PRACTICING PATIENCE

The toughest thing for many investors to do is nothing. That’s right, nothing! Once you buy a stock and watch it move up, down and all around for a few weeks, there is an urge to take action. Since you bought the stock, you’ve probably read numerous investment news stories on the market in general and your stock in particular. And even if you are only watching your stock (as we advise), you’ve taken in many days of price, volume and relative performance (RP) action. With so much input, it’s easy to have your thinking swayed, which creates temptation to take action.

Another way to say it is that most investors lack patience. That’s a shame, because almost every successful investor we’ve ever met or read about has an abundance of patience. After all, if you’re correct on a stock, what’s the point of rushing things?

So the focus of this lesson,  dedicated to holding great growth stocks, is on practicing patience. Many times, the stocks you purchase don’t do an awful lot for many weeks after your initial purchase. But if you have the guts to stick with those stocks, some can turn out to be huge wonders. And in the end, those big winners are what make all the difference.

Making Money the Easy Way—By Doing Nothing!

Here’s a quick tidbit that most investors forget from time to time. The way you make money in the stock market is by holding stocks, not buying or selling them. Sounds obvious, doesn’t it? That’s just the how the stock market works. The value of your portfolio rises when a stock you own rises. So you have to be holding on to a stock if you’re going to take advantage of its appreciation.

The following excerpt is from Reminiscences of a Stock Operator, a fictional biography about the investing life of Jesse Livermore. In it, his character, Larry Livingston, expresses the principle of practicing patience as eloquently as we’ve ever heard:

“And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It was my sitting. Got that? My sitting tight! Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money.”

But I urge u is have patience once you’ve committed money to great growth stocks. Often times, a stock will start moving ahead just after most investors have thrown in the towel. Don’t be one of them!

The message is simple: Practice patience and give your investments a chance to grow into mighty oaks.

What’s Your Goal?

When buying great growth stocks, your goal for every purchase should be to develop a huge winner. By huge, we’re not talking about 30%, 50% or even 100% profits. Instead, you should set your sights much higher—300%, 500%, 1000% profits and higher. All you need is a couple of these big winners every year or two to produce spectacular portfolio returns.

That last point is an important one: All you need is a couple of these big winners every few years to produce spectacular portfolio returns. Knowing this, you shouldn’t agonize over a few small losses, or worry if your last few purchases haven’t turned out the way you had hoped. Instead, by shooting for big profits, you put yourself in a position of power, only needing to find a couple of good stocks to produce great returns. Contrast that with the investor who’s eager to take any profit he can get his hands on. He must find perhaps ten stocks each year that show him good (but not great) profits to garner the same returns you’ll attain by getting only one or two huge winners.

This is why I never use target prices for growth stocks. When you set a price target, you’re automatically limiting the profits you’ll take out of any one stock. And that’s something we will never do!

Finally, remember that if your goal isn’t to develop huge profits, you’ll never attain them. So aim high!

How Practicing Patience Leads to Huge Winners

Clearly, you cannot develop wonders without practicing plenty of patience.

For example, let’s say you buy a stock and watch it double. Great! You now have a 100% profit. Now assume your stock works its way still higher, doubling again. After your second double, your profit expands, not to 200%, but to 300%. A third doubling would yield a 700% profit. And a fourth would give you a whopping 1500% profit. It’s not impossible to attain these huge profits. Believe it or not, dozens of stocks have grown many-fold in just the past two years. Whether or not that type of growth will happen again is anyone’s guess. But the fact is, the market provides a never-ending stream of opportunities for  investors like you.

WIPRO shares- If you applied for and were allotted 10 shares at Rs 100 per share during the Wipro IPO in 1980, you would have paid Rs 1,000. And if you held on to your shares, today I suspect you would have no regrets. After bonus and share splits, you would own 960,000 shares today: and those shares would be worth Rs 537.6 million. That translates to an annualized return of near 46.5% (excluding dividends) over 34 to 35 years. Nice! And Wipro is not particularly expensive today.

This is just one of the big multibaggers.

You just have to have the guts to stick with your winners. Shares are risky but only when u trade. Investment in a potential growth stock will reduce the probabilities of reduction of principal while your investments might fetch you huge returns.

More on how to invest and where to invest will be posted in the coming times.

Happy Investing.