Role Of Time and Expectation in stock market

Investing is a battlefield where the opponents are our own emotions. Investors need to
defeat their extreme emotion, in order to win the battle of investing. Extreme emotions are
injurious for our financial health. It is during extreme emotions we take irrational decisions. it
is fascinating to see how much, day to day market volatility is governed purely by human
emotions and phycology. It seems obvious that, emotions are our real enemy but in reality,
even after knowing the fact that, our emotions are our true enemies, it is difficult to handle
our emotions. The strategy to beat is market has been laid out many decades ago itself, but
many investors find it very difficult to follow. The strategy is to, buy when others are selling
and sell when others are buying. This again seems to be simple and obvious thing but very
difficult to practice in real life because our emotions won’t allow us to follow this simple
strategy.
Stock market or Shop market
Many people treat stock market as shop market. People thing that buying and selling
frequently will somehow help them to make money in market. This method can be
considered to be good in shop market, where many people buy and sell things on day to day
basis. Applying same attitude of shop market to stock market is a bad idea. Investors must
first realize that, when we buy shares of any company then we immediately become a part
owner of the company. The CEO, CFO, company secretary, all level of managers and
employees are working for us. But many investors consider buying shares of the company
as mere ticker symbol that they can see in computer screen. This attitude is very dangerous
for any long-term investors.
Role Of time in investing
Once we have the part ownership mindset, then we can be relieved from the day to day
volatility in market. Investors must understand that, business takes years to grow but we are
expecting their share price to move quickly in upside direction. The biggest risk in stock
market is the belief that, it is easy to make money in market. This attitude makes us to do
irrational things in market.
Most investor underestimate the role of time in stock market. We can make lots on money in
short run but true wealth is built only in long run. Anything worthwhile to be achieved in
investing takes time. As Warren Buffet says “How much ever talented you are, you can't
produce a baby in one month by getting nine women pregnant.” Expecting market to deliver
high return in short period is very dangerous and having low expectation from the market is
the key for financial success.

Investing is an expectational game

Stock market is the game of expectation. Expectation drives the shares price of the
company. When the expectation are low, the stock prices falls and when expectations are
high then prices rises. For example, consider that you go to some unknown movie in theatre
where your expectation for the movie is very low. If in case the movie was average then we
might get satisfied of watching really good movie but on the other side, if we got high
expectation for your favourite star movie and in any case the movie was only average, then
you would get really disappointed by the movie.
Same thing applies to investing also, if we investors expects the company to grow at 25% for
next years but the company only grows at 10-12%, then the stock price of the company
would be severely beaten down in the market. But if the investors are expecting certain
company to grow its profits only by 3-4% but the company grows at 8-10%, then the share
prices of those companies would move in upside direction. In short, investing is an
expectational game.

Key Takeaway for investor

As a investor before buying any stock, we must first analyse, what is the expectation for this
company from the consensus. Decoding the expectation is the key job of skilful investor.
Once we can deduce the expectation then we can analyse whether the expectation is too
high or low in accordance to the fundamentals of the company. if the expectation is too high
when compared to fundamentals of the company then we may not buy the company if not
we buy the shares of the company.