So often I have heard; "Share bazaar toh satta bazaar hai" meaning that the stock market is a gambling den, perhaps a reference to the multitudes who throng the offices of stockbrokers or those who sit quietly watching their lap-top screens flashing the latest stock quotes. If you are going to indulge in day trade and margin financed orders on the basis of tips, SMS and broker/dealer day trade advice you have little chance, .only a minuscule number, perhaps less than 5% of such participants make money in the long term. Most brokers actively encourage such activity because it generates a steady stream of income and with just a few software supported RMS professionals THEY don't lose money, whether clients make money or not is another matter. The layman is strongly advised to stay clear of this activity because it is akin to GAMBLING. It is addictive and eats up time and money and more often than not results in grief.
Then one has lived in the times of the great speculators. The now infamous Harshad Mehta in the early part of the 1990's decade and later Ketan Parekh and his K10 stocks at the turn of the century. They had demigod status and nationwide wide following amongst market participants whether these guys were speculators or simply fraudsters is debatable but what is certain is that they operated on a large scale, had privileged information, access to huge funding and other means and support systems just not available to a common investor. Even then, just the whiff of a market downturn and their winning ways came to an abrupt end. However, there are successful names such as George Soros who has a strong investment portfolio to back his speculative activity and who once brought the mighty Bank of England to its knees with his bearish speculation on the Pound Sterling. The clear take away is that SPECULATION is a high risk leveraged activity which can result in serious losses even exceeding the capital deployed. Those who succeed over an extended time frame acquire exceptional knowledge and insights on the matter before executing any trade and maintain strict trading discipline, they do go wrong but when mistakes happen they cut their losses without hesitation. Not for the common person, speculation is best left to professionals with requisite funding and high risk appetite.
In a similar vein, investors need to be extremely cautious while acting on the basis of TV biz channels and their barrage of "day trade", "positional trade" and "btst/stbt" calls from all kinds of experts, chartists and others. Also beware the recommendations and price targets which brokerages/research houses, including many foreign controlled ones give on various scrips. Do their investment arms act in accordance with these recommendations? On what basis and for what reasons do they come on media and disclose such information? What is the track record of their targets being met in a specified time frame? What benefits do they derive from such activity? Why should they and their media channels not be penalized if their recommendations turn out to be blatantly wrong. SEBI has done a good job as a regulator and it is high time that it conducted a detailed investigation into these aspects of the markets which can be potentially damaging especially to small investors. The important takeaway is that such investors should avoid trading, leave that activity to deep pocketed HNI's and Professionals who have the ability and resources to profitably indulge in short term trading.
When it comes to investing, no greater name than Warren Buffett, the "Buy and Hold" guru who is so revered in the investing world that he is called "The Oracle of Omaha". The fundamental thesis of investing is that one should hold for the long term atleast 3 years and preferably much more. The idea is to give your investments an opportunity to blossom fully. One concern with this philosophy is that if you do not get a good ratio of winners to losers or a few multi-baggers then you could take a financial hit. Evidence suggests that those who have held on to a set of good INVESTMENTS over many years have generated substantially greater wealth than other available options.
Then there are the equity mutual funds, the currently favored destination of Indian savings especially of the salaried and small / medium business classes. Equity fund managers go to great lengths to explain why you may face "temporary pain" but if you stay invested AND keep adding preferably at regular intervals aka SIP, then over a period of "some" years, you will be a gainer. If this were a golden truth then why do they hesitate to commit it in writing, not that SEBI would permit it even if some brave heart wanted to.
What they leave unsaid is:
1. We have little inkling of where the market is headed so we use fancy jargon to pre-empt itchy questions from you and just pray that the market will go up so that the money we have gathered also goes up after deducting our hefty charges of course.
2. Please keep on giving us more money so that we can keep on buying shares and just incidentally, keep our commission registers ringing.
Instead what they say is:
The market is
(a) Forming a bottom with perhaps no more than 5% to 10% downside so its a good time to buy (Have you EVER heard a fund manager say that there may be a 20% to 30% downside in the offing? Have you EVER heard a fund manager say that the market may give negative returns over the next 2 /3 years?)
(b) The bull run has just begun and it's just the tip of the iceberg there is plenty more upside left so you should be a buyer ,somebody should enlighten them that the mighty Titanic was sunk by an iceberg and a bull market can also come unhinged by a single black swan event like "Lehman Brothers".
(c) The macros may be deteriorating but the micros are looking good or vice versa or the economy is turning the corner or market technicals aka charts are pointing to bottoming out / consolidation / break out or global protectionism is just a passing phase and Trump and other world leaders will mend their ways or manufacturing numbers are going up and there are green shoots visible or inflation is coming down or our demographics are great or whatever their main objective appears to be:
JUST GIVE US YOUR MONEY so that we can spray it across 50 to 200 known names (typical large-cap diversified fund). We hope and pray that you make profits so that you continue to leave your money with us and preferably give us more but if you make losses instead of profits that's your problem. I know these are extremely harsh words and a one-sided view of mutual funds but the entire objective is, Caveat Emptor. Let the investor be fully aware that mutual funds also carry market risks very much of the same type that direct investments in equity carry.
This caution is especially relevant for new investors many of whom may not have seen prolonged bear market phases and who have somehow been lulled into thinking that equity MF investing can never go wrong. By the way.....for whatever it's worth, my word of thanks to SEBI for having regulated MF's such that there are no major scams and scandals in the industry in recent memory. Just look at the banks, even as NIMO@PNB recedes from the media glare, CHAKO@ICICI grabs the limelight with the next episode perhaps waiting to be labeled SHISHA@AXIS.
Lest my article especially the bit about mutual funds sound depressing, I would like to end by highlighting that if you look at the source of wealth of the world's richest, you will find that an overwhelming majority of them are worth what they are because of the value of the shares they own. Equity investments should be done with the objective of long-term wealth creation. Invest with patience. Not much point in splattering your investments across the market. Pick a handful of good scrips and stay with them. Review portfolio periodically to ensure you are on the right track and increase commitments to the winners whenever possible. Choose wisely and luck will play it's own part. Leave trading to the professionals. Happy investing.
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Disclaimer: This article is the author's perspective on the subject matter and not meant to be an investment advice. The author shall not be responsible for the outcome of any action purportedly initiated on the basis of this article by any reader.