An Analyst at work, Investor at Heart

Someone’s sitting in the shade today because someone planted a tree a long time ago, says  Warren Buffet. Dhairya DamJi Patel, an investor who planted a tree of an investing in the very early stage of life at the age of 16. Since then, he actively participates in the Share Markets and manages his portfolios. As he planted, an investing tree very early so he is enjoying the shade of financial freedom at the younger him. Now, he has started extending his shade of investing knowledge to some retail investors by helping them in investment and portfolio constructions.

After working in some big banks on Wall Street and being part of a few IPOs, Dhaiya has founded a blog named BillionDollarvaluation on that he shares his idea about stocks, economy and investments. He loves running, cycling and blogging. Dhairya is also a top writer on Quora in the Topic stock markets in India.

In an interview with MianeBolaTha, Dhairya talks about his approach to investing and his journey to financial freedom.

Day Trading and Traders get much hype these days, what drives you to become an investor not go with hype?
I believe the market is smarter than all of us combined. Trading may seem attractive but in the long run, more than 99% of the traders seem to win small and lose big. Technicals work but the volatility is crushing. I have seen entire capital getting wiped off in a few minutes. Instead if you can visualize how a business would be 10 years down the line you can invest in it now and relax. All you need to do is pick a good stock and sit back on your sofa and get old. This is how investing works you can observe the power of compounding which is called the 8th Wonder of the World. Therefore, the ability to see that far down the line excites me and makes me an investor and not a trader.

According to you, what are the pros and cons of Investing?
Everyone needs to invest if they want to preserve their wealth. Inflation even if at 2-3% a year erodes the entire wealth in 25-30 years. So everyone needs to at least get returns equal to the inflation rate in the economy if they want to preserve their capital. Now all depends on your risk appetite. Depending upon the ability and willingness to take risk everyone invests, whether it is bank fixed deposits or shares or hedge funds. The only con of investing is the mismatch of your ability and your willingness to take risk. 

You may be willing to make big bets but you won’t have sufficient ability like capital, estate or insurance. Similarly, you can have an ability like inherited wealth and estate but you may not be willing to take big bets. So the con is investing in the wrong asset. If you don’t like to take risk and end up buying small or midcap shares then you are worse off. Therefore, you should carefully select your portfolio or appoint an investment advisor who can guide you.

If I have some money and wanted to invest in some companies. What should I look for in the stocks to invest in?
There are 10 parameters which I use to evaluate a company as a suitable investment. Those are as follows
1. Economic Moat
2. Business Model and Management
3. Growth Ratios
4. Profitability Ratios
5. Cash Flow Ratios

6. Liquidity and Solvency Ratios
7. Efficiency Ratios
8. Valuation Ratios
9. ROE (Du Pont Analysis)
10. Future Prospects
If they score at least 4 stars out of 5 in each category an average then they are very good investments. You can check an example on my blog.

Psychology of an Investor is different to a trader. Can you throw some light on your mindset for investing?

Investing mindset requires you to look very far ahead in the future. If you could have visualized the future of HDFC bank 10 years before in 2010 you would have gotten 600% returns today which is way more than the FD rate of return. Similarly if you would have miscalculated the future of Eicher Motors 5 years back you would have been at a loss of 60% of your total capital. So timing also plays a big part in Investment. 

You can see whether a stock is good or bad but you also need to invest in it at the right time. Most investors make this mistake. They buy at 52-weeks highs thinking that they would miss out on further rally but eventually the stock undergoes correction and they sell. So the trick to good investing is taking the contra positions. Buying when everyone is selling and selling when everyone is buying.

Do greed and fear also play a role in investing as it does in trading?

Same is the problem, the fear of missing out. Investors buy when the stock rallies and sell when it falls. Greed of getting more and fear of losing out is the force that drives the market. So an intelligent investor is the one who carefully looks out for good opportunities in the places where everyone sees losses. So don’t get your greed or fear control you. If you are smart you can make money on the greed and fear of others.

Do you like to invest, in this corona fearing Market? Why and how?
Pandemics have also been there in the past like SARS or H1N1 but every time the market bounced backed within 6 months. The stimulus packages released by the governments after such incidents play a crucial role in reviving the markets. The panic selloff in such times is a good opportunity to accumulate quality stocks. I have written some articles on this as well. One can check those articles by visiting the blog.

Any message for fellow investors.

Markets are a sheer force of nature. No one can predict how it would react. The best thing you can do is to take contra positions during the time of panic. One thing that I have learned while working in the capital markets is that no one can tell where the market is going to be tomorrow or even after a year, it could be bullish or it could be bearish, but one thing is certain that it will be up in long term. I hope you enjoyed reading this. Remember the markets reward those who don’t sell out.

One can follow Dhairya on his blog as well as can check out his Quora Profile for regular insights on Investing Opportunities and learning. 

If you like this article, don’t forget to bless it with your tweets or shares on your favourite social media.  Further, you might like to read Following Trading Journeys:

Chartered Accountant turned full-time Trader - An inspiring Trading Journey

An MBA Specialized in International Business Turned Full-Time Trader cum Investor

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