10 Stock Lessons To Learn

10 Stock Lessons To Learn

This post is dedicated to @wellhandy, whose legacy taught me to have humility, everyone has a voice to be heard and to have a constant learning mindset.

There’s a difference between making a lot of money and building lasting wealth
When it comes to money, we think that striking it rich is the goal.
I know because I used to feel that way, how do I get that one stock to make me rich. Getting rich is not the finish line. It is about staying rich.
That’s what each one of us truly wants to achieve with our money.

I’ve received loads of investing advice over the years and
what’s great in theory breaks down in practice. It is my sincere hope that you will not  make those mistakes. I like to share my 10 most valuable lessons you will ever need for investing – not trading – your personal money.

This post was originally posted here. GrandpaLemon is a veteran investor in our community, having over 1,200 followers in InvestingNote.

1) Stop treating yourself as a hedge fund manager
You don’t have to provide monthly, quarterly or yearly report. Free yourself from that mentality. Such thinking does not allow you to perform over a long period of time and investments that you’re confident have long term potential and don’t require minute by minute analysis.

2) Predictions are crap
Brokerage and stock expert’s forecasts along with earnest advice about how to manage your finances over the next 12 months   fosters the illusion that the markets are governed by the annual calendar, none of that is true.
When the stock market rises or falls, it doesn’t care about the calendar or the month of the year. It makes sense to think in periods much shorter than one year if you’re a trader, but if you are an investor, you should think much longer than that.

3) Buy ‘best of breed’. Don’t bother with the second-best.
When you use search engine, do you use Google or Bing?
When you watch online shows, do you use Netflix or Starhub cable tv?
Even if it means paying more for your stocks, best-run companies with best prospects can help protect portfolios and minimize their losses. Don’t bother with low quality or turnarounds. Just like everything else in life, high quality comes at a price!

4) Ignore Your Gut Instincts When Investing
One of the smartest things you can do as an investor is to stop making moves based on your gut instincts. You will probably become a much better investor, because your portfolio is likely to perform better if you avoid excessive trading.
It’s tough to ignore these impulses when stocks are turbulent, up one day and down the next. But if you’re trying to time the market hearsay — your own or those you hear from friends, family or “experts” — you could be setting yourself to make the wrong investment decisions, causing your investments to underperform. No one ever intends to sell low or buy high. But that’s what can happen to investors who are working without an investment plan and follow blindly.

5) We can win simply by having a much longer time horizon
Volatility may affect you from doing sound things in investing. However, the up-and-down movements in the stock market are normal,
just like how day follows night and night follows day. The key to compounding is time and endurance. It’s not necessarily earning the highest returns.
Remain invested. Stocks go up most of the time, even after new highs. Keep some cash on the side to take advantage of sell offs.
Get aggressive with high-quality businesses when on sale, stocks will follow earnings eventually.

6) Stop thinking you are Warren Buffett
Berkshire Hathaway was built on investing in individual companies but what works for him may not work for you.
Buffett and his investment team manage billions of dollars in assets and can
make massive investments and influence the operations of the companies in the Berkshire Hathaway portfolio.
Individual investors are typically working with thousands of dollars and do not have the time, assets, or expertise to mimic Buffett’s success.
Even if you pick good stocks, you could still lose money as picking a good business doesn’t guarantee success because the price you pay matters.
Your ability to hold on matters. Your time horizon matters.

7) Be suspicious of technical analysis.
Technical analysis tends to divine future prices from how patterns in stock movements form. It is extremely seductive and feel scientific. Investing is more an art than a science, and the certainty of these research tools can be misleading at best and outright dangerous at worst. The key to stock price appreciation is consistent earnings growth. You need to understand the source of a company’s growth and evaluate whether it’s sustainable. Without earnings to back up the price, a stock will eventually fall back down

8) Concentration to win the battle, make sure to use diversification to win the war
The logical route is, of course, to identify your investor profile and pick investment products that align with your risk tolerance levels. Diversification is generally construed as asset allocation between different classes of investments, like bonds, stocks, gold, and more. By concentrating your investments in a few well-performing funds over the long run, your chances of earning high returns improves tremendously.  As Warren Buffet put it, diversification may preserve wealth, but concentration builds it. History is riddled with examples of traders who went from riches to rags because they had all their eggs in one basket. Controlling risk is the key to long-term rewards, and controlling risk means being always diversified

9) Focus on market leaders and learn to average up
The market consistently underestimates category leaders and overestimates the odds sub-scale competitors will catch up, or even noticeably hurt them.
Those with the greatest scale can economically justify reinvesting the most in product, R&D, tech, talent. Scale begets scale.
Business momentum is a very real thing. Winners keep winning.

10) The biggest rock: Why Reits will shine when interest rates rise?
A lot of investors fear that rising interest rates will cause REITs to underperform.
This fear stems from a misconception. Historically, REITs have been some of the strongest performers during times of rising interest rates.

There are 3 main factors that contribute to a REIT’s success: Quality of assets, strong sponsor support and a pipeline of properties. REITs are passive investment vehicles. A strong sponsor can support the REIT financially, provide a pipeline and the opportunity to acquire the pipeline, and provide the REIT support to close deals, which are key to the growth of the REIT. Since REITs are a yield product, rents, rental outlook, occupancy and cash flow are key to the valuation of their assets. Operationally, for most REITs, more than 70% of their debt cost is hedged. So interest rate movements are only likely to impact new loans and refinancing.

I will add another 3 reasons why REITs outperform during times of rising interest rates.

#1: Rising Rates Are Commonly The Result of An Improving Economy
Generally, interest rates rise as a result of an improving economy.
All else held equal, rising interest rates hurt all equities, including REITs.

A stronger economy is generally a good thing for Reits.
It results in higher demand for real estate, faster rent growth, and rising occupancy rates.
It more than outweighs the negative impact of slightly higher borrowing costs.

On Feb 9, 2021, CapitaSpring, the 280m tall landmark in Singapore’s CBD was topped out at a ceremony, only 38% of its premium office space was committed.
One year on, the office space which totals 661,000 sq ft in net lettable area (NLA) is 93% leased. Think for yourself: if you owned an office building, would you rather have a strong and growing economy or would you prefer a recession?

#2: Inflation Benefits REITs
The other reason why interest rates may rise is that the rate of inflation is accelerating. REITs provide natural protection against inflation. A growing economy increases the value of REITs because the value of their underlying real estate assets increases. Real estate rents and values tend to increase when prices do.

Remember all investors like to use P/B < 1, now your value of your Reits assets go up, the real value of your debt goes down. The debt is fixed and there is no adjustment for inflation.
Therefore, the value of your equity grows even faster than your asset.

#3: REITs Can Directly Benefit from Higher Rates
Higher interest rates also make real estate less affordable for businesses.
Instead of buying your own office, you are more likely to rent one, which again, leads to rising rents and occupancy rates.
Better business sentiment could  imply  more  rental  upside.  Segments such  as  industrial,  hotels  and offices  could  benefit  more  from  the  improved  economic  conditions. The same is true for most property sectors.

Until Next Time,

K, Thanks, Bye

Grandpa Lemon

Once again, this article is a guest post and was originally posted on GrandpaLemons profile on InvestingNote. 


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