Emotional Control – the Main Rule for Succeeding on the Stock Market

Emotional Control – the Main Rule for Succeeding on the Stock Market

The FINANCIAL -- Technology and crypto currencies are among the most popular stocks with Georgian traders. Meanwhile, trendy stocks are riskier for investing in as they commonly end up being overvalued. Emotional control has been named one of the most important features for succeeding on the stock market, as it is very important not to sell on fear, because that can be a buying opportunity, not selling. In general, the best opportunities come when investors are fearful and there is panic in the market.

“Stock in every industry requires different analysis and valuation. You cannot value stocks using a single method. Technology companies highly depend on intellectual property; natural resources or railway companies are capital intensive and so on; you cannot value both using the same valuation method,” said Zurab Abuashvili, Founder and CEO of Investment Capital, adding that “one has to understand a particular company well, to make a good stock pick. You are required to form your own opinion about that company, understand competitors and management and stock valuation to make sense – if intrinsic value of that stock is higher than market value, we buy. Best opportunities come when investors are fearful and there is a panic in the market. This is the time to find bargains”.

“At LLC Investment Capital we are searching for low risk, higher return stocks. We do not do wide diversification; wide diversification is required when you do not know what you are doing. Our performance at LLC Investment Capital will be very successful in the next few years, even based on the tough US standards, we believe we can consistently beat the US market. Anyone who is not investing with us now, is missing a tremendous opportunity,” Abuashvili told The FINANCIAL.

In his interview with The FINANCIAL Abuashvili gave tips for successful stock trading. As he mentioned, the younger generation of Georgians are more active in stock trade.

Q. Buying the stocks of various companies is one of the most attractive ways to invest in many countries. Meanwhile, Georgians still remain loyal to real estate, in regard to making profitable investments. What are the main reasons for that?

A. You have to have all opportunities possible to allocate capital well. Making proper diversification among asset classes reduces risks. LLC Investment Capital is an investment company, not brokerage. We are open to people who want to become partners/investors at LLC Investment Capital. Currently, we have few partners and are in the process of adding more partners to raise additional capital. We require more capital in order to buy the best, mostly US, company stocks. We have an edge and sophistication for stock picking. This is what we do; we have a great, unmatched financial model to use for stock analysis and valuation. We also have expertise in qualitative analysis. Periodically, we find great stock opportunities, those that will perform well in 3, 5, 10 and more years.

As you know, real estate purchases require quite large capital. It is not like stocks, for instance becoming a partner in LLC Investment Capital requires substantially lower investment than buying real estate. US stocks are generally much more liquid than real estate. According to the LLC Investment Capital business model, we will have much lower risk in investing well-picked US stocks, than that of real estate domestically. As for growth, stocks are a growth machine, since 2009 real estate in Georgia had very low growth, whereas US company stocks had substantially high growth. Real estate is generally quite cyclical. Historically, company stocks had much greater growth than real estate and I do not think this dynamic is going to change in the future. Nothing is better for investment than carefully picked great stocks, and that is what LLC Investment Capital offers.

The best thing for you is to diversify wisely, if you have investments in real estate in Georgia that is fine. You may have some portion invested in other asset classes also, and you can invest in LLC Investment Capital which gives you US and international exposure in stocks.

Q. Please can you give us statistics of the top companies of 2017, the stocks of which were most popular among Georgian buyers?

A. I do not have official statistics. But I have heard that many liked technology stocks and liked crypto currencies. Generally, people love speculating on popular stocks, the stocks everybody is talking about, media also influences purchase decisions. When they hear their friends, neighbours or relatives got lucky and made money on stocks, they get jealous and their first instinct is to follow the same stocks; when everybody follows the same idea, stocks become priced to perfection, thus overvalued. You cannot push stock prices up forever, eventually the price will fall and sometimes substantially. You may be lucky once or twice, but you cannot make money consistently by just following the crowd and not understanding what you are doing. The biggest risk is not knowing what you are doing.

Q. What determines Georgian buyers’ choice?

A. Most of the time, what I hear people are looking for is quick profit, speculations on stocks, things everyone is talking about. Generally, if you listen to what everyone is suggesting to buy, you will not succeed. For instance, when corrections occur and stock prices fall in markets, temperament plays a key role, emotional control is very important not to sell on fear, because that can be a buying opportunity, not selling.

You get recessions and you have stock market declines. If you do not understand that is going to happen, then you are not ready, you will not do well in the market. If you have trouble imagining 20% loss in the stock market, you should not be in stocks. Corrections in capital markets do occur periodically, for us it creates a great buying opportunity. At our company we are waiting to get such an opportunity. For us, the falling stock prices of great companies are not a risk, but a great purchasing opportunity. As successful investor Warren Buffet says: “Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be mispriced”. At Investment Capital we have just such a mindset. We do not follow the general consensus, we make our own judgements and if we believe there is a great opportunity we buy.

Q. Can you give a description of the typical Georgian who decides to invest in stocks: their average age; education/career background; gender; income?

A. There is no official statistic of that kind, however the younger generation seem much more interested in stocks in Georgia.

Q. What is the minimum literacy level required of a person before investing in a company?

A. My advice for individual investors is to act consistently as an investor and not as a speculator. If you want to pick stocks, choose ones you understand, you have to have good knowledge to pick stocks. I have seen some investors who work in one industry, have knowledge in that particular field, but pick stocks in a different industry, where they don’t have any knowledge, which is a mistake. Obtain all the information possible about that particular company, learn as much as possible. Pick up a pen and write “I am buying this stock because”, and write all of the pros and cons about that particular company. Understand the competitive structure, understand who runs it and finally, it doesn’t matter how great the company is if the price is not attractive, make a valuation and define the intrinsic value. Intrinsic value is not a particular number, it is within the frame.

But instead, if you choose to speculate on stocks, there is a high probability you will end up losing money, because statistically, as research suggests, most speculators lose money. You need a strong temperament and emotional control in investing. You have to form your own opinion and not listen to what others are saying. If you want to be successful, you have to be right more often than the consensus of opinion.

Q. What is the approximate profit when investing in stocks?

A. US stocks’ average price performance, without dividends, during the last year was about 18%. During the last 5 years, annual price performance was 12%, and since 2009 stock market bottom grew about 17% annually. We are very confident and expect LLC Investment Capital performance to outperform general US stock market/averages in the future; we will beat the market.

Written by Mary Liberalova, The FINANCIAL