Thread by @RamBhupatiraju

Investing Lessons that 2⃣0⃣2⃣0⃣ taught (or reinforced) to me. What a crazy year and a wild ride?🤯

Sharing with few FinTwit friends. @TMFJMo @Gautam__Baid @saxena_puru @BrianFeroldi @FromValue @dhaval_kotecha @richard_chu97 @adventuresinfi

(Sharing thoughts, not advice)

1⃣ On Market predictions

Back on Feb 19th, no one could predict that the Market would go down 35% over the next month.

On March 23rd, no one could predict that the Market would go up 60% over the next 8-9 months.

Market levels at any time depends on the news, sentiment, Interest rates, Money supply, Money in/out flows between various assets, and actions of thousands of big institutions and millions of people in real-time based on the facts and a whole lot of noise.

So it should be obvious that no one can get these predictions consistently right (w/o being lucky).

Focus on the long-term Market trajectory, not the occasional and un-expected speed bumps (but expect and prepare for them).

2⃣ Market meltdowns are not when you want to find out what type of an Investor you are.

Saying that you are a long-term investor during good times and actually behaving like one during a meltdown are totally different. See below. 👀

Bring out those lessons from Graham (Mr. Market), Buffett (Business focused), Philip Fisher (long term investing in Quality), Howard Marks (on human/investor psychology during Market cycles).

Now is the time to differentiate yourself from the crowd.

Don't panic.

The best thing you can do is not to get side-tracked from your well thought out long-term plan & strategies due to the recent turmoil.

The next best thing is, if you have additional $$, be adventurous, and start taking advantage of the lower prices in great Co's.

3⃣ Sh*t goes down fast during panic.

During Market meltdowns, all those neatly calculated Intrinsic value estimates, DCFs, (yes, those silly price targets too) are thrown out and the Sell button can't be hit fast enough by the crowd.

The actual attributes of each individual Co (Quality, Growth, Mgmt, Balance sheet strength, ROIC & runway....) are just ignored for the time being & excessive attention being paid to falling stock prices & the news headlines. A calm & rational mind during this time is invaluable.

4⃣ Media is not your friend (especially during times of panic) but High Volatility can be your friend if you let it be.

The "Market Turmoil", "This will be worse than Great Recession" headlines and Evening special programs are a golden opportunity for Financial Media ...

... to get some eyeballs during Market meltdowns. Why would they miss that? It's their job to do so.

Your job is to ignore them and stick to your long-term plan.

High Volatility is actually a friend in disguise, if you're a long-term investor (with a strong stomach), can identify great Co's, can separate Market prices from Intrinsic values and take advantage of lower prices.

5⃣ Sync between Main street and Wall street, waiting for uncertainty to clear up.

The Economic/Corporate cycle and the Stock market cycles are not necessarily in synch/phase all the time, especially going into and coming out of recessions.

For anyone with decades left in investing, it's not a good idea to get out of the Market completely (due to those stomach churning losses), and think that you'll get back in when it starts going up again, or things are back to normal.

By the time uncertainty clears up, Markets are usually much higher than the bottom.

Business uncertainty -> not ideal.

Market uncertainty -> great for long-term investors who know their businesses to accumulate more.

6⃣ Don't fight the Fed

As small investors, it doesn't make any sense to sit out of the Market for long periods of time, to highlight and criticize the Central Bank actions or fiscal policies etc.

It's better to understand what the short and medium term impact on interest rates are, money supply (due to Fed/Gov actions), assess the playing field or operating conditions for the Corporations and adjust/optimize the Portfolio (if it even needs to be).

7⃣ Watchlist and the time to prepare/research.

The ideal time to do qualitative research on new Companies is when things are normal (or going up).

That's when you can analyze the Co/Mgmt/Growth rates/Competition better & come up with better Intrinsic value estimations.

When Markets are tanking, and many of these stocks are dropping 10-20% almost every day, unwarranted doubts will creep in and can make good Companies look like bad investments.

8⃣ Quality companies are your best friend during Market meltdowns and for the long-term too.

You want quality, resilient, well-financed Companies that can survive whatever (reasonably bad) scenario shows up and even thrive by adapting/rising to the situation.

Expanding, getting a leg up on Competition, making smart acquisitions..

These are the type of companies that will save you during the bad times, and surprise you to the upside during the good times.

9⃣ On Laggards

Most part-time individual investors are not trying to continually optimize their portfolio based on the latest facts, convictions, risk-reward calculations etc (either due to lack of time or high level of interest).

There will be some positions still lingering in the Portfolio (bad Co's, laggards, thesis failed) due to various mental biases like anchoring, endowment effect, status-quo (guilty 🙋‍♂️).

When Markets are normal or at ATHs (when rising tide lifts most boats), that's the ideal time to do quality control on your Portfolio and get rid of the junk that should have been cleaned up a long time ago.

🔟Portfolio concentration & Adding to Winners

Individual Stock picking (in good Companies) is fun and all when it works out great, but the major focus should be on a Portfolio level and it's sustainable growth.

Is the overall composition matching your investing goals/strengths/personality. What are the positions (existing or prospective) that you have the highest conviction and opportunity in? What actions can you take to improve?

It's cliché to say "Add to your Winners" but adding to positions that proved your thesis and still have a long runway is one of the best ways to utilize your Capital and time (accumulated industry/company knowledge adds up, less maintenance..)

1⃣1⃣ You will miss many stocks on your Watchlist (either due to running out of Capital, or the Markets recovered a lot already....). That's OK.

Some of the ones I came extremely close to buying in March but couldn't ($PYPL $SE $STNE $COUP $HUBS $HDB $COF $SIVB $FIVE $IIPR $CPA $NVR $RDFN....) but I'm happy that I got into long-term positions in many other Co's in Feb/Mar...

...( $ROKU $TWLO $DOCU $NOW $W $PINS $NVCR $BUD $BIP $UBER). Your actions are never going to be perfect.

As long as your actions were based on the right process for you, based on the information available at that time, good results are all that you could ask for.

1⃣2⃣ Be humble & be hungry.

We should not let our recent good returns make us over-confident, and should attribute some part of the success to luck also.

Good Co's and growth are always rewarded in the Markets over the long-term but not this much and not this quickly as we've seen in the last 9 months.

Let's count our blessings in an otherwise horrible year for most other aspects.

Closing thoughts...

✔️Keep your interests wide. 📑

✔️Keep your focus narrow (based on circle of competence). 🔬

✔️Maintain balance between conviction (when you're right) and flexibility (when facts don't align). ⚖️

✔️Keep learning 📖

✔️Learn from anyone that has something new to teach you. Fight with no one online or offline (not worth it)😂

✔️Keep improving 💪

✔️Keep sharing 📢

All The Best! 👍

/END.