7/30/2019 5 MISTAKES INVESTORS MAKE AND HOW TO AVOID THEM.txt

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hin ing that Stoc s are a Better Investment Because the Mar et hasRecoveredRis is always relative to the price paid.  Seth KlarmanStoc s are no less ris y because the Sensex hasrecovered from its lows. The stoc mar ets pastperformance is in no way indicative of the ris of investing init.When determining the ris of an investment, investors needto understand its underlying value. The difference betweenprice and value determine an investments ris . Thisdifference is also nown as the margin of safety of aninvestment.If a stoc s price is lower than its value, it has a margin ofsafety thereby lowering its ris . For comparison, a stocwhose price is higher than its value has no margin of safetyand is therefore higher ris .2. Investing Without a CompassMany investors buy stoc s without nowing the underlyingvalue of the security theyre investing in.Its dangerous because theyre not investing. Theyrespeculating. They might as well put their money on blac

and hope the roulette gods will be ind to them.Speculators ris buying overvalued stoc s and sellingundervalued stoc s. Its a recipe for financial disaster.The solution is investing with a compass.They can do this by either learning how to do valuationsor use a tool . Its the only realistic way to buy low and sell high, and grow yourmoney.3. Being ImpatientInvesting is where you find a few great companies and thensit on your ass.  Charlie MungerIts a rite of passage for every investor, and were sure manyprofessionals ma e this same mista e: They pay attention to

the day-to-day fluctuations of the mar et.This often causes investors to be impatient and sell tooearly. This could be after the stoc has dropped 5% or itssuddenly run up 15% over the course of a wee . Seasonedinvestors ignore these fluctuations and are patient.Patience in investing has two ingredients: 1. Discipline; and2. Understanding the Intrinsic Value of Stoc s.When youre able to combine those two, its easier to ignorethe day-to-day fluctuations and focus on the long-termhorizon.4. Valuing Wall St.s OpinionThe press usually treats the words of Dalal Street analysts asthe words of God, reporting each day which firms have

upgraded or downgraded particular stoc s.This often causes individual investors to pay attention toDalal Streets opinion. However, this can be detrimental totheir financial health.First, over 60% of active fund managers underperform themar et . Thats 60% of active fund managers whoare at ris of being replaced by an NIFTY 50 ETF.Second, the opinions of Wall Street analysts can often becontrarian indicators.Lastly, analysts have their firms interest at heart, not yours.

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Their recommendations are often driven by businessrelationships between their employer and the targetcompany (Harvard Faculty Research).5.5. Trying to Time theMar etWe have a lot of fun as the bubble blows up, and we allthin we are going to get out five minutes before midnight[li e Cinderella], but there are no cloc s on the wall. Warren BuffettThe idea that investors can time the mar et is certainlyseductive. Weve all tried it at least once, but because thereare no cloc s on the wall, its virtually impossible to do withany level of precision.The only variant that wor s is being, fearful when others aregreedy and greedy when others are fearful. (Warren Buffett)When everyones shouting, This time its different, andacting li e the world as we now it is going to end, thatsprobably a good time to start buying.When authors start writing boo s about the Dow Jones goingto the moon, thats probably time to start selling.