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If you buy something at six and it goes to 60, and you sell half your holding, Mhm. made 10 times your money. Do you say, "I hope it goes up and I make more money?" Or do you say, "I hope it goes down, which proves that I was right to sell some?" I think holding on to great long-term compounders in stock investing is very difficult.
Mhm. I think it's just as difficult as finding one. Now, it's difficult because the prudent thing to do is to rebalance. What I said before, take a little off the table. Sounds intelligent. Right. Therefore, and if so, if the prudent thing to do is to rebalance, then is profiting massively from great long-term compounders really just luck?
I wouldn't say it's just luck, but it does require luck. Mhm. Because uh you buy something, it doubles. Mhm. You make a decision not to sell it. Mhm. If it goes on from there to appreciate further, Mhm. there is some luck involved. You can never say, "Oh, no, that was sure to happen. It was obviously an intelligent decision." At every point in the market, you look at the price of a stock or a bond or a piece of property, and you say, uh is it fair, too high or too low?
Mhm. And there's no scientific instrument for for uh establishing these things. You make a judgment. Sure. The question is are are you lucky in your judgments? Mhm. Uh lucky sounds like um you know, it was all by chance, rolling the dice. No, not necessarily. Sure. But but but still, we all make judgments every day about whether something is priced right or too high or too low.
And the word lucky may not be the right word, but do [clears throat] they do most of your decisions work out? Mhm. Uh and we all know that when a decision works out, there's some combination of the fact that you made a good decision, but there's also uh some factor that you were lucky. Life turned out to be as you expected, or maybe even a little better.
Mhm. And so you prospered. Mhm. Um but you know, look, in one of the memos I talked about Amazon that was selling at 90 in 1999 and six, Sure. you know, one. Yep. And you know, this question is, if you bought it at six, would you have sold at 12? Mhm. Uh lots of people would take a double. Would you have sold at 30?
Mhm. Five times, 60, 10 times. Right. Uh what about when it hit 600 and you're up 100 times your money? Shouldn't you have sold Should wouldn't have You used the word prudent before. Would wouldn't it be prudent to sell some? Mhm. And obviously, you can't If you sell some, you can't let it all ride.
Mhm. Uh and then, you know, I think when I wrote that memo, it was at 3,300. Mhm. So, if you sold some at six times, which was 100 times your money, you missed the next five and a half times. Right. So again, you're not going to get it all right. And if you know somebody who bought Apple at six and still has it when it's 3,300,
Yeah. never sold a share. Right. You have to look at them and say, "Just He was up 500 times, Right. and he didn't sell any. What if it had collapsed? Right. You know, so again, what is your mindset? What is your personality? Mhm. Um how [clears throat] are you going to feel if something goes from six to third to 3,000 and back?
Right. Right. And you know, for most of us mortals, uh we would sell some at 600 and some at 3,000, and then hope for the best. Right. By the way, if you And and you know, this this goes to the difficulty of doing these things. Mhm. If some If you buy something at six and it goes to 60, and you sell half your holding, Mhm.
made 10 times your money. Mhm. [clears throat] Do you say, "I hope it goes up Right. and I make more money?" Right. Or do you say, "I hope it goes down, Right. which proves that I was right to sell some?" Right. Again, human nature, Mhm. the human condition, Mhm. uh which is kind of screwed up. Mhm.
Uh it's it it's financially, you can tell when something was a good decision. You see the outcome. Mhm. Humanly, Mhm. it the description of a good decision can be very challenging. Mhm. Mhm. Got it. Give me two minutes and I'll put it long-term investing is difficult. Have two stories to share from my own portfolio.
So, let's begin. Back in 2019, I started accumulating this stock, Polycab India. The stock was trading at 1,100 rupees, and then COVID came. During COVID, the the stock corrected to 600 levels, but I kept accumulating. My average buy price was around 900. In just 4 years, the stock touched 5,600 levels.
A solid 6x returns. But then something happened. In the month of December 2023, IT department raided 50 locations of Polycab India. A serious corporate governance issue was floating around, and I did what a textbook investor would do, sell it. I somehow exited at 4,500 levels, made a 5x returns. But here's the twist.
The stock bounced back from these levels. The stock made an all-time high of 8,600, a 10x return from my average buy price. I was right about this business, but I failed in holding. Now, the second story. Before COVID, I had this stock, Advanced Enzyme, in my portfolio. During COVID, the stock fell to 110 from 160 levels.
I kept accumulating and made an average buy price of 130. In just a matter of 1 year, the stock reached 480 levels. A quick 4x returns. But from this level of 480, the stock corrected 50% to 230. During this period, I kept accumulating the stock. Now, my average buy price was 230, and the stock was trading at 230.
I completely failed to understand that the margins were shrinking. The top line wasn't growing, and the bottom was declining. And that's what happened. And finally, I exited at 280, a 20% return. Now, look at both the cases. In one case, I should not have sold. In the other case, I should have sold.
I went wrong in both the cases. So, here are three simple lessons that I learned from these two mistakes. First, not every bad news is sell signal. Sometimes, it's just noise. Second, not every correction is an opportunity. Sometimes, it's a warning. Third, always check fundamentals and not just the stock price, because stock price will tell you what is happening, but fundamentals will tell you why.
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