EP51 Common Investing Mistakes

Automatic TRANSCRIPT

This is volume vesting. I'm your host June Kim in this podcast. You'll learn everything related volume best. Hello fall. Investors wall, come to another pursuit of value investing podcast. So into this episode. I wanna talk about common mistakes that a lot of all investors are making high put together this list based on my experience in also based on the books that I have read in the past. So let's just talk about them. I hope that you guys agree on what I'm about to say. And there are about eighty fern mistakes that I wanna talk about in today's episode. So before I guess started Limoges give you creek. Disclaimer. As always that this podcast is for that, they purposes only, and it is your responsibility to consult with your investment professional for any investment decisions. So without further ado, why don't we get started? The first mistake that a lot of investors are making is the tried to time the market. I think this is very common mistake. And it's something that we are letting knowing our head, and we have in Todd as volume Bester by legendary Besters like Warren Buffett, Peter Lynch, but we still try to time the market. And that's a huge mistake that I think that many people are making and when it comes to buying stock. I think that what we can do. He's to buy the stocks. They want to buy. If painter value seem to be a lot higher than Kerr market volley. You don't have to predict how the price is going to move next day or next week or even next year. Forget about this all short term price filtration, but focus on intrinsic value and only invest your money when you think that injuries value is higher than Kerr market volley and that provides large margin of safety. And that's what's important. But what happens is that you buy. By shares of stock that you're interested in and you think that the intrinsic value is a lot higher than Kerr market value. And next day, you check the price again, and you get depressed, if the price goes down further because you didn't really find the perfect timing when it comes to buying the stop, and I think that's really huge mistake because they end the short term the price can actually go either way, you know, it's just same as flipping the coin can go up or down and the next day or the next week. But in the long-term prices gonna conversion to intrinsic value if you assess insurance volume correctly, so what matters is the long-term prophet, and how you can make that long term profit, and as you'd make more and more investment decisions. So don't get depressive. If you are not, you know, right in terms of market direction over the next week or over the next month. Forget about market timing. And tried to focus on intrinsic value and having their large amount of margin of safety. That's what matters. The second mistake that I want to talk about his dead lot of people get influenced by the market. I know that we talked about the concept coal, Mr. market in the past episode. And but still this is also something, you know, but you tend to get, you know, influenced, and this is something that you cannot really control in some cases. So if you're a person who get influenced by the market a lot, then probably the stock market's not the area where you want invest your money because you to check your stock price every single day, and you're gonna get influenced by the market, and it actually just not healthy for you. It's not just healthy for you, mentally and physically so you cannot really focus on your current job and concentrate on other tasks and. Constantly checking your price because you wanna see how Mr. market values year securities? If that's similar to your situation. My recommendation is stay away from the stock market because you cannot really perform anything will for your life. Try not to be influenced by the market, and that's the device that I wanna give here and on this point. I just wanna talk about warmer thing. This a lot of people asked me in the past. How often they should check their stock price my answer to that. Is it all depends if you can actually maintain your calm, even after checking the stock price every day by all means you can do that. But if you're type of person who are influenced easily by the Mr. market, you should refrain from checking your stock price, very often laissez every day in. And also there are different variations into this approach. Because in some cases, you can actually check the stock prices of securities that you hold, but you don't necessarily go in and log into your brokerage account and check the total value of yours per folio. The reason why I mentioned this is because once you check how much you lose in how much you gain every single day it actually translating to something very reared. Let me try to elaborate a little bit further. So let's say you have a large perform you and your gain everyday gain in a loss is more than one thousand dollars. Then all of sudden, you kind of imagine what you could do with this one thousand dollars. You could say that, oh, I could have gone on vacation with this one thousand dollar, and I could've purchase iphone with one thousand dollars you start to imagine. What you could do with that money, and that actually is not healthy because that's gonna actually lead to more influenced by the Mr. market, and that's not really good. But in some cases, if you are passionate about doing I'm vestment research, you might have to go to different sites in order to do the research, and there's no other option other than checking the stock price frequently, and if that's the case, probably my recommendation is to just stay away from checking the total volume per folio and your brokers your count, but still checking the stock prices, probably that's alternative solution. And if you're one hundred percent comfortable, and you don't get influenced by the market just feel free to do. So cool all check in your stock price. But there's no really good benefit of doing that. If you wanna be a long term investor the reason why you're checking your stock price too often is because you want to time the market you. Want to see if you can sell or buy securities? Right. So that actually is tied to my first point which is tried not to time the market only sell your securities when there's significant hype in the security as a lot of speculation in the security yet, that's something that I wanted to talk. I mean, I can talk about a little bit more. But let's move onto the topic in the interest of time the next topic don't try to evaluate your performance based on the short term price movements. So this is something that I briefly mention so let's say you buy a stock today and the stock price is ten dollars and next day to stop price goes down to at no eight dollars. Right. So twenty percent drop then you going to actually get so frustrated than you're gonna actually beating yourself. But I think it doesn't mean anything just because the stock price goes down by twenty percent over the next. One week or net over the next one month off since your initial purchase doesn't really tell you much. It could be purely due to random walk and random our stock price movement. So what matters is how much earnings this company's gonna make how much sales this company's gonna make during the time fury that you're considering preferably more than three years. And that's what matters I think stop price will converge to insurance value if you made the right assessment for your intrinsic value. So that was the third mistake that I think there are a lot of follow investors on making. Let's move onto the next item. Don't think of money in your procra- count as real money. Oh, I also briefly mentioned this one in this episode five minutes ago. But if you start to imagine what you can do with the money that you have in your brokerage account, and that's real money. I know that that's real money. But if you start to do that, then you get influenced by Mr. market, and you're not gonna actually see things objectively, it's probably increased the probability of you selling the stocks inner fearful environment, and it's probably going to increase the probability of you buying stocks. When there's a lot of hype in the market. So that's exactly the opposite of what we wanna do as volume festers. So what I'm trying to do is that if I just put the money my broker's account. I don't see that as real money. I just see that as cyber money. I. Try to detach my emotions today stem possible from the money that I have in my brokerage account. So that allows me to see all the things holistically objective manner and make the decisions in in a rational manner, because if you think of the money in your berkers account as real money that you can spend on your vacation, and you know, on the items that you want to buy and this is true and this reality, but if you think that way, then you probably gonna have hard time to detach your emotions from the money, and you're going to probably make a huge mistake when you try to buy and sell your securities. So that's why I think that it's important for you to detach your emotions to the extent possible. Let's move onto the next side of the next item is don't follow others advice without doing your own home. Homework just use that as a starting point. Okay. So this is also good. I think advice because what I do normally is there's a website where you can see and follow a lot of legendary volume festers, I can probably put the link in the show. So that you guys can see on this website. It's a great source, and it's a great starting point. But what I want to emphasize is that. Once you trust someone less Warren Buffett. I think he's a legendary investor, but if you don't form your own opinion, a few don't actually do your own homework on just follow all the peoples advise were other people's portfolio. The problem is you never know when these people will sell their stocks, and you never know on there wa- circumstances. They purchase this scurity and stocks, and that's really dangerous situation. So my recommendation is always do your own homework. I think that's quite important. Because once you do your own Homer, you know, whether or not you purchase this security for long-term purposes, or, you know, medium term purposes because in some cases, people buy stocks cyclical stocks, and they tend to sell when the cycle turns of ROY. Round or buys cycle turns around so you need to as some point on tried to find out the right in a moment for you to get out or getting for certain securities, like cyclical stocks in other cases, you just buy and hold of for the recipe alive. So depending on the purpose, and depending on how you do now since you might actually come to completely different conclusion, and in some cases, certain perform, your managers tend to sell their stocks for tax purposes. And that's not something you wanna follow. So that's why I think that it's important for you to understand why you're purchasing certain securities, and you have to do on homework in order to do that. So that was one item. Let's move onto the next item. The next item is don't envy, just because people you think are not smarter than you are getting richer than you are. So this is interesting because you're gonna hack surely have a lot of lug in a lot of skill sets needed in order to be successful. But in many cases, you you're gonna see your neighbors or colleagues getting richer than you are and you kind of become envious of their wealth increase. This is not particularly good because this is also based on your emotions is not patient based on your rationale. So it's gonna probably lead to the wrong conclusion in wrong decision making process. So I highly recommend that you stay away from anything relating to emotions whether it's emotions related to envy, jealousy or anything like that or fear. And so on. Yeah. That's what I wanted to say. And let's move onto the next one. The next one is don't get too hung up on valuation and science valuation. A lot of people are trying to understand like all the sumptious relating to intrinsic value calculation. So you have many Vern approaches to any comes to intrinsic value calculation. I actually created a couple of episodes in the past with respect to intrinsic value calculation. You can actually go with racial pro-choice. You can go with discounted cash. Flow analysis approach you can go with you know, acquisition model approach. So there are bunch of valuation models out there. But the reason why I say that wouldn't get to Hong up on valuation science is because in many cases, you probably now under person. Sure, whether you should get into the position. If that's the situation. Just take a pass. You don't have to invest your money truly good investments, in my opinion will actually stand out without even performing any valuation. So if limited give you a metaphor. If you see someone really tall, do you really need to know exact height in order to say that that guy is toll. You don't have to know exact height in order to know someone is really toll by the same token. You don't have to know exac, intrinsic value of a specific security in order to know, whether or not this security is on the value. If the security is white undervalued and has significant margin of safety than you probably would be able to tell right off the bat just based on purely at an price to earnings ratio or price to cash flow. Ratio. You might have to do a little bit of exercise to understand whether earnings and cash floors are normalized and true, Representative of yearly earnings and cash flow. But once you do that exercise, you don't have to actually go through this this kind of cash flow analysis, the discount cashflow analysis of quite good in a sense that irrationally produce the Zach intrinsic value calculation, but it's also not good in a sense that you have to incorporate a lot of assumptions, for example, you have to know the growth rate of their scurity, and you have to know terminal value. You have to know how many months you on a forecast. Cash flow Goethe, and you also have to know what kind of discount rate, the you want to use for this physics curies Dera, just so many assumptions that you have to make in order to actually derive interest value from this kind of cash flow now says at the my. Is that if you just wanna go crazy, then then try to figure out all nitty gritty details about all these assumptions, I think you probably don't need to do that. And if you truly find something very on the value, you probably don't even need to go through all these things you can actually do the reverse this. But don't go crazy on that. And don't go crazy on other volume metrics in the past when I was taking finance classes before for my master degree while we actually did was we tried to forecast the balance sheet and income statement and cash fuller statement for certain securities. I think that's just too crazy. You know, how can you predict all items within the balance sheet inch and try to tie that to income state items and cash flow items? I think it's a good exercise for students. But I just think that it's useless in a sense that possible for us to forecasts. Every single lied. Him on the financial statements. But anyway, so my point here is that you're going to see on the valued security, and you're going to immediately know whether or not it's going to be on the volume within very short period of time, you might have to do some detail as I said in terms of the quality of earnings and quality of cash flows. But after at an a couple of hours of research, you should be able to determine whether this securities undervalued or overvalued relatively. And if it's quite undervalued, then you might not need to go through this extensive exercise of doing the valuation. Okay. So these other eight points that I wanted to discuss with you guys on today's show. I hope that you guys enjoyed his show. And just before I end this episode. I just want you to know that I have this value investing park has website. And also, I have another website called share investment, ideas dot com, where I post my investment ideas there, and I'll try to be little bit more diligent in terms of posting my ideas, and so on, but I highly recommend that you guys are also share your ideas on death, flat form and also you can actually, you know, request friend with me. And then I answer any questions that you have to comments. In. Lastly, just leave your comments and raiding reviews on whatever platform you listen to this podcast on upload his podcast, itin, Android phone various apps. So I try to actually read every single comments there on my website or on different platforms to thank you very much for listening and see Unix time.

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