What and how

Investors quickly learn that the fundamental rule of success in any investment is to 'buy low, sell high'. There's an old Wall Street joke that might be a cliché if it didn't hold so much truth. A newcomer asks a seasoned veteran, "How do you make money in the market?" The wise man replies, "Nothing could be simpler: buy low, sell high." The beginner asks, "How can I learn to do that?" The veteran responds, "Ahhhh... that takes a lifetime." This perfectly illustrates the central problem of equity investing. What you need to do is obvious. How it is to be done is the problem.

When you read what is generally available about investing, you can see that growth investing is a particular type of investing. In fact, our cover story of 'Wealth Insight' June 2024 issue may also give you the same idea. But that's not true. In reality, ALL equity investing is growth investing. The only goal of an equity investor is to sell a stock at as high a price as possible - the higher, the better. The rest is just an over-intellectualisation of what is a simple goal.

Understanding this fundamental truth can help investors navigate the often complex and jargon-filled stock markets. It is easy to get caught up in the latest trends, buzzwords and investment strategies that promise quick gains. But at its core, successful investing boils down to identifying companies with a strong potential for growth, buying them at a reasonable price and holding on to them until the stocks reach their full potential. This process requires patience, discipline and a keen eye for spotting true value amidst the noise.

Often, the primary danger for equity investors is over-optimism. While having an optimistic nature is beneficial in investing, as it is in many aspects of life, the very act of equity investment is inherently hopeful. Those who lack a positive outlook on the future are more likely to keep their money in a safe deposit instead. No one becomes an equity investor to lose less or gain moderately. This is a vocation that always attracts those who are chronic optimists. However, optimism can quickly become overconfidence for investors, leading to unrealistic expectations. Striking the right balance between excessive and insufficient optimism often proves challenging.

It's tempting to extrapolate in a straight line when companies are growing well. That's not realistic. No company can grow indefinitely - all kinds of things can happen to derail the story. Market saturation could eventually occur, slowing growth and potentially causing stock downgrades. As businesses mature, maintaining high growth rates becomes challenging.

Moreover, managing a large business is complex, and past success doesn't guarantee future performance on a larger scale. On top of that, the problem is often caused by the first half of the phrase 'buy low, sell high'. High valuations constitute a significant risk for growth stocks. Stocks with high P/E ratios can lead to losses despite strong earnings growth, even if everything goes well.

What is the antidote to this? Why, you're holding it in your hand. The antidote is this magazine, Value Research and our entire approach to investing. By focusing on thorough research, sound investment principles and a disciplined approach, we help investors make informed decisions that temper optimism with realism. With the right knowledge and tools, investors can achieve the growth they seek while avoiding the pitfalls of overconfidence.

This month's cover story perfectly encapsulates this approach I'm discussing. Diving deep into the principles of growth investing and showcasing practical examples, it aims to equip our readers with the knowledge and strategies necessary to succeed in the equity market.

It's often said that investing is a marathon, not a sprint. As markets and values shift, it keeps switching between the two. With patience, diligence and a realistic outlook, you can navigate the ups and downs of the market and achieve your financial goals.