I started investing in stocks back in June 2009 once I turned 21. It has been around three years and I have learnt lots from this experience. Putting my knowledge into practice is a better teacher than merely reading books on investing.
My investing mentality was grained by the theories of Warren Buffett, Benjamin Graham, Peter Lynch and the likes. They have always espoused that investors should see stock prices not merely as numbers but should understand that there is a business behind these prices. Theories like this have been stuck with me but lately, I found that they were getting diluted due to a trader’s mentality.
I think it started back in August 2011 and was reignited last month. Markets were coming down but the businesses I was monitoring did not come down to the price point where I would be comfortable investing in for the long-term. Since I could not take opportunity of the price drops of my favourite companies, I thought of trading by buying other companies that came down in price a lot like Capitaland. So, at least by buying Capitaland, I could make some money when it recovers. This trading mentality caused dilution of the investing theories I had read over the years. Scarily, I began to see stocks as merely numbers moving up and down and not businesses. What made it worst was that this traders mentality made me have a short-term view of the stock market! I wanted to make quick bucks. Businesses take time to flourish and decisions made by the management will take time to come to fruition. This fundamental knowledge of investing was getting thrown out of the window.
I realised that I had to separate the investing arena and the trading arena and not mix up the theories. Investors have a longer term outlook and see a business behind the stock price. Traders have a shorter term outlook and just buy and sell based on the prices. Having a traders mentality on stocks meant for the long-term will only hurt returns as one would sell when the price goes down and buy when the price goes up. Instead of buying low, selling high, one can end up buying high, selling low.
This post serves as a reflection for me. Some of you investors might have been in the same situation as me. Share with me your thoughts in the “Comments” section. Cheers!