One of the factors which sets apart a great investor is patience. In investing, patience is all the more important. It makes all the more difference. In today’s world of zero brokerage demat accounts, real time alerts and hundreds of stock recos, investors often get puzzled. People can buy or sell a stock within minutes. You may think that’s a good thing, right?! But not quite so. We usually tend to doubt our choices when we have a lot of options available. This makes us become emotional while investing. We can’t fathom when a stock in our portfolio goes down when some other stock is rallying, right?!
But this should not be a reason for you to sell your holdings. It is important to stick to your investments as long as it’s outlook remains stellar. It makes no sense to sell a good stock just because the markets are in the red. In reality, that’s the right time to accumulate the stock as they might be in throwaway prices.
Let’s take a scenario
Mr. Ramesh bought 10 shares of Asian Paints at ₹1,850 a share in 2020. He knew that the company was a market leader and had a good business model. After a few months, the market started to fall. The stock plummeted below his purchase price. It went as low as ₹1,500. But Ramesh believed in the company’s business and its management. He remained invested and bought more of the shares while people were selling their shares. For 6 months he remained patient. After the fiasco, the stock attained new highs of more than ₹2,000. Had Ramesh sold his investments, it would have made a huge impact in his portfolio.
Well alright, then you should put your money in a stock and forget about?! No, that’s not what we are saying. You must review your investments regularly and that the reason behind your investment is still intact. Ideally, you should sell only when the underlying reason for your purchase or the whole business model of the company changes. It is important to understand the difference between patience and ignorance!!
Let’s take another scenario
Assume that Mr. Suresh has invested ₹30,000 in the shares of Yes Bank in 2018 when it was trading at around ₹280. He believed that the company was a potential multi-bagger because of its low bad loans ratio and good management. Suddenly, news broke out that the company’s amount of bad loans increased. This drove the stock price down to about ₹190. But still, he remained invested and believed in sunshine. To make things worse, the company was found to be involved in a huge fraud. And this drove the stock price to the ground. The market was seeing a complete sell-off in Yes Bank shares. But Suresh was patient and was still holding the shares. When the dust settled, Suresh’s portfolio of ₹30,000 plummeted down to about ₹3,000.
It is important to be patient in the market. But it is even more pertinent to know when to remain patient. The main aim of investing is to make long term wealth and not lose our money. You should know when to fold. You must sell your investments when the reason for which you invested, no longer exists. You must properly manage your investments.
Disclaimer: The stocks mentioned in the article are purely for illustrative purposes and are not recommendations or opinions.