Tag Archives: Investing

Market vs Timing

There are two very famous quotes in investing circles:

  1. You cannot time the market.
  2. Time in the market > Timing the market.

Now I would also like to add third rule to the above list:

  1. Time of the market matters.

In my opinion, time of the market is slightly different than timing the market and time in the market. By time of the market I mean the ability to see where the market is currently i.e bull market, top of the market, bubble, bear market, recession or “near” bottom. Being able to have this skill will play a very important role in deciding how long you can stay in the market and what your returns will be.

So although it is difficult to time the market but you want to be experienced enough to be able to see the time of the market especially if the prices have gone bonkers and if you are top of the pyramid or perhaps there is extreme fear in the market and things are trading at bargain prices. Any investor who experienced the dot-com crash should have been able to call out the Covid Stock / SPAC / Crypto madness.

Timing the market doesn’t necessarily mean finding the bottom. But you definitely don’t want to buy at the top of the bubble and then see your asset fall by 30-40% or even more than 50%. It is one thing to say that you are comfortable seeing your portfolio can experience 10-20-30% drawdown and it is altogether a different thing to experience it in reality. Same goes with the bubbles, bear market and recession. True lessons are learned not by reading about it but by experiencing it first hand.

In a bull market, prices usually go up but in a bubble burst, bear markets or recession it may take many years to recover and in some cases it may never recover. For e.g, it took almost 10 years for AMZN to get back to its dot-com price whereas some stocks like SUN (Sun Microsystems) were never able to recover the dot-com price. Thus it would have been impossible or extremely difficult for shareholders to hold either AMZN or SUN from 2001 to 2009 if they bought it at the top of the bubble.

And this was true even for S&P 500 where it took 7 years for it to go back to go back to dot-com price. It then fell back again during the 2007-2009 recession and then took another 5 years to go back to dot-com highs.

So if you were not able to see the time of the market (in this case bubble of the market) then your time in the market would not have mattered for almost 10+ years even if you were holding SPY.

10x returns

In 2021, Elon became the world’s richest person and was awarded Time person of the year. It all didn’t happen in a day or a year. He has been hustling for more than 20+ years now. I worked at Tesla for almost 5 years and can tell you from my own experience that he is one of the most hard working people I have ever seen in my life. So to me the success of Elon or valuation of his companies is no surprise. I actually think he and his companies are just getting started.

In my opinion, money and success are mostly the fruits of our labor. Although you also need little luck and timing which we will discuss soon.

One important thing which I have learned is that there are no shortcuts in life. If it comes easy then it will go easy. So if you want to get 10x returns in life (be it money, success, career or relationship) then you need to learn to invest in the right thing and for the right time.

Following are some of the things which I have learned from my 10x failures and 10x winners that I wanted to share:

Learn 10x. Give 10x.

If you believe in life long learning then nothing can stop you. The trick is to learn about hard things and things which others are not paying attention to. Remember that Elon started a rocket company by reading books on rockets and WhatsApp co-founder Jan Koum taught himself computer networking by purchasing manuals from a used book store. But with learning you need a little bit of luck too. And luck comes from just one thing which is to give to others. In other words, you need to go above and beyond to help others.

Value your time 10x more.

In my opinion, time is the real money. So I don’t like to spend my time arguing with customer service on why a package was delivered late to me. Neither do I like to stand in long lines to return an item. Thus to stay away from these materialistic distractions, I try to have a minimalist lifestyle aka consume only what is needed and try not to get attached to things which have no long term value. In other words, my focus instead is to spend my time and energy only on things that have the potential to return life changing returns.

On that note following is one of the best tweet which I have read on valuing your time:

Improve your health by 10x.

If you are not healthy then nothing else matters, neither your time nor your money or success. The longer you can play, the more opportunities and returns you can get. But you can play longer only if you are healthy. The goal of staying healthy is actually to stay young. I once read a tweet (which I cannot find now) but that summarized this point very well: When you are young you want to be rich and when you are rich you want to be young.

Invest in Founders/CEOs executing at 10x.

Running super successful companies that can return 10x is all about execution, execution and execution. In fact the title of the CEO stands for Chief Execution Officer. So invest in those that can operate at 10x and those who are immune to chaos and short term failures involved in ruthless execution.

Invest in those solving 10x harder problems.

The biggest advantage of solving or investing in those who are solving super hard problems is that there is very less competition. The other advantage is that you still get the 10x market opportunity to grow. And if you can grow by 10x then your returns would also be 10x.

Increase your emotional & self-discipline by 10x.

When you try to solve hard problems or invest in those who are solving hard problems, it won’t be an easy ride. Learn to develop a thick skin by increasing your emotional and self-discipline. Don’t get into arguments with people regarding what they think or what they say. You don’t have to agree or disagree with anyone. Don’t read the news, ignore the rumors and turn-off the comments and notifications. Instead spend all your energy in doing the work and getting things done. Also, don’t get disheartened by the success or luck of others. In other words, level up your self-discipline to stay focused, cheerful and hopeful.

Work hard. Build products. Be present. Play long term and Have fun.

If there was just one thing that you could learn from this post then it would be this section so let’s discuss each thing in some detail

Work hard

Working hard doesn’t necessarily mean spending more hours. It instead means to not compromise the quality of your work. It means to give more than what was expected. It means to have integrity and always do the right thing. It means following up and staying on top of your deliverables.

Build products

Learn to build and sell products. Working for someone else can make you rich but selling your own products can make you super rich. Of course it comes with risk but without risk there are no rewards.

Be present

In this world of internet, social-media and never ending news, your attention is your most valuable asset. Don’t get distracted by social likes and hearts. Your quality of work and execution is what differentiates you and it all depends on your ability to stay focused aka being present.

Play long term

Learn to play the long term game as building and holding things is hard. Also, it usually takes 10+ years for successful products to go from idea to IPO and another 10 years to get the non-linear returns.

Have fun

In the end we are all going to die so what’s the point if you are not having fun and if you are not at peace. I actually value peace more than time so my formula to deal with life is:
Peace > Time > Money.

If doing something doesn’t give you peace and happiness then don’t do it no matter what impact it makes or how much money it will make you.

You do your best and get the best results when you are having fun.

Stock investing questions

Disclaimer: I am not a financial advisor and this is not investment advice.

I have made every possible mistake in the book when it comes to stock investing and in fact I still learn something new everytime I invest in a stock. So I thought I am creating my own set of rules purely for myself so that I can read, refine and repeat it from time to time as I learn new things. Most importantly, I want to have my own tried and tested framework for investing where my decisions are data/value driven and not out of emotion, speculation or FOMO.

My plan is to refer to these stock investing questions/rules aka cheat-sheet before any investment. Specifically, I want to call myself out if I am going against my own principles before any investment.

So let’s get down to business and here are some of the questions to ask before buying any stock according to me:

  1. Do I understand what the company does?
  2. Do I know if the Founder/CEO is a relentless executor?
  3. Is the company solving a hard and a unique problem and does it add value to your life?
  4. Do I use and love the product of the company or do I know others who are deeply and madly in love with its product?
  5. How difficult is it for the incumbents to buy/replace this company/product? This answer depends a lot upon the founder/CEOs execution and long-term vision.
  6. Will the company be still there after 10 years?
  7. Is it already or can it become a monopoly in 10 years?
  8. Can I hold the stock of this company for the next 10 years and ignore all the charts/volatility?
  9. How difficult is it to get hired by this company? In my case this is applicable because I am a Software Engineer and I mostly invest in tech stocks. And the best way to find this is to go and interview with the company.
  10. In these 10 years, can the company grow by 10x aka can they create a completely new market to dominate? For e.g, can a 100B dollar company become a Trillion dollar company in market cap or can a trillion dollar company become a two trillion dollar company?
  11. Am I buying at the peak of the market?
  12. Am I buying at an all-time high of this stock?
  13. If the stock has already fallen significantly from it’s all-time high then how low can it go?
  14. What is the true value of the stock and at what price am I willing to buy?
  15. Have I set up the LIMIT trigger for the price I am willing to pay? In other words I don’t want to manually buy the stock out of the blue or emotion/FOMO but instead use the machine to find and catch the dip at which I am willing to invest.

Regardless of whether you agree with my principles or not, I just want to say don’t get greedy or blind in FOMO, read some books on how to value companies/stocks, invest if you understand what you are buying and at what price you are buying, invest only the money you own and what you can afford to lose.