New Delhi, Dhirendra Kumar. Rakesh Jhunjhunwala, a renowned name in the investment world, is a source of inspiration for an entire generation of equity investors. Many things are being written on him in social and traditional media. In this, more is being written on making money from their market and less on different ways of investing. It doesn’t matter how much money they have made from the market. The real thing is totally different.
Jhunjhunwala’s approach to investing has been to identify good investments and then take them to bigger and bigger levels. A ‘big’ investment both in terms of time and numbers. To be fair, there are many people who invest like Jhunjhunwala. However, it is the measure of his success and the quality of personality that makes him a splendid example to be followed. Jhunjhunwala held on to his good investments for decades. Not only this, he kept investing more in them. This was the reason why he was able to make a big stake in companies like Titan and Crisil. This is in stark contrast to the trend of Indian equity investors. Even those who consider themselves to be fundamentally long-term investors.
Getting out of your losses and adding more and more to your good investments seems like a modest investment advice. But that is the real equity investment. This is just the opposite of the practice of booking profit. Most people sell their investments as soon as they feel that they have made enough money in a stock. This is called profit booking. It is often said among equity investors that no one ever suffers by booking profits. This is quite understandable, and makes profit booking easy to understand. Like many other things, this behavior has its roots in psychology, not logic. People are afraid that their profits will either slip out of hand or fall. There is no place for this kind of remorse and embarrassment. The feeling of success of achieving a high level of profit is priceless.
In fact, from an investor’s point of view, profit booking is one way to ‘time’ the market, which rarely works. Even if it does, it’s just by chance. As Charlie Manger has pointed out, selling from a market timing perspective actually gives the investor two ways to go wrong – the downtrend may or may not be more. If it does, they need to find out what would be the right time to get back into investing. The best break from this suicidal mentality is to look at the example of Jhunjhunwala. Invest in stocks for the right reasons. If you turn out to be right, keep adding more to your investments and hold them for many years or even decades. So long as the root cause of your investment remains the same.
Most investors constantly insist on knowing the ‘target price’ from the stock advisors. This idea is deeply ingrained in people that holding stock is such a train journey where you must know your destination in advance. Even if Rakesh Jhunjhunwala had invested in this way, he would have been a very successful investor, but today you would not have heard his name.
(The author is CEO, Value ResearchOnline.com. Published views are his personal.)
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