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What are the 7 biggest mistakes investors make on regular basis in stock market?

1) Looking to get rich in a hurry

The worst part about successful investing is that it is relatively boring while most people are thrill seekers looking for a short-cut. Don’t believe anyone who tells you that getting rich very quickly is easy. Anyone who has done this had a healthy dose of luck involved. There is no easy route to building wealth. It takes time, patience, discipline, and hard work. It can be simple but it is definitely never going to be easy. Be very skeptical of anyone trying to sell you the dream of an easy road to riches.

2) Not having a plan in place

There is no surest way to succeed in the stock market. But there is a sure way to fail – if you never implement a plan in the first place. An investor without a plan is no investor at all – they are speculators. Investors without a plan are the ones who will surely fail on the consistent basis because they’re constantly relying on their gut instincts to tell them what to do. Successful investing is counter intuitive.

3) Going with the herd instead of thinking for yourself

Following the herd is what caused investors to pile technology stocks in the late 1990s before the NASDAQ fell over 80% in value. It feels much safer to follow the crowd in the markets and at times crowd is right, but this can be dangerous at the extremes. Since crowd buying does not arise out of firm conviction, it is subject to fear and doubt. So if few investors are noticed selling all will follow. This leads to losses.

4) Focusing exclusively on the short-term

Focusing primarily on the short-term outcomes is silly because they are completely out of your control. It increases our activity and runs up huge trading and market impact costs from poorly timed decisions. Plus no one can guess which direction the markets will go over the short-term anyways.

5) Focusing on those areas that are completely out of control

Inflation, the actions of the Prime Minister, RBI policy, the tax policy, elections etc. These things are out of control and already discounted in the market. You can’t call and complain the Prime minister or the RBI governor for their policies. Instead one should have long-term focus and concentrate on things like what are the stocks in my portfolio, what are the future prospects of those companies, have I done the proper allocation etc

6) Taking markets personally

We have to invest in the markets as they are, not as we wish them to be. When something goes wrong in either the markets or our own portfolios, the problem is not the markets. It is each of us individually. Once you try to assign blame to anyone other than yourself or the random nature of the markets at time, you are allowing emotions to take over, which are when mistakes occur. It is our perceptions, and how our reactions are affected by those perceptions.

7) Not admitting your limitations

Over confidence is one of the biggest destroyers of wealth on the planet. It leads people believe that they have complete control over the markets. Investors who are unwilling to admit their limitations don’t provide themselves a margin of safety. They assume they will be right at all times. They never admit when they are wrong but choose to find fault in their model or the market. Intelligent investors plan on wide range of outcomes to shield them of crushing losses

Balance Sheet Analysis. Significance of Book Value

 Practical Significance of Book Value: Book value of a common stock was originally the most important element in its financial exhibit. This idea has almost completely disappeared and book value has lost practically all its significance. This change arose because first, the value of the fixed assets, as stated, frequently bore no relationship to the actual cost and second, that in an even larger proportion of the cases these values bore no relationship to the figure at which they would be sold or the figure which would be justified by the earnings.

· In any particular case the message that the book value conveys may well prove to be inconsequential and unworthy of attention. But this testimony should be examined before it is rejected. Let the stock buyer, if he lays any claim to intelligence, at least be able to tell himself, first, what value he is actually setting on the business and, second, what he is actually getting for his money in terms of tangible resources.

· A business that sells at a premium to asset value does so because it earns a large return upon its capital; this large premium attracts competition, and, generally speaking, it is not likely to continue indefinitely. Conversely, in the case of a business selling at a large discount because of abnormally low earnings. The absence of new competition, the withdrawal of old competition from the field and other economic forces may tend eventually to improve the situation and restore a normal rate of profit on investment.

· Although this is orthodox economic theory, and undoubtedly valid in a broad sense, we doubt if it applies with sufficient certainty and celerity to make it useful as a governing factor in common stock selection. Under modern conditions the so called ―intangibles‖are every whit as real from a dollars and cents standpoint as are buildings and machinery. Earnings based on these intangibles may be even less vulnerable to competition than those which require only a cash investment in productive facilities. Furthermore, when conditions are favorable the enterprise with the relatively small capital investment is likely to show a more rapid rate of growth. Ordinarily it can expand its sales and profits at slight expense and therefore more rapidly and profitably for its stockholders than a business requiring a large plant investment per dollar of sales.

Therefore, it is not possible to lay down any rules on the subject of book value in relation to market price, except the strong recommendation already made that the purchaser know what he is doing on this score and be satisfied in his own mind that he is acting sensibly.

An Investing Principles Checklist

An Investing Principles Checklist

Risk – All investment evaluations should begin by measuring risk, especially reputational

􀂃 Incorporate an appropriate margin of safety

􀂃 Avoid dealing with people of questionable character

􀂃 Insist upon proper compensation for risk assumed

􀂃 Always beware of inflation and interest rate exposures

􀂃 Avoid big mistakes; shun permanent capital loss

Independence – “Only in fairy tales are emperors told they are naked”

􀂃 Objectivity and rationality require independence of thought

􀂃 Remember that just because other people agree or disagree with you doesn’t make you right or wrong – the only thing that matters is the correctness of your analysis and judgment

􀂃 Mimicking the herd invites regression to the mean (merely average performance)

Preparation – “The only way to win is to work, work, work, work, and hope to have a few insights”

􀂃 Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day

􀂃 More important than the will to win is the will to prepare

􀂃 Develop fluency in mental models from the major academic disciplines

􀂃 If you want to get smart, the question you have to keep asking is “why, why, why?”

Intellectual humility – Acknowledging what you don’t know is the dawning of wisdom

􀂃 Stay within a well-defined circle of competence

􀂃 Identify and reconcile disconfirming evidence

􀂃 Resist the craving for false precision, false certainties, etc.

􀂃 Above all, never fool yourself, and remember that you are the easiest person to fool

“Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.”

Analytic rigor – Use of the scientific method and effective checklists minimizes errors and omissions

􀂃 Determine value apart from price; progress apart from activity; wealth apart from size

􀂃 It is better to remember the obvious than to grasp the esoteric

􀂃 Be a business analyst, not a market, macroeconomic, or security analyst

􀂃 Consider totality of risk and effect; look always at potential second order and higher level impacts

􀂃 Think forwards and backwards – Invert, always invert

Allocation – Proper allocation of capital is an investor’s number one job

􀂃 Remember that highest and best use is always measured by the next best use (opportunity cost)

􀂃 Good ideas are rare – when the odds are greatly in your favor, bet (allocate) heavily

􀂃 Don’t “fall in love” with an investment – be situation-dependent and opportunity-driven

Patience – Resist the natural human bias to act

􀂃 “Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily

􀂃 Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake

􀂃 Be alert for the arrival of luck

􀂃 Enjoy the process along with the proceeds, because the process is where you live

Decisiveness – When proper circumstances present themselves, act with decisiveness and conviction

􀂃 Be fearful when others are greedy, and greedy when others are fearful

􀂃 Opportunity doesn’t come often, so seize it when it comes

􀂃 Opportunity meeting the prepared mind; that’s the game

Change – Live with change and accept unremovable complexity

􀂃 Recognize and adapt to the true nature of the world around you; don’t expect it to adapt to you

􀂃 Continually challenge and willingly amend your “best-loved ideas”

􀂃 Recognize reality even when you don’t like it – especially when you don’t like it

Focus – Keep things simple and remember what you set out to do

􀂃 Remember that reputation and integrity are your most valuable assets – and can be lost in a heartbeat

􀂃 Guard against the effects of hubris (arrogance) and boredom

􀂃 Don’t overlook the obvious by drowning in minutiae (the small details)

􀂃 Be careful to exclude unneeded information or slop: “A small leak can sink a great ship”

􀂃 Face your big troubles; don’t sweep them under the rug

In the end, it comes down to Charlie’s most basic guiding principles, his fundamental philosophy of life: Preparation. Discipline. Patience. Decisiveness.