BULLs /BEARs : SAME MISTAKE

Hi,

Today i am going to share my mistakes which i am doing years after year only persuading myself with different logic but when i think back and think finds same

reasons and same mistake.i think everybody does the same its psychology of human being.

1. Makes opinion about market: BULLISH/ BEARISH / SIDE WAYS all by listening to so called expert on TV , rumour, same self logic.I too had done same was waiting waiting.let me tell you waiting is one of must quality you should have to successful investor BUT waiting with opinion/perception in mind about market direction is common MISTAKE.
2. when you find your stock and its Margin of safety (MOS) then buy in lot. its OK but where i failed is my mind was not ready to buy 5-10% higher price that of my earlier price since i had opinion/ perception about market that it will come down, some cases i came down too but then i was waiting more to go down.i spite i was ready to pay more that because of its MOS. BE READY TO BUY 5-10% up / down to initial purchase price when you have MOS.Don't stick to initial purchase price.
3. Only think about VALUE and MOS don't take your decisions / or postpone on basis of market direction.
4. Buy good company on bad news which is other than business: I done same for lifetime. But got trapped in stayam on 17 Jan 2009 the mistake made by me i brought old Matyas bad news without knowing what was bad news on that day.This hangover carried on me for long time again i made mistake of inaction and didn't brought Asian paint on bad news of share pledging at Rs 680,DLF,BHATRI on promoter stake sale DLF at 114 / Bhati at 484. from this i learned lesson BUY GOOD COMPANY ON BAD NEWS but you should know the bad news before buying single share.
5. Value is king weather market VALUE it OR NOT: when ever you find a company with cheap valuation and MOS just think of what can go wrong and finds answer not so pessimistic and go and buy don't think about market valuing it or not.

last 7 years i had done same above mistake irrelevant of market is bullish or bearish.Always control yourself from excessive may it Bullish NOV 2007 to Jan 2008 OR excessive bearish OCT 2008 to MARCH 2009. This what called as RATIONAL THINKING .

experts

Charlie Mungers 19 Models

Charlie mungers 19 mental models:

Model 1 : Mathematics (Probability ,Decision Trees,Law of Large Numbers,Compound Interest, Present Value)
Model 2: Accounting
Model 3: Legal system
Model 4: The Five W’s (who, what, when, where, and why and "Invert, always invert.")
Model 5: Basic Statistics (Mean ,Median,Regression to the Mean, Std Deviation & Normal Distribution)
Model 6: The Engineering Idea of Backups
Model 7: The Engineering Idea of Breakpoints
Model 8: Physics (Equilibrium Theory,Critical Mass,)

Model 9: Know your Cognitive Limits
Model 10: Microeconomics
Model 11: Advantages/Disadvantages of Scale
Model 12: Pavlovian Association (Classic and Instrumental Conditioning)
Model 13: Competitive Destruction
Model 14: Surfing
Model 15: Stock Market is like a Pari-Mutuel System

Model 16: Social Proof/ Psychology of Investing (Availability Bias,Representativenes ,Anchoring, Excessive Optimism,Overconfidence, llusion of Validity, First Conclusion bias, Hindsight Bias, Loss Aversion and Loss Realization, Mental Accounting and Risk Tolerance, Regret Complex)

Model 17: Chemistry (Autoctalyst)
Model 18: Biology
Model 19: Lollapalooza Effects

ALL models we will discuss in deatilsnext post

Investing Principals

The Six Principles of Investing

I. Develop a comfortable understanding of the language of business (accounting) and understand the basic investing concepts.
- Study a basic accounting book such as The Interpretation of Financial Statements by Benjamin Graham
- Understand four key investing concepts:
- Compound Interest
- Present/Future Value
- Inflation
- The difference between price and value
- Learn how cash flows through the businesses you are examining
- Learn how companies successfully manage inventory
- Keep a close eye on how fast inventory and accounts receivables are growing. They should not be growing faster than the business’s overall sales growth rate.
II. Purchase High-Quality Companies Selling Below Intrinsic Value
- Look for companies selling below intrinsic value (Margin of Safety)
- Look for a trustworthy, shareholder-oriented, high-quality management team
- Make sure the business has sustainable competitive advantages
- Make sure management makes rational capital allocation decisions
III. Portfolio Concentration
- 10 to 12 stocks allows adequate diversification against company-specific risk
- Over-diversified portfolios will tend to track the performance of the overall stock market
- Make large, concentrated purchases when the perfect opportunity presents itself
IV. Minimize Portfolio Turnover
- Minimizing portfolio turnover will keep the amount of trading commissions and taxes paid at a minimum
V. Understand the Psychology of Investing
- Understand how market and stock volatility affect investment decisions
- Patience and intestinal fortitude are requirements when investing
- Stand by your convictions
- Understand how rules of thumb can affect investment decisions
- Practice delayed gratification
VI. Build a Latticework of Models
- Develop a framework of "mental models" from various disciplines to gain a better understanding of the investment process
- Be able to combine multiple models when making investment decisions