10 Most Important Principles of Investing

1. 10 Principles of Successful Investing From Legendary Investors

2. 10 PRINCIPLES OF SUCCESSFUL INVESTING FROM LEGENDARY INVESTORS By FinGrad General Disclaimer The information contained in this book is for educational purpose only. There is no recommendation or advise for buying or selling any types of stocks or making investment decisions. Readers are advised to do their own research or take the help of their financial advisor before investing. This document contains personal ideas and opinions of the author. We have done our best to ensure that the information published in this book is accurate and provide useful valuable information. However, because we do not create data, we shall not be held liable or responsible for any errors or omissions in this book or for any damage you may suffer as a result of failing to seek competent financial advice from a professional who is familiar with your situation. Use this book at your own risk. Copyright All rights reserved by FinGrad, a product of Dailyraven Technologies Pvt Ltd. No part of this book may be reproduced, lent, resold or otherwise without the prior permission of FinGrad. If you want to contact us, you can visit our website www.joinfingrad.com or you can write to us at support@joinfingrad.com

3. TABLE OF CONTENTS Q&A Introduction 4 Do you have a Goal and a Plan? Principle 1 6 Lets Talk Risk Principle 2 8 Qualities of an Investor Principle 3 10 Meeting Mr. Market Principle 4 12 Do you like the crowd or are you a Loner? Principle 5 16 Lets Talk Losses Principle 6 20 Don’t Put all your Eggs in One Basket Principle 7 22 Don’t have too many Baskets Principle 8 24 Dhandho Karo! Principle 9 26 Play the Long Game Principle 10 28 Self assesment Q&A Conclusion 29 Copyright © joinfingrad.com 3

4. Introductory Q&A Welcome fellow investors! If you have downloaded this ebook then pat yourself on the back as you are on the right track to building wealth. Before we jump into the 10 most important principles of Investing let’s go through a simple activity. Please answer the following questions: 1. Where do you see yourself financially in 10 years? (in numbers) 2. How much money are you ready to invest every month? Copyright © joinfingrad.com 4

5. 3. What returns are your investments required to generate every month to achieve your goal? 4. How much time can you devote to learning about the Stock Market? Note: Warren Buffet the greatest investor of all time has achieved a CAGR of 19.1%. So be realistic! Copyright © joinfingrad.com 5

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7. INVESTING PRINCIPLE 1 DO YOU HAVE A GOAL AND A PLAN? We get that every investor is in the market to get rich. But are your goals set in numbers and do they make sense? The good news is that if you were able to answer these questions with ease you are on the right track. It is always better to know where you are headed instead of simply wandering around in the stock market with nothing to hold you accountable. “An idiot with a plan can beat a genius without a plan” - Warren Buffett Copyright © joinfingrad.com 7

8. Before we get started, you need to understand that to invest successfully you do not need to have an IQ of over 150, huge capital or insider knowledge of the stock market. Instead what is required is the ability to make decisions based on facts and most importantly the ability to keep your emotions in check. Copyright © joinfingrad.com 8

9. INVESTING PRINCIPLE 2 LET’S TALK RISK! How many times have you been told that the stock market is very risky? This line has to date killed countless millionaires. But have you ever tried to understand why people come to call the stock market risky? “Risk comes from not knowing what you are doing!” -Warren Buffett This is the single best thing that you can do before investing. And by investing, we mean in anything i.e. Land, Stocks, Bonds etc. A few months ago the world had gone gaga over cryptos. Maybe even you too! Copyright © joinfingrad.com 9

10. The question here is did you take your time to analyse what cryptos exactly are? Do you know its uses through and through? The same comes to the stock market too. What is the stock market, how does it work, what role does a company play here etc. Again, it is very very important that you perfectly understand the business that you are investing in. This can be done by having a clear idea of what the business is doing and then taking a close and detailed look at its fundamentals and other financial metrics. Once you have done this and are at peace with your research you’ll be able to sleep well at night after cutting out all the noise. Copyright © joinfingrad.com 10

11. INVESTING PRINCIPLE 3 QUALITIES OF AN INVESTOR To be an investor you have to be a number cruncher and a storyteller. Have you ever wondered what it takes to be an investor? According to Ashwath Damodaran, one needs to be both a number crusher and a storyteller. You must be able to understand not just the formulas for ratios and what are the two sections of a balance. Instead, it is of greater importance that you also can crunch them in real life. Successful investors like Warren Buffett spend days at length analysing the company. However, crunching numbers alone are not enough. Copyright © joinfingrad.com 11

12. In addition to this, one must also be able to understand the business model of the company and what it does and what its possible future can be. However, being one without the other will not work. Someone who simply only understands numbers may fall into the trap of investing in a company which has great financials but does not have a future. A person who only talks about the possible future of a company but is not backed by numbers is simply spitting fables. Copyright © joinfingrad.com 12

13. INVESTING PRINCIPLE 4 MEETING Mr. MARKET Have you ever met someone who is bipolar? They have extreme mood swings! On days that good they are high on energy and filled with euphoria. But there are days when their depressive episodes have no end. If you haven’t then we would like you to meet Mr Market. Even if you are yet to start investing, likely, you have already met Mr Market! - Benjamin Graham Copyright © joinfingrad.com 13

14. Benjamin Graham introduced the concept of Mr. Market way back in 1949. Mr. Market comes to every investor on a daily basis. He meets the investor and shares his opinion on the investments that he has made. He tells the investors his views on what he feels that his business is worth. He comes with an offer too! He offers to buy your shares or even offers to sell you some more. Copyright © joinfingrad.com 14

15. Take the example of ITC. If you were a shareholder in January he would arrive at your house stating that the shares are worth only Rs. 210. “Look at these shares, everyone thinks that your shares are a joke! They keep making fun of it. Let me relieve you of them for Rs 210.” Fast forward to August, ITC has crossed Rs. 310. But this does not stop Mr. Market, he is at your door once again. “Look at ITC, what a wonderful opportunity you have, invest in them right now so that you do not miss it!” This happens to all investors. When Graham first introduced us to his book in 1949 people would only receive stock information from the daily newspaper. But unfortunately for us today we are bombarded with information every second of our lives. Copyright © joinfingrad.com 15

16. But let’s take a step back. Why are you letting an outsider or a price tag influence your investment decisions? According to Benjamin Graham, a business is more than just a price tag which you are bombarded with regularly from the stock market. You are the owner of the company! If you have thoroughly gone through the financials of the company and know that the company is fundamentally strong and has good prospects, why are you letting the changing price affect your decisions? Copyright © joinfingrad.com 16

17. INVESTING PRINCIPLE 5 DO YOU LIKE THE CROWD OR ARE YOU A LONER? Unlike the other lessons we have gone through so far this may not be as interesting and also scary. How many times have you fallen prey to peer pressure to make decisions in life? Do not worry as you are not alone and all of us have to go through some of these mistakes. The willingness to be lonely in other words can also be interpreted as the ability to not follow the crowd. Many investors have advocated this. Copyright © joinfingrad.com 17

18. “Don’t get caught up with what other people are doing. Being a contrarian isn’t the key but being a crowd follower isn’t either. You need to detach yourself emotionally.” - Warren Buffett Copyright © joinfingrad.com 18

19. “Even the intelligent investor is likely to need considerable willpower to keep from following the crowd.” - Benjamin Graham Copyright © joinfingrad.com 19

20. Although this may seem like basic logic it is still hard to follow. In the stock market if it was possible then everyone would get rich by simply following the hot trend. Your whole neighbourhood would be driving around in Ferraris and Lamborghinis. But this is not the case. If you take a look at how most investors have gotten rich today it is by investing, selecting outliers while most people simply follow the crowd. At the end of the day, it is here where most of the money is made. After the recent bull market post-2020 most people are wondering how they can protect themselves from bubbles. Understanding this principle alone will help you do that! Copyright © joinfingrad.com 20

21. INVESTING PRINCIPLE 6 LET’S TALK LOSSES! “If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks” - John Bogle No investor in the stock market has had a 100% hit rate. Today Rakesh Jhunjhunwala is known as the biggest of the big bulls in the stock market. But if you take a look at his past investments you may even doubt this title. One of his worst investments has been Mandhana Retail Ventures which is the Being Human operator. He held the stock back in 2018. If you had invested in the stock 5 years ago you would have lost over 91% of your investment. Copyright © joinfingrad.com 21

22. What’s important here is to figure out how to control your emotions and figure out the line which crosses into stupidity. Here a simple concept of diversification would help you limit your exposure to such losses. Just like how this single investment decision does not define Rakesh Jhunjhunwala, a few losses do not define you as a bad investor. Instead, you must learn from these mistakes. Copyright © joinfingrad.com 22

23. INVESTING PRINCIPLE 7 DON’T PUT ALL YOUR EGGS IN ONE BASKET! Making wealth is hard and so is preserving wealth. One of the sure-shot ways to preserve wealth is by diversification. Diversification simply states that one should invest in multiple assets. At any point in time, you should not put all your eggs in one basket. Instead, have a portfolio of stocks. And do not limit yourself to just stocks, take into consideration Bonds, Land, Gold and even Crypto (but only in small quantities). Copyright © joinfingrad.com 23

24. “Diversification is a safety factor that is essential because we should be humble enough to admit we can be wrong” - John Templeton. Copyright © joinfingrad.com 24

25. INVESTING PRINCIPLE 8 DON’T HAVE TOO MANY BASKETS! While it may seem to be easy to simply add each and every stock you feel is good to your portfolio, there still exists such a thing called over-diversification. The benefits of diversification are over once you’ve added 15 stocks. So it’s best to think twice before you create your own mini mutual fund. At this stage, you would only be reducing your chances of making great returns. Copyright © joinfingrad.com 25

26. “Diversification may preserve wealth, but concentration builds wealth” - Warren Buffett Copyright © joinfingrad.com 26

27. INVESTING PRINCIPLE 9 DHANDHO KARO! This is a strategy which makes sense both in investing and in the business world. Dhandho investing refers to making risk-free bets. Mohnish Pabrai sums it up as “Heads, I win; Tails, I don’t lose much!” But how can you go about investing in a Dhandho business according to Pabrai? Copyright © joinfingrad.com 27

28. Simply by following these steps: 1. Invest in existing business 2. Invest in a simple business 3. Investing in businesses with durable moats 4. Invest in distressed businesses in distressed industries 5. Betting heavily when the odds are in your favour 6. Buying businesses with a good margin of safety 7. Invest in low-risk, high-uncertainty businesses 8. Invest in copycats instead of running behind the innovators. Copyright © joinfingrad.com 28

29. INVESTING PRINCIPLE 10 PLAY THE LONG GAME Who better than Warren Buffet to learn about playing the long game? He earned his first Billion when he was 56. But one thing which he has advocated for throughout his career was playing the long game and having patience. And this actually could be the most underused skill in this e-book. Luckily for you, this requires the least work. The lesser you do in this aspect the better it is. Copyright © joinfingrad.com 29

30. Am I willing to hold this stock for the next 10 years? Will I sell the stock if it has a bad quarter? Will I sell the stock if a recession hits? What will I do if there is a sudden fall in the price? “In the end, how your investments behave is much less important than how you behave.” — Benjamin Graham Copyright © joinfingrad.com 30

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