Sometimes your best investments are the ones you don’t make -Donald Trump

Donald Trump is a real estate mogul and billionaire. He is also owner of Trump Plaza and host of the NBC reality series, The Celebrity Apprentice.

This quote with very deep meaning is the masterpiece of Donald Trumps investing principles.
When the markets are in the rally and making new high every day, every stock looks like an investment opportunity. This happens because you see the great gains in your portfolio. And the profit gives you the needed comfort for taking risks. When initially the markets start trending very few people believe that this may indeed be a bull run. But as it settles down and the trend penetrates through midap and small cap stocks and you see all the stocks suddenly going as per fundamentals and follow all the technical signals. But it does not last forever as rally has to be supported by the fundamentals. It is equally important that economic growth is inline with the expectation. Any hiccup in this arrangement can turn the table towards the bears. Macros do not change overnight but when they change they take equally longer to recover. So when such kind of situations occur it is best to stop buying further stocks and keep booking profits in the market. Now considering the profit we happen to look for more and more stocks at a very high level of the markets. Whenever we book profits, we are supplied with original capital and profits. Here is the glitch. We are so confident that we just buy some stock with quick overview of fundamentals. And the time comes when all of a sudden it starts collapsing, without any hint, without any breather it just falls.

Most of the time the quantity may kill instead of magnitude.
So many times we may experience this situation, be it stock specific or portfolio wide. What goes off the way here is the timing of that purchase we make in the market. The market sends loud and clear signal of exhaustion through weakening macros. Or there may be indications through increased cash market turnover and markets not moving up or the stock you are observing is just underperforming and you feel that it may be a neglected counter which is available for a cheaper price than its peers.

Sometimes you may just blame it on tips
But they do influence your decision making. You may end up in some position you never thought of. That one you wanted so much to avoid.

Buying with hope, under influence of someone else or just a wrong entry really cost you with an opportunity loss in coming future.

This is true to among all the asset classes. The prices are always in some trend and so is our perception of it. When we buy at the top we are stuck up with that investment and it is a psychological trap too. An investment losing its value out of wrong time entry causes us lot of pain and holds us back from investing at right value.

Value investing is not done with emotional decisions but with much patience and courage. This is because generally very good investment opportunities are present in the market when investors shy away from the markets.

Understanding the value in any investment is an acquired skill but it is equally important to capture that opportunity.
If invested at a wrong time or in a wrong investment, the good ones are simply ignored out of pains or you are just not cash ready. It becomes a vicious circle then. Bad investment leads to bad returns and then it restrains us from thinking about the value. The value investment even if not done at an opportune time it is always a virtue to preserve the capital. That way it is less harm to the portfolio. And of course the emotional pain.

There was certain timeframe during 2008 crash when few stocks like Tata Steel still made a new 52 wk high while market was falling by gravity. Investors conveniently can assume that stocks like that would be a great opportunity as they are the ones staying afloat. But it was just a matter of few weeks when Tata Steel crashed from 970 level to 350 and then to Rs 150. Similarly it happened with Chaugule Familys Indage Vintners!

It was very popular with the Champagne brand and when there was a court order to disown that one, the company went through very bad fall. But later there was major stake buying news by the veteran investor Rakesh Jhunjhunwala and it bounce from Rs 30 level to Rs 100 level but the books were so weak that even with that kind of news there was nothing left for investors. Now the company is suspended due to penal reasons at Rs 13.

The real estate, gold, bonds and so on; each asset class goes though the bull and the bear cycle. If the fundamentals are strong you make money eventually with some time loss, value loss to certain extent if inflation is not taken care of while calculating returns. But if fundamentals are bad and you are just trapped into that because you were not careful enough, then that is a serious trouble. All you can do is take the loss and promise yourself this investment mistake in future.