Equity trades through stock exchanges happen when two parties are willing to trade in the opposite direction. For any investor willing to buy a stock at a particular price, an investor is ready to sell the stock at that price. 

So, one investor is looking for further appreciation, while the other investor is considering the further growth potential to be low. When it comes to investing, buying the stock at the right price is essential. 

While a stock at Rs. 100 may be a great buy, the same stock at Rs. 750 may be an expensive buy. When one buys any stock, the margin of safety between the fair value and the price should provide comfort to the investors. 

There might be periods when the chosen stock does not perform. Such periods may extend from weeks to months to years, but they may compensate for the longer periods of silence and underperformance when such stocks perform. 

Investing in a company is like making a plant grow or watching the paint go dry. One may not notice the changes overnight, but the growth journey is bound to materialise if the company is right. 

Investors tend to make investment decisions out of fear and greed. When the markets panic out, the sellers in a particular stock may increase. This causes the price to trend downwards, even while there may not have been any adverse impact on the company. 

A true investor should always be ready to capitalise on such short-term market reactions and invest in the stock at the bottomed-out valuations. When the market prices are down, the Margin of Safety for investing in a stock increases, which concurrently reduces the investment risk as well to some extent. 

Further, for Klarman, the Margin of Safety is even higher than the growth potential for a business, aiming to provide a sufficient cushion for the downside risk.

While Klarman has been a great advocate for holding liquidity, the extent of such liquidity can vary for different investors with different investment outlooks. Maintaining enough liquidity is always beneficial for the investors to capitalise on the investment opportunities that come along the investment journey. 

If one does not hold suitable liquidity, he/ she may need to liquidate existing investments and switch the investments. In the process, the investors are more likely to switch out from the investments that have generated returns than investments that are trending lower. As such, the investors tend to hold the underperformers while switching out from the outperforming stocks.

Averaging the cost of investments is always beneficial, but only if one truly believes in the growth story of a particular stock. While averaging down may not be advisable when one has entered with speculative intent, buying the stocks at lower costs is helpful to cushion the margin of safety further. 

While one may have invested in stock at a higher price, it does not harm if one buys a further lot at lower valuations and averages the investment cost. It is all about having conviction in the investment idea and if one still believes in it, averaging down the stock for the investment portfolio is indeed a good thing.

There may not be a single right investing strategy for all the investors. One may acquire all the technical skills for making the right choice for stocks, but one also needs to have discipline and self-control over investment decisions to succeed in financial plans over the long term. 

It is vital to have the right mindset to investing. It is always easier said than done that one is a patient investor who believes in sitting tight with the investment. Quoting Klarman, “everyone wants a bargain hunt, but when the markets trend downwards, they may be the first one to sell their portfolio and sit on cash.” 

A successful investment strategy requires the right kind of mindset to stay on the investment journey with the right direction and the right speed.