Picking the best stock is like choosing your Best friend…

Dear Friends,

I am so glad to share this real life case in which I learned to pick the best stocks through selecting the best friend. I am aware at first it may sound bizarre to you.

I ask you to select your best friend out of your batch and if you are working then select your best peer. Take my example, I have just completed my MBA. I am very selective in making friends after all it is not about how many friends do you have or how rich and influential your friends are but what “value” your friends create to you. No matter you have only one.

Approach 1: I rather prefer to select a guy who really adds value to me than to a girl friend. Because that friend of mine has Guts he is really different. He has feeling of technology.

Learning: Do not pick stock that only add fancy to your portfolio, it is just like a girlfriend, invest in companies having what Warren Buffett terms “Durable Competitive Advantage”. That makes the company unique.

Approach 2: Think how your friend can create value to you? My friend, is a highly Tech Savvy guy, he is my technical mentor, others ignored him because he was reserved nature person always busy with his Laptop. I had all options to roam around with friends, girl friend and to damn care for any value addition. And that is called following the herd or “ the peer pressure.”

Learning: Choose for the companies which are different, understand the competitive advantage of the Business, than to just go by what others investing in. do not let your Stock Picking instinct get influenced by Peer Pressure. So I would say, “ Have Guts to Be Different.”

Approach 3: My friend did not perform very well academically, because he was more busy doing something creative on internet, Others thought this fellow is dumb and waste, he is a crazy guy, does not bother for marks. Others ignored him but I picked his, because I was sure that this guy can create value to me.

Learning: Do not peep into others basket, decorate your own. I mean keep your portfolio intact of others’. If u understand the Competitive Advantage of the business and understand it than I will strongly recommend Dare to be different.

Approach 4: Since my friend was of reserve nature, I found it difficult to befriend with him, so I found the best opportunity, once he could not complete his assignment that time he was in need and I helped his to give him a sense that I was his best buddy, after all, “A friend in need is a friend indeed.” I picked my friend when he was down.

Learning: with this approach I want to tell what is the right time to pick a stock? Well, once you have thoroughly understood the Durable Competitive Advantage of the business, it Is now high time to wait and watch, to pick the stock when the stock Is undervalued, I mean “Margin of Safety” the concept given by the Great Ben Graham, I befriended with my friend when he was down (depressed), likewise pick a stock when it is Undervalued, or trading at lesser that the intrinsic value.

Approach 5: I do not believe in changing friends frequently, I ignored the minor mistakes of my friend thats how I could hold with him for a long time.

Learning: Do not get carried away by the daily fluctuation into the market price of the stock you have picked. Ignore it like I ignored the minor mistakes of my friend and could hold him for long term.

Approach 6: I hate taking any crucial decision on the basis of behavioral mistakes of my friend; also I do not quit friends and make friends frequently based on their sudden failures or success.

Learning: Do not trade, I mean a value investor should not trade. In the sense, do not buy and sell your stock too frequently, ignore the daily fluctuations, patiently wait and let the competitive advantage of the business work. It will surely generate not only returns but what Warren Buffett says “Compounding Returns.”

Approach 7: This approach might sound that i am selfish or I stared spending more time with other friend of mine who has different talent. It is because my earlier friend has already created value to me up to my expectation. So now its time to “Let Him Go.” And look for other friend who can create more value.

Learning: Wait and watch does not mean to be passive about your stock. Set your return expectation one they are fulfilled dare to sell and pick other stock which has other competitive advantage as I changed my friend.

Today that friend of mine is a successful freelancer, he has assured earning or cash flows, he created value in my life at its full measure, had I also ignored him like my other friends did, i would even not have started this blog. Likewise, the stock that you have picked will surely fetch you more than expected returns or value creation for you, because if a business has true durable competitive advantage its future cash flows and earnings are going to be above average and assured.

This I show I made my value investing decision. The idea of selecting the Best friend is like picking the Best business Is taken form Warren Buffett’s Speech in the University of Florida, you can watch the full video at: Click me

Happy Value Investing!!!