To be successful in stock market, you have to be a complete idiot in other’s eyes. Trust me, Its not a joke. let me give you a simple example.
It’s summer season, and the heat is killing you.
While you are looking for a cold drink or an ice cream parlor to save you from death from heat stroke, there is another man on your right(lets call him Mr. Moron), buying sweaters.
What will be your opinion about him?
What a complete idiot? has he lost his mind? who buys a sweater in Summer (the bigger question is, who sells sweaters in Summer? probably, a bigger idiot.)
Now the entire scenario may look stupid to you, but dig a little deeper, and you will find that Mr. Moron is very shrewd, and has a logical reason behind doing so.
Mr. Moron knows that sweaters are sold at deep discount in summer as there are no buyers because there is no demand.
However, the lack of demand or the discounted price does not impact eitherthe quality of the sweater
In other words, just because you bought the sweater in summer does not imply that it lacks ability to keep you warm in cold winters.
So Mr. Moron made a smart move by buying something at a huge discount, without compromising with the quality.
All he has to do now is wait for the winters.
When winters arrive, people will realize importance to keep them warm and there will be a huge demand for sweaters.
This is the time Mr. Moron will sell his sweaters at a high price to the buyers, making huge profits.
So the secret of successful investing is buying at a discount without compromising with the quality.
That is exactly what some of the most successful investors in the world have done.
An average investor is driven by price of the stock, thinking of price as a reflection of quality business. That is, if a company has quality, its stock price will rise. Similarly if the price of a stock is falling, it means the business is bad and one should exit from it.
Value investors (that is what they are called) on the other hand, look for businesses that have strong long term fundamentals(quality), good business models and growth, but are trading at a discount to their business value.
Value investors are not driven by confirmation or agreement of others for their decision making, their investment decisions are backed by thorough analysis and facts, not by how many people agree with their opinion.
In short, there are Four steps to be successful as an investor:
- Buy when the price is low, but quality is not.
- Wait for the right time for the market to realize its true value.
- Sell it when everyone is interested in buying it.
- Become a millionaire.