Process of Investing – How to Find Your Process of Investing

Do You Know Your Process of Investing? I am not talking about the general process to invest, but your process to invest in the stock market.

If the answer is NO, this article will help you form a process of investing that can work for your style of investing. If it doesn’t, I am sure it will start the process of creating that process for you.

So what is the process of investing in the first place?

What is the Process of Investing

You have to understand what works for you and your way of approach in the market.

What works for others may not work in the exact form for you.

So it is essential to find out what works for you.

Every investor has to discover his or her process of investing.

There are numerous ways to build wealth. You need to figure out what will work for you.

Examples of Process of Investing

Let me share some of the ways to build wealth in the Indian equity markets based on my experience.

1. Investing with buy and hold strategy. Warren Buffett is the most prominent example of this.
2. The long-term view of Investing. Chop and change investment every few years. Raamdeo Agrawal is a classic example. He believes in buy and sits tight till the time is not right to offload.
3. Invest for a few years when the valuations are compelling. Porinju Veliyath is a great example. He invests in small companies when valuations are compelling for the business.
4. Then we have an option to invest in ETF or Mutual Funds to accumulate wealth.
5. Last but by no means the least is to trade in the market. We don’t hear great names in this category, but there are some rags to riches story in the trading world.

If we look at the above scenario, we find a unique approach to investing for each.

I have only shared one example in each category. Also note, these categories aren’t exclusive. There can be many more such categories as well as many categories will overlap each other.

The point I am trying to make is, everyone who has made money in the market has defined their process of making money from the market.

Each process may overlap with others because everyone, but still they are quite distinctively different.

You have to find your process as well.

Again, it may be exactly like any of your mentor you follow, or you can take part in the process from more than one mentor and innovate and apply to your style of investing.

My Process of Investing

I am no Guru of investing, and I am still trying to find my process of investing.

Still, as of now, my process is as follows:

I started as a trader. Over time I moved to be an investor for the reasons I have shared here. Again, I never generalize. This is how it works for me.

The first step for me has to be the right stock. It has to pass my investment checklist as well as fundamental analysis.

Once the stock qualifies, I analyze the business checklist

Then comes the understanding the technical analysis based on price action, which gives me the right price.

As time passes, I use quarterly results combined with technical analysis to determine if it is the right time to exit the stock or not.

This is how things work out for me.

My Evolving Process of Investing

As I move to from being an active trader to a passive investor, I slowly feel I am better off investing like a dead man.

Let me share an example here.

I invested in Jubilant Lifescience in 2016 in my portfolio around 445 levels. Contract Notes here from the portfolio updates here.

In 2019, the management decided to skim little money from the business. The share prices tanked, and management reversed the decision. I wasn’t convinced.

So, I ultimately booked out of any investment in the company and any business within the group.

Today when Jubilant Lifescience is again quoting at ₹445, I am getting the same question of should it be considered for investing or not.

My answer is, I wouldn’t.

Company has done good earnings in the past three years for sure and is quoting at lower valuations than in 2016 for sure.

But …

Will the management take a decision which is not in favor of minority shareholder?

What if I am not able to follow the news when they take next such decision?

When I hear bad news about the business, I should be convinced management can pull things off.

If needed – Bend the Rule of Investing

I never invest in compelling valuations only.

On the contrary, when I invested in Lupin in 2017 end and start of 2018, there was so much bad news.

At that time, it was almost 25% of the total portfolio. I continue to hold or even add more.

The reason I can do it is that I am convinced about the management.

It works for me.

It is my process of investing.

I believe I am more like investing in the team than in the ratios.

It doesn’t mean it is the right method.

What it means is, it is the right way to invest for me.

Similarly, there are many rules I bend for my way of investing.

1. I have no investment in debt funds. I do not diversify in fixed income investment.
2. I avoid savings bank accounts.
3. I don’t like to diversify. I have an overallocation of 20% in one single stock. I love the focused approach to investing.

I don’t recommend the same to others.

What I want you to be doing is follow others but don’t follow them blindly.

I invested heavily in Lupin in 2018 but never in Sun Pharma even when valuations were compelling. Because I believe I invest in the team doing the business and not in the underlying company. I am not convinced (for various reasons, including investing in Suzlon) with many management decisions.

Final Thoughts

I can hold a stock when earnings take a hit or price to earnings ratio contracts and share price falls. However, I can’t hold a stock when I find unfriendly shareholders decision.

This is my process of investing. What is your method of investing?