The stock market is not a place where you gamble a bit of your surplus savings. It is a platform through which you benefit from economic progress and development. Economic progress never happens in a straight line. It faces several challenges along the way. Progress is an outcome that emerges as the challenges recede and the efforts of businesses start showing results. When the results show up, one can’t expect to be able to buy businesses and stocks cheap. Stocks will trade at higher valuations when good news is around the corner. The only time when stocks trade cheap is when bad news is everywhere. An investor needs to gradually invest during the phase when news flows turn from bad to good. Investment choices have to necessarily be made during this phase of extreme uncertainty. An investor needs to be able to sequence choices, allocate capital gradually and to align his preferences with the prevailing valuations. This can be possible only if an investor has a sound investment process. The returns an investor will generate in good times depends entirely on how he manages his process in the bad times. Ignoring the investment process in bad times could be perilous to investment outcomes. This puts enormous pressure on investors to act fast after the markets have moved. To avoid this, an investor needs to be proactive in bad times. Investors need to learn to act diligently and invest judiciously in bad times. There is simply no alternative recipe to achieve success in equity investing. Bad times in the stock market are time zones an investor needs to work overtime to understand opportunity, deploy money judiciously and be prepared to carry greater conviction. How an investor manages the boredom and fear of bad times makes all the difference to his investment outcomes.
Earnings have a way of changing, and it’s far more fickle than assets. – Walter Schloss.