Why building a great stock portfolio is a marathon not a sprint?
Building a great stock portfolio is the key to build wealth over time. However, the trouble is that the process of creating excellent stock portfolio ‘not-so-fast’ as most people imagine it to be.
Most of the people who enter the stock market are eager to invest everything right away. They want to build a fantastic stock portfolio at once and then relax for years. However, that’s not how building a good portfolio works.
One Simple rule to build astonishing stock portfolio:
If you’re trying to make a great stock portfolio within a month, then you are going to fail. Do not try to build an extraordinary stock portfolio in a month or two.
It takes years to find the best stocks and building an amazing stock portfolio. Moreover, you are not supposed to find all the great stocks at once- one at a time.
The actual strategy to build a great stock portfolio is simple. Invest in good stocks, continuously monitor and then do either of the following…
- Continue holding the fundamentally strong shares
- Get rid of the losers.
With time, you will notice that all the right stocks will add up and most of the poor shares will be gone.
Why do most people fail to build a strong stock portfolio?
A majority of investing population fail to build a strong portfolio is they like short-term profits/gains.
If you keep selling your best stocks, then how are you going to build a great portfolio over time. You have to keep your winners and cut your losers. That’s the key to make an amazing collection.
However, most people do the contrary. They sell their winners in short-term to get instant gratification. And they keep adding their losers (just to break-even).
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The market gives opportunities – Repetitively!!
When you are investing in building long-term wealth, you need to understand that market will you opportunity, again and again. Maybe not instantly, but definitely.
Suppose you missed a fantastic company when it was trading at a decent valuation. Now, the basic instinct of most of the inexperienced investors is to make a position in that stock ‘anyhow’ (Winner’s Curse). However, buying an over-valued stock and thinking that you’re building an amazing portfolio is stupid. Here, you need to have patience.
Remember that market will give you opportunities. Maybe not instantly, but definitely in the long run. You just have to keep patience and wait for the perfect time to enter in that stock. Sometimes, this opportunity might take years to appear again.
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Let me give you an example from my experience. I was considering to buy VIP industries in June-July 2017. At that time, it was trading at a stock price of Rs 180-190 (decent valuation compared to the price at that time). However, during that period, I was overly occupied with some important work at my day job and missed the opportunity. The cost of VIP Industries continued to climb up in the next few months.
Nevertheless, I got the next opportunity to enter that stock in March 2018 (after nine months of waiting)- when most of the shares were again trading at a low price because of the re-introduction of the long-term capital gain tax. I purchased the stock of VIP Ind at Rs 312 in March 2018. I was planning to invest more if the price goes down further, but it didn’t. Currently (June 2018), the stock is trading at a price of Rs 438.
(Disclaimer- I used this stock reference just for example. It’s not a recommendation or advisory. The stock might be trading at a high valuation currently).
Building a great stock portfolio takes time. It’s not easy to create a great portfolio in a month.
But remember- the market is going to give you opportunity again and again. Building a great portfolio is not a sprint. It’s a marathon!! Have patience.
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Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting