perfect time is when it makes sense to execute and be ok with the decision!
The real game is not how much you know – though that’s very important element since it gives us the confidence to stay invested or raise cash, the game is to understand the risk reward ratio and not let our minds play the FOMO game.
His mind made him not buy more despite being clear that these dividend yields come only in hyper-mandiis and are too good to leave on the table. And we know what happened next!
This is how I think when I am buying or selling a stock – might help you:
- Does the stock justify its fall (through justified multiples for a stock and yields)?
- Does it match the current economic framework I have in my mind?
- Do I have a better opportunity?
- Do I have enough time to hold that stock or?
- Do I have I have the patience to sit on cash!
BTW, he doubled his UBL holdings at 290!!!!
The buying problem is gone now – we will soon have a selling problem!
Soon you will be seeing stocks hitting their target but the market will be greedy for more, traders will be greedy for more, good stocks might stop rallying pushing you to stupid stocks at 5x from where they started.
Every stock you sell, it won’t make you happy for the 80% but regret the last 20%!
The cash will push you to stay invested! You will find reasons to reject the logic and play the momentum!
That will be the test for you like 110 was the test for him! But then who said that investing was easy?
What do you think?
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