Prakash Kumar

Equity as an asset class has stood the test of time and has more often than not – been the best of all over a period of time. Reason why many avoid investing in equity markets is aplenty. Primary reasons are that it’s a high IQ game, its too complex, its lottery, its gambling, its too much finance which I do not understand and for some – as simple as that it is a dirty thing to do.

Some of the above reason may be valid but for sure it is neither finance nor a high IQ thing. A career choice or a company switch is bigger gamble then investing in stock market.

Based on the research I have carried out over the years, one startling feature has appeared that, housewife with no finance background have made far more money in stock market then say a Finance major professional working for an investment advisory firm – when it comes to his or her own investments.

Prima facie reason is that the educated junta looks for reasons when there is “none” for a stock to have gone up or down by a particular spread.

Markets are not all about reasoning. Irrational exuberance is what it means when the market goes up and gravity when it comes down – as simple as that.

Pick a company with a high beta, say Company A. It rises by 10% a particular day and plummets 10% the next day. There might be no reason for the rise nor there any for its fall. It’s just that a group of big liquidity players saw it this way and took such positions.

As long as an average investor takes note of following he/she is ok to invest.

• Begin with a small amount – See how much you learn, there are better things to learn when you lose a bit.
• Do not track the entire market and sector – restrict to a few. Four or five for a beginner is good enough.
• Do not believe what that analyst says – they might be saying something because it may be in line with their indirect exposures irrespective of disclosures norms.
• Believe in gravity – anything which goes up will come down. Almost every high and every low price will repeat in due time, if you have the patience for it.
• Good managed companies will remain good – they are “buy” if market crashes for reasons irrelevant to them. Say, a stock in IT sector falls just because CEO of a major Oil company made disturbing disclosures for his oil company. And also, just because someone else made a big profits the other day from a stock, does not mean that you will make similar profits today.
• Risk and returns are directly proportional – Never compare that you invested in stock and made only 5% when you would have safely got 8% in fixed deposit. You at least aimed for more and learned a lot as well – learning balance the difference (if any).
• You can make money in a falling market – Some people make more money in a bear market as falls are generally more predictable and steep. Suitable positions can be taken in margin and derivatives to make a killing.
• Keep rotating your money in the market – Sell-off stocks which are going no where. Invest in those which are liquid and showing growth trends. Invest where the liquidity is!
• Do not ask anyone whether you should sell or buy a stock at a particular level. His/her views may be biased on account of reason not known to you and/or he may be having even less idea than you have on the subject.
• Everyone has an opinion on “stock market” movements. No matter how oblivious he/she may be to the stock market word in the first place.
• Believe in your gut sense at times. They are generally true. Never believe on someone else’s gut. There is never a shortage of market predictions but you must not take any prediction without verification from your side.