Investment tip: Don't just track numbers, write down 'why you invest' to make informed decisions later The highs and lows, the surges and slumps, all have underlying causes. Your log book serves as a reminder of these reasons and helps you take informed decisions. Its not just about tracking performance; its about understanding the ‘why behind every movement
Dhirendra Kumar
CEO, Value Research
Over the past few weeks, I have done a substantial, and periodic, re-reading of my favourite investment author, Peter Lynch. My first reading of Lynch was soon after I finished college in 1990. Compared to 2023, it was a very dull time, and acquiring a copy of Lynch’s book, One Up on Wall Street, was very exciting for me. In those pre-Internet days, the flow of information was much slower and harder, and this great book had just come out in the previous year. It was not well known at the time, especially in India. In fact, even now, it has been read by few investors even though many have heard of it. Lynch’s book was like primary education for me as an investor.
Even today, more than three decades later, I come across something new and useful every time I read the book. Recently, while reading an article he wrote in 1997, in Worth magazine, I noticed this tip: ‘With every stock you own, keep track of its story in a log book. Note any new developments and pay close attention to earnings. Is this a growth play, a cyclical play, or a value play? Stocks do well for a reason and do poorly for a reason. Make sure you know the reasons.’ For those who are not familiar with Lynch, the curious thing is that even though he became famous for his incredible track record as a fund manager, all his writing is about stock investing. From 1977 to 1990, Lynch, while managing the Fidelity Magellan fund in the US, generated an annualised return of 29.4%, making it the best performing fund in the world. This performance made Lynch a legend in the world of investments, but what truly cemented his role for posterity was the books and articles he wrote about equity investing.
Let’s go back to his tip about keeping a log of your investments, because even though he talks about stocks, this is applicable to all investments. Note that he’s not talking about an accounting record, which you can download for any investment that you have made. He is talking, instead, about the narrative, the story, of your investment. In investing, every decision to buy or sell should ideally stem from a well thought out rationale. It’s not just about numbers; it’s also about the subjective, qualitative judgements one makes. This is where the significance of maintaining an investment log book comes into play.
For every investment you acquire, dedicating a section of your log book to its story can be a game changer. As Lynch points out, the stock has a unique story. It might be entering a growth phase, experiencing cyclical fluctuations, or, perhaps, it’s undervalued. By logging these perspectives, you create a living history of your investments, offering a clear picture of why you believed in them in the first place. As you continue to monitor your portfolio, you can update this narrative with new developments. All these factors can influence your original investment thesis. If there is a written rationale, you will be forced to recognise any changes that have taken place.
All investments prosper or falter for distinct reasons. The highs and lows, the surges and the slumps, all have underlying causes. Your log book serves as a constant reminder of these reasons, helping you take informed decisions. It’s not just about tracking the performance; it’s about understanding the ‘why’ behind every movement. So, make your log book your investment ally, ensuring that with every move in the market, you’re not just reacting, but responding (or choosing not to respond) for a clear reason, that you are conscious of. With a log of this kind, it would be impossible to just drift along and have stagnant investments that you’ve just been ignoring. One always hears the business and investment mantra, ‘what you can’t measure, you cannot manage’. Here’s another one: If it’s not recorded, it can’t be managed.
(The Author CEO, VALUE RESEARCH)
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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
