Psychology

Stock Market Psychology: A watched pot never boils

‘A watched pot never boils’ is a phrase which means ‘time will pass very slowly when you wait for something to happen’.

This phrase was first published by Benjamin Franklin way back in the year 1732.

A WATCHED POT NEVER BOILS

It is one of those learnings which has helped me become a better investor in the stock market.

If you buy a stock and watch its movement every single day, eventually you will run out of patience.

Let’s take an example.

Which was the most hyped stock and most talked about company in the year 2020?

It has to be Reliance Industries. Everyone was talking about it. Facebook was investing in the company. Google made a large investment.  

Reliance was said to be the leader of the bull market and the stock price was rising everyday.

Let’s assume you made an investment in Reliance when global companies like Facebook and Google were investing. This was back in June – July 2020.

Here. See the chart.

Reliance Chart 2020

Good news all around, rising stock price and a fantastic company which owns the biggest mobile network and largest supermarket chain in the country.

You invest. Is it a bad investment? Not really.

But you bought this when the good news has already been factored-in to the price. This happens all the time even to experienced investors.

The stock rises for a couple of months more. You are happy and expect it to cross 2500 and 3000.

This is when the price falls. Price corrections are tolerable for most people, after all they can buy more.

But it’s the time correction which is the most frustrating.

From July 2020 to the time of writing this article in April 2021, the stock has given zero returns. It’s flat. It’s rangebound.

Now compare this to the index. Nifty was around 10,000 in June-July last year. Now it is at 14,500.

45% returns in Nifty. Almost zero in Reliance.

During this period, we have witnessed the biggest bull market in recent times and many stocks have doubled and tripled.

Imagine what a Reliance investor would be feeling at the moment. What about the one who likes to check stock prices every day?

When will Reliance start rising? Why is it not going up when others are performing so well? Should I sell this and buy something else? What if it doesn’t move for another year?

A watched pot never boils.

Patience will run out soon, and most people will shift their money to stocks which are in news and performing well.

That’s when Reliance will start performing and the other company which has just been invested into – will stagnate or fall.

The cycle continues and this is the reason why most new investors don’t make money in the stock market.

Whether it is investing or trading, the stock market is all about patience.

Which is why legendary investor Warren Buffett once said, “The stock market is a device to transfer money from the impatient to the patient.”

Quick tip: Keep searching for good quality stocks which have undergone both time and price correction. The longer the better. Read more on it.

Technical analysis is important here. Cannot emphasize more on this. You need to learn charts, because stocks can stagnate for years or even decades.

Reliance itself did not give any returns for nearly 10 years between 2008-2017. But when it started moving, it gave 4x returns within 3 years.

Indications will be there on the chart. When you add business analysis to this – the fact that Jio proved to be a trigger for Reliance – you will now be able to able to take much better decisions.

Do not make investments based on what you hear, read or names which get recommended by others. You need to develop your own system, build conviction, and then avoid waiting for the pot to boil.

Read this article again. A lot has been conveyed here.

If you liked the article, do follow us on WhatsApp, Twitter, Instagram and Facebook.
Whatsapp Follow

Leave a Comment