Equitygram

Author: Karthik Senthilkumar

  • Your Mind Is Your Edge

    There are times when the market is too volatile or just not suitable for one’s trading style. A good investor has the psychological strength and resolve to stand aside and watch patiently. The profitability is actually affected by two factors. They are market sentiments and our own psychology. There is an urge to make money in the market everyday. There is this constant urge to prove ourselves that we have to win everyday. But is it really possible? The answer is no. Even the best in the business step back frequently to assess themselves. The best do not make money everyday. They are just very conscious about their risk management.

    Investing and trading is a game of risks and probabilities. The markets have the potential to give high returns because there is always an element of uncertainty. And a good investor will acknowledge this fact and take risks accordingly. And an important aspect of risk management is deciding when to take risks. One of the lesser talked about topics is the psychological state of an investor and its effects on the trading and investing decisions. There are days when one feels tired or hasn’t had enough sleep. Or days when one is extremely optimistic. The little aspects actually have a very significant impact. Let’s say that one takes a trade on one of the days like mentioned above. There is a good chance that the account will take a hit. And on the next day when the person is okay, there is an additional pressure because of the reduced account balance.

    Winning in the markets requires survival. The longer one survives in the market, higher the chance of profitability. By staying out, we give ourselves one more day to survive. A good regime of physical exercises, having a healthy lifestyle and a calm mind will help one become a good investor.

    The Strength to Step Aside

    There are phases in the market when volatility runs high, price action turns erratic, or the overall conditions simply don’t suit a particular trading style. These are moments where the market feels uncertain, chaotic, and difficult to read. During such times, one of the most powerful decisions an investor or trader can make is to do nothing. To step aside. To observe. To preserve capital — not just financial, but mental as well.

    This decision requires more than strategy — it demands psychological strength. The ability to resist the urge to act is a trait that separates seasoned investors from the impulsive ones. True profitability in the markets is affected by two interconnected forces: market sentiment and individual psychology. And while we spend considerable time analyzing market trends and technical patterns, we often overlook the more personal, internal factor — our own state of mind.

    There’s an inherent pressure to be active in the market every day. A subtle, sometimes overwhelming urge to make money constantly. The drive to prove ourselves, to ‘beat the market’, to demonstrate that we can win every single day. But the truth is no one wins every day. Not even the legends. The best in the business are not daily winners; they are long-term survivors. Their strength lies not in constant action, but in knowing when to act — and more importantly, when not to.

    The Game of Probabilities, Not Certainties

    Investing and trading are not pursuits of certainty; they are built on managing probabilities. The market offers high return potential precisely because it’s uncertain — and this uncertainty is where risk resides. A good investor doesn’t chase returns blindly. They approach each opportunity with caution, assessing the balance between risk and reward. And knowing when to not take a trade is just as valuable as knowing when to enter one.

    Psychology: The Silent Variable

    An often-underestimated element in trading is our own psychological state. How we feel — mentally, emotionally, even physically — can greatly influence our decisions. Lack of sleep, stress from personal life, overconfidence after a winning streak, or the frustration of a drawdown — these seemingly minor aspects can lead to poor judgment. Taking a trade in such a state increases the probability of making impulsive or poorly analyzed decisions. And if that trade results in a loss, it adds not only financial strain but psychological pressure to recover — a trap that can snowball into further losses.

    Survival is the Real Game

    The truth is simple: you must survive to thrive. The longer you stay in the market, the more opportunities you’ll encounter. Capital preservation is not just about avoiding losses — it’s about giving yourself the chance to play the game another day. By staying out during unfavorable conditions, you increase your chances of being present when the right opportunity arises.

    Many underestimate the power of “not trading” as a strategy. But patience is not inactivity — it’s purposeful restraint. It’s the conscious decision to wait for clarity, for strength, for alignment — both in the market and within yourself.

    The Foundation: Mind and Body

    Good investing doesn’t begin on the screen — it begins with you. A healthy lifestyle enhances decision-making. Regular physical exercise, proper sleep, a balanced diet, mindfulness practices — these are not just wellness habits; they are performance enhancers. A calm mind is more capable of dealing with uncertainty, fear, and greed — the emotional undercurrents that drive the market.

    Think of your body and mind as your trading engine. You wouldn’t race a car with a failing engine — so why trade with a fatigued or cluttered mind?

    In Conclusion

    The markets will always offer opportunities, but not all opportunities are for you — not all the time. A good investor knows this. They are not driven by FOMO or ego, but by discipline and clarity. They accept that sitting out is sometimes the most profitable decision they can make.

    In the end, longevity in the markets is about more than just strategy — it’s about psychological resilience, risk awareness, and the humility to recognize when it’s time to pause. And sometimes, the greatest edge you can have… is patience.

  • The Market: Where the Patient prevail

    The renowned investor Howard Marks once said, “When the knife stops falling, when the dust settles and there is absolute clarity on the horizon, there won’t be any bargains left.” This simple yet profound statement holds immense relevance for all market participants, especially during times of heightened volatility and uncertainty. Markets, by their very nature, move in cycles — periods of euphoria are followed by phases of pessimism, and the cycle repeats. However, human psychology often works against investors during these swings. Fear and greed dominate decision-making, leading to actions that are counterproductive to long-term wealth creation.

    One of the most common and costly mistakes investors make is panicking and selling during downturns, precisely when they should be considering buying. This tendency to flee the markets during corrections, crashes, or even mild pullbacks, stems from a lack of conviction in the businesses they own and an over-reliance on short-term price movements. True investing success lies in understanding that price and value are two very different things. Prices fluctuate wildly. However, the intrinsic value of a good business does not change overnight.

    To better illustrate this, consider a simple example. Imagine you are buying a tangible commodity, such as an apple, for ₹100. Over time, its price appreciates to ₹200. Subsequently, the price corrects to ₹80. Despite these price swings, the apple’s intrinsic value — its taste, nutrition, and desirability — remains unchanged. If you had previously determined that the fair value of the apple is ₹150, would you hesitate to buy it at ₹80? Most likely not. In fact, you would see ₹80 as a bargain and a wonderful buying opportunity.

    However, this clear logic seems to disappear when it comes to stocks. There are several psychological and structural reasons for this disconnect. First, valuing a stock — an intangible asset is far more complex than valuing a simple commodity. Unlike an apple, a stock’s true worth is influenced by countless variables.

    Second, humans are heavily influenced by herd mentality and the prevailing market trend. When prices are rising, optimism is contagious, and everyone wants to participate in the rally, often ignoring the fundamental strengths or weaknesses of the underlying business. Conversely, during corrections or bear markets, panic spreads like wildfire, and investors rush for the exits, even if the business fundamentals remain sound. Many investors end up selling quality businesses at depressed prices, locking in losses that could have been avoided with patience.

    This irrational behavior has been particularly evident in the Indian equity markets recently. As indices corrected and volatility increased, a large section of retail investors pulled money out, fearing further losses. These very investors were the ones buying at much higher levels when the markets were euphoric. This behavioral pattern — buying high in excitement and selling low in fear — is the exact opposite of what successful investing requires.

    Even the best businesses and the strongest stocks undergo rough patches. It is an inevitable part of their journey. However, very few investors possess the temperament to sit through the painful phases. Long-term wealth creation requires conviction and patience — the ability to hold quality companies through temporary storms and resist the temptation to react impulsively. It is during these corrections, when the market is gripped by fear, that some of the best long-term buying opportunities emerge. However, these opportunities are often missed because fear clouds rational judgment.

    The reality is that it’s nearly impossible to perfectly time market tops and bottoms. In hindsight, identifying these points seems obvious, but in real-time, they are not easy. What investors can do, however, is develop a keen understanding of market psychology — recognizing when fear has driven prices far below intrinsic value or when euphoria has pushed valuations to unsustainable levels. This understanding, combined with a firm grasp of a company’s fundamentals, can help investors act counter-cyclically: buying when the majority is fearful and selling when the majority is euphoric.

    There is a reason why the majority of participants in the market do not generate substantial long-term returns. The market acts as a wealth transfer mechanism — moving money from the impatient to the patient. Those who have the discipline to hold onto fundamentally strong businesses, even when the market sentiment is negative, are often rewarded handsomely over time. The key lies in seeing every correction, not as a signal to panic, but as an opportunity to accumulate quality businesses at reasonable valuations.

    Once investors internalize this perspective, their entire relationship with the market changes. They begin to focus less on short-term price movements and more on the underlying business performance. They stop fearing corrections and start welcoming them as opportunities to buy great companies at discounted prices. This mindset shift — from trading price movements to owning businesses — is what separates successful long-term investors from the rest.

    In conclusion, patience, conviction, and a focus on business fundamentals are the cornerstones of wealth creation in the stock market. Markets will always be volatile, and cycles of fear and greed will continue to repeat. But for those who learn to harness these cycles — by buying fear and selling greed — the rewards can be extraordinary.

  • Price, Value & Patience

    I was reading Joel Greenblatt’s The Little book that still beats the Market and it had a very important insight which is highly relevant in today’s times. With trading apps and financial influencers everywhere, it is easy to let stock prices guide our decisions. But price and value are two very different things and can have very poor correlation at times. As investors, our job is to find good opportunities that give us the most value. Figuring out a company’s true value is not simple. We guess, estimate, and sometimes get it wrong. But what if we could figure it out? What would we do with that knowledge?

    Take the example of Zomato. In the last year, its stock price ranged from ₹127 to ₹305. Was it cheap at ₹127? Was it expensive at ₹305? Could it have been cheap at both prices, or expensive at both? This wide price range happened in just one year. If we looked at its price over a few years, the range would likely be even wider. This leads us to ask:

    • How is this possible?
    • Does something change every year to justify these big differences?
    • Does this make sense?

    That’s a very wide range of movement in such a short period (the recent bull market has made it very common, but actually it is not). Looking at the price over a two to three-year period would give an even wider range. So these are the questions everyone has to ask:

    How can this be?

    Does something happen each and every year to account

    for this change in value?

    Does this make sense?

    Most of the time, these wild price swings don’t make sense. They happen all the time, but the value of a business doesn’t change that quickly. Why do stock prices move so much? Because people are not rational. They keep changing their guesses about the future earnings and value of businesses. And these guesses often change with market conditions. The most important point is that we don’t need to understand every reason for these changes. Instead, the focus should be on finding the underlying value of a business.

    The following explanation of Benjamin Graham is one of the simplest yet most important of all time.  Imagine that you are partners in the ownership of a business with a

    crazy guy named Mr. Market. Mr. Market is subject to wild mood swings. Each day he offers to buy your share of the business or sell you his share of the business at a particular price. Mr. Market always leaves the decision completely to you, and every day you have three choices.

    You can sell your shares to Mr. Market at his stated price, you can buy Mr. Market’s shares at that same price, or you can do nothing.

    Sometimes Mr. Market is in such a good mood that he names a price that is much higher than the true worth of the business. On those days, it would probably make sense for you to sell Mr. Market your share of the business. On other days, he is in such a poor mood that he names a very low price for the business. On those days, you might want to take advantage of Mr. Market’s crazy offer to sell you shares at such a low price and to buy Mr. Market’s share of the business. If the price named by Mr. Market is neither very high nor extraordinarily low relative to the value of the business, you might very logically choose to do nothing. In the world of the stock market, that’s exactly how it works. In short, you are never required to act. You alone can choose to act only when the price offered by Mr. Market appears very low or extremely high. Graham referred to this practice of buying shares of a company only when they trade at a large discount to true value as investing with a margin of safety. The difference between your estimated value per share and the purchase price of your shares represent a margin of safety for your investment. If the original calculations of the value of shares turns out to be wrong due to bad market conditions, some regulatory change, new competitors or a failure in the business model, the margin of safety in the original purchase price could still protect us from losing money. In fact, these two concepts—requiring a margin of safety for your investment purchases and viewing the stock market as if it were a partner like Mr. Market— have been used with much success by some of the greatest investors of all time.

    The summary is that stock prices have wild movements all the time and that does not necessarily denote a change in the underlying value. One of the best stockpicking skills is to find the intrinsic value of a company and picking good bargain buys. But with too much information floating around these days and media’s easy reach, everyone is influenced by the overflow of information and we have the urge to constantly buy and sell everytime. Though understanding the true value of a company and buying it at the right levels is difficult, what is even more difficult is to act only when the time is right. The markets are crazy most of the time but only YOU have to decide when you have to act. Patience is a virtue which is highly rewarded in the market.

  • The Famous Speech of Peter Lynch

    The Famous Speech of Peter Lynch

    Some moments in life redefine the way we think, approach challenges, and make decisions. For me, watching Peter Lynch’s 1994 speech was one such transformational experience. It wasn’t just an eye-opener—it reshaped my investing psychology entirely. This speech, in my opinion, is one of the finest ever delivered on investing principles. I encourage everyone to watch it at least once. Here, I’ll share some of the most profound lessons I learned from it.

    Keep It Simple, Know What You Own

    Peter Lynch is celebrated as one of the greatest investors, not for making things complex but for keeping them simple. He emphasized the importance of understanding what you own. Lynch shared examples of some of his most successful investments—Dunkin’ Donuts and Stop & Shop. These are straightforward businesses that anyone can comprehend.

    Yet, we often dismiss such simple businesses, assuming they can’t generate significant wealth. But ask yourself: How can I own a business I don’t understand? The truth is, simplicity doesn’t limit potential—it magnifies it when paired with clarity and conviction.

    Forget Predicting the Markets, Interest Rates, or Economy

    Lynch debunked one of the biggest myths in investing: the belief that we can predict markets, interest rates, or the economy with precision. Analysts and economists might argue otherwise, but the reality is that trying to foresee every macroeconomic movement is a futile exercise.

    There are simply too many variables at play, most of which are beyond anyone’s control. If it were possible to predict GDP growth, money supply, or interest rates with accuracy, wouldn’t all economists be billionaires by now? Instead, Lynch teaches us to focus on what we can understand—business fundamentals and long-term value.

    The “How Much Lower Can It Go?” Fallacy

    How often have you bought a stock thinking it couldn’t fall any further, only to watch it drop even more? It’s a common trap we investors fall into. We fixate on price instead of value.

    Lynch reminds us that price alone doesn’t tell the whole story. What truly matters is whether the stock has value at its current price. If you understand a company’s story—its business model, growth potential, and intrinsic worth—investing becomes far simpler and far more rewarding.

    Regret Over Missed Opportunities

    With over 2,500 stocks listed on the NSE, it’s impossible to know and analyze every company. As investors, we often dwell on missed opportunities—those multibagger stocks we never bought. But here’s the truth: there will always be great companies we’ll never own, and that’s okay.

    The key is to focus on identifying good businesses that we can understand, invest in them, and hold on as long as they remain fundamentally strong. Remember, you don’t need to own every great stock to achieve success in investing.

    Beware of the “Next Big Thing”

    We’re constantly bombarded with hype around potential multibaggers—companies touted to revolutionize their industries and deliver 10x or even 50x returns. These “future giants” often have low revenue, weak fundamentals, or are deep in losses. Yet, we feel compelled to jump in, fearing we might miss out.

    Lynch’s advice? Patience. Great investments don’t happen overnight. Successful investors understand the power of holding strong, proven businesses and resisting the urge to chase speculative bets.

    Sensible Investing: The Ultimate Goal

    As investors, we often complicate things unnecessarily. We stray from the basics and get caught up in noise and hype. But legends like Peter Lynch teach us to return to the fundamentals: keep things simple, focus on what you understand, and invest with conviction.

    Peter Lynch’s 1997 speech isn’t just an investing lesson—it’s a philosophy for life. I cannot recommend it enough. Watch it, absorb its wisdom, and see how it can change your perspective, just as it did for me.