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  • Writer's pictureIshfaaq Peerally

The one investing advice: Do your homework

“And back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price—and lost £20,000 (or more than $3 million in today’s money). For the rest of his life, he forbade anyone to speak the words “South Sea” in his presence. ”

― Benjamin Graham, The Intelligent Investor

Now I have your attention

On the 16th of March of this year, I opened an account on Etoro and invested 100 USD in the oil market, I made 24 USD that day. The next day, I lost 53 USD. Indeed, if the great Newton could not beat the market, how can we, mere mortals, dream do so? We must dream and we can beat the market and it is easier than we might think. I have been beating the Dow Jones Industrial Average for the last three months but it is not something that I am really proud of. Four months are just not enough to judge someone's investment strategy. If after the next bear market, I am still beating the market, then I'll be proud of myself.

Although I have some growth stocks in my portfolio(Facebook, Tesla and Yandex), my main strategy is value investing, that is, to buy stocks which are being undervalued by the market. When everybody was selling Alaska Air Group(ALK), I bought it. Why I did that? The reason is simple. I did my homework. Recently, Alaska Air Group acquired Virgin America for 2.6 billions USD. It was quite a risky deal for ALK given that their equity was only 2.4 billions USD. However, I read the financial reports on the two companies and the deal itself. ALK was doing really well compared to other airlines and it had a low dept/equity ratio. I was, therefore, buying shares of ALK at a good bargain. I have made so far 6.28% profit on the investment but it is too soon to be happy. The market is very volatile and often one tries to take advantage of this volatility. Some people will invest in the Foreign Exchange Market(FOREX), in commodities or in penny stocks. Although, I have a long-term strategy, I don't mind taking some more risks and using the market volatility to my advantage. I tried different strategies using a virtual account and all failed. They all failed. And it was for only one reason. I didn't do my homework. I analysed all these trades and realised my mistake.

Sir Isaac Newton was not a fool, he just got trapped in a bubble that exploded. That was the price he paid for not doing his homework. It does not matter in which market you want to trade but my one investing advice would be: Do your homework. We now have great websites and apps to give us news from Wall Street, London, Shanghai or anywhere else in the world live. You don't have to listen to the madness of the masses. Just do your own research. As Warren Buffett said, "The stock market is a device for transferring money from the impatient to the patient."

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