Hello friends, in today’s article, we see the new book summary. the book is Stop. think. Invest written by Michael Bailey. In this book, we learn about the investment philosophy and how to use them while choosing good stocks. so let’s see this summary.
Stop. Think. Invest. :-Book Summary
In this book, the summary author gives the three-session about investment philosophy. let’s start with the first one
1) Behavioural Economics:-Book Summary:- Stop. Think. Invest.
Before understanding this lesson, let’s understand what is the behavioral economics,
Behavioral Economics includes our economics + psychology
we all know, that a common man act in any situation on emotion. let’s understand with an example
We don’t take decisions on logic and facts, instead of that we make decisions on emotions.
so this decision we take in investment is based on our emotions.
We all know, that F.D. is not a safe option for investment, but people think about it as safety.
they don’t think about inflation increases, and F.D. return is much lower than any other financial instruments like bonds, stocks, etc. ( Stop. Think. Invest.)
We all know, that keeping money in a saving account, can decrease the value of money by increasing inflation. but we love to prepare Liquidity ( cash)
On Behaviour Economics, the author shares Case studies of General Motor company
General Electric Motors company ( case studies)
people say, General electric company stocks are a safer investment for decades so American people think, this is the best option for investment and they invest in the company, and without any worries, they go on vacation.
and these companies actually give a good return and grow continuously. so everyone thinks this company is awesome.
but in 2015, a simple twist happen
the CEO of the company Jeff Melt, give more hope to an investor about company growth, he says, the company building a new powerplant and we also building the healthcare technology and we also building a Jet engine. In five years, we are more profitable and money multiplies by 5x times.
Here is the behavioral economics come,
If investors think logically this company is good but they doing diversification.
they have capital, and resources so investors may have to be small doubtfully how this can they will be achieved.
No one thinks,
People have trust in a company, and they think, they can build that thing and many people invest heavily. (Stop. Think. Invest. )
In a few months, general electrics stocks go down by 40%. In 2015, the stock price is about $240 goes down to $57.
so the above reason, you have to understand behavioral economics to take a wrong decision on investment that can avoid a major crisis in financial life.
If your behavior economics is so strong, then you choose the right stocks for investment. and hold them and sell them when you got an awesome return.
You do better when you know behavioral economies
One study says, having many options of products for consumers is better for consumers because they get the good decision making.
the author gives the A concept that, is opposite to the above statements
Having many options available for beginner investors, for investment purposes, can confuse them, this called as Paradox of Choice.
means which option is better for investment, this choice is the most difficult task.
In the restaurant, the same thing happens to us, they give us two option, in that one option show the expensive and the other option shows the little expensive, most of the time we got confused, and buy the extra meal.
then the author says, ” If you feel the paradox of choice for investment.
which is the better investment, Index fund, Mutual fund, F.D. Bonds, Stocks, property, and gold.
to avoid this confusion, the author gives the one method called ” elimination of choice “
In the elimination of the method, the author gives the two things
- Libertarianism Philosophy:-
- Paternalism philosophy
1) Libertarianism Philosophy:- Stop. Think. Invest.
In this method, you stay open-minded and do research of someone give suggestions and you listen carefully.
2) Paternalism Philosophy:-Stop. Think. Invest.
In this, you have to filter out what you choose, choices for best. In this, the important is thing is remaining than choosing.
Suppose you have 1 lakh rupees for investment, so the best option is to invest in stock. So you can choose a mutual fund, in this, for now, scenario, you eliminate the stock.
If you follow the libertarianism philosophy
In this, you give time to yourself to learn about investment, and then you choose stock for investment purposes. then you can eliminate mutual funds.
In 2016, the author searched for investment opportunities, so problem is, that they have 1000 stocks, they firstly chose an industry and then find an opportunity, that has a very cheap stock price.
they found 3 industries.
- Cloud Computing
- Cyber Security
- Self-driving car
For this time they used libertarianism philosophy than they use paternalism philosophy
so self-driving cars are a risky investment because they work or not no one knew.
So the author already took the Microsoft and google stocks, so they partially invested in cyber security.
so lastly remove cloud computing the author does big research, they choose the
Palo alto Network up to now they got good investment. (Stop. Think. Invest.)
so best investment happens when you have to keep your minimum choices.
In the first strategy, we learn, how we make investment decisions on behavioral economics, and that investment is very good for profit we also learn about the elimination of choices method.
now let’s understand the second lesson from this book
the author says, ” two types of thinking System I and System II”
In System-I you research stock and investment in a distracting environment so finally, you can learn about stocks and not understand the real meaning of that article.
let’s understand with an example,
If you are reading an article on stock and with that, you see the T.V. and in the background, a song is playing.
so this type of environment the author called autopilot thinking.
In system II your concentration level is high and you not thinking about distractions and you give full concentration on specific work ( stock analysis)
When you choose stocks or find investment opportunities or develop new ideas.
so you have to avoid multitasking
if you are doing multitasking, the chances are to make mistakes and lose money.
when you choose stocks, you have to consider, what’s business of this company in
what are the financial reports ( annual reports)
this should you know, it’s important, especially last five years result. Many times, stock prices go up by market manipulators and companies’ finances are weak. (Book Summary:- Stop. Think. Invest.)
If you choose stocks from the expert tips. if you lose, then the loss recovery time is very long?
for this, the author suggests an Investment thesis,
guys this thesis helps you to build your own investment strategy.
Investment thesis by author:-
Suppose a boy turn 18th, and I have some money to invest.
According to the author you have to make a simple word or excel file. in that, you can make your own Investment strategy.
In that, you have to add the following things.
let’s take a stock example, for an investment thesis
1. Name of stocks = coal India
2. Why you do choose this stock? = these are dividend stocks and give the average 25% growth.
3. What is their business? = mining and refinery business, and produce the largest coal energy.
4. Company is profitable or it can be in the future? = up to solar energy come, this company have good future,
5. Expectations:- = give the 9 % return every year, in form of a Dividend.
friends, the above stocks, are not for a recommendation, I just take them as an example.
by doing this, you can add your own questions and you can make your own personal investment thesis.
So many of you say, this is very difficult and required very much hard work. and I don’t have interest in that
for these people, I only say, if you are happy, when money comes to your, then you have to do simple following things
You can give your weekend 2 or 4 hours, within 2 years you become the better stock analysis and have good knowledge, that maximum people don’t have.
As you already know, compounding works in any field, but in knowledge, it works very good way.
so for this, you have to develop a habit of system II of thinking.
In that, you can give full attention to any task in the long term. so you see, you are becoming smart than other people, in any field, that you have an interest.
let’s summarize the second session,
in this lesson we learn
2 types of thinking:- 1) system I and 2) System II
and we learn the investment thesis given by the author.
let’s see the third lesson
Suppose, you do research on your favorite stocks, and you make the thesis and without overthinking, you invest money. in your favorite stocks. (Book Summary:- Stop. Think. Invest.)
So for now, you have to monitor his stocks and analyze them.
So the problem comes, when your stock performance is lower than your expectations.
so sometimes, choosing random stocks without any research their portfolio performs well. so in this situation, you don’t have to panic.
According to one research, when people lose money, their emotions are high than when they earn money.
means, if you lose 1000 rupees then you become very sad.
If you earn 1000 rupees then you are not that much happy than previous times you lose money.
so some things work on investment also when your portfolio in lose, then you think and act like the system I, automatically start
You listen, to the news, see tv and read the newspaper then you got to panic about your stocks.
so the author says, ” this is a time in that you have to be calm and think positive.
and you can do research on why this stock is not doing good.
by doing this, you learn about stocks and become a better investor.
Famous investor Charlie Munger says, ” You need patience, discipline and an ability to take loses and adversity without going crazy.”
lastly, the author shares a concept, that name is Breakeven effect
In this effect, when people lose money, then they put more investment to recover the previous loss.
by doing this activity they lose their capital
Because, we can’t expect our loss, so for this author says, You have to focus on a growth mindset.
If the plan is not worked out, you can take the learning lesson and keep moving on.
Because, life is long and one wrong investment, not destroyed your all capital. so don’t blame yourself for going wrong in one stock. (Book Summary:- Stop. Think. Invest.)
friends, this is all about, the Stop, think. Invest. summary.
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