When a lot of people first start to read & learn about investing they invariably end up reading about Warren Buffett in their first few weeks of reading. From there onwards begins this fairy tale dream ride into the idea that someday they can also invest like Warren Buffett. The next automatic step that people tend to take is to read what any other fund manager worth their salt has to say about Warren Buffett. To remind you, at this point there is not a single rupee invested by this person, ever in his life (apart from may be the automated Fixed Deposit certificates & PPF investments).
After having read & being enamoured with Warren B’s performance & his dazzlingly simple explanations of how he analyses businesses, people start with the notion that investing is an easy affair. By this time, the activity of really sitting through an entire market cycle not being able to find great investment opportunities or even spending huge amounts of time & effort in researching industries & their managers has never happened to them.
The problem with a beginner learning to invest is that we tend to immediately get sucked into the investing blog world. In this world, a lot of people are strikingly original in researching their own ideas while a lot are “me too” people who are constantly following what other smart fund managers are doing. Not enough effort is spent to understand why investing is important & what are their unique needs to invest. People rarely do any cash flow analysis of their own life & are massively unaware of their own patterns of spending & making money. People automatically assume (especially salaried people) that they will somehow have enough money by the end of the year to put into some tax saving mutual fund & not to forget the mammoth 8% “tax-free” compounder of public savings – The Public Provident Fund.
Any person who wishes to take charge of their investments & wants to compound their savings at a rate of at least 5% more than the fixed deposit rate has no other legal option but to invest in Stocks.