Why does Small Retail Investors Loose
Inspite of more Transparency, inspite of the Advances made in the field of
Communications, in spite of there being more awareness about both companies
and investing, people still loose money (some are successful). At the end
they give a variety of excuses to show that fault did not lie with them, but
other factors contributed to their failure.
Having seen many investors in my stock market career, I can without doubt
say that most of these excuses are so pathetic that the investor himself has
difficulty in actually believing. But to show to others that he did not trip
up he coins these excuses.
I will hereby try to analyse why investors, at least the majority, loose.
When an investor comes into the market, he is generally anticipating a
return, which is more than what he can get by investing in other places.
This in turn means he should be looking at around 24% return per annum would
be quite attractive given that any other investment may not yield more than
12% per annum. This kind of return expectation is moderate due to the fact
that the Investor takes more risk and more risk should always mean more
gains.
But in actuality, an Investor hopes to make a killing in the market. He
would have read or heard somewhere that how some person had made a killing
in the stock markets and he comes with a fixed mindset of making his
investments double in one year if not more.
The said Investor is least prepared and least bothered as to how to select
stocks. At no other place will a person spend money on someone's sane or
insane advice, as he would do in the stock market. Just as an example,
suppose you want to buy a new television. Do you buy just because someone
recommended it, - of course not. You will go to innumerable TV showrooms,
checks out what all are available and depending upon your necessity will
decide which best to buy. And here I am talking of a maximum investment of
15,000 rupees. But in the Stock Market, Investors put faith and money to the
tune of Lakhs of rupees just based on either someone's advice or even
overheard conversation.
Most investors don't enter into the markets when they are down and there is
a picture of gloom in the market as a whole. If asked to invest, they just
go away saying that investing in the markets is not at all profitable and
how he has heard about losses incurred by market participants. When the
markets start moving up, he still neglects the same saying either that time
is not ripe enough for investment or saying that he will enter into the
market when they return to the previous low levels. The markets advance
still more when a small section of investors test the water by making a few
small investments. The market moves up still farther giving small profits to
the Investors small investments. He rues the fact that he invested so less,
but still books the profit available to him. The markets meanwhile have
moved still up and have started to make news. All papers and television
channels start carrying reports about the rise in Index that is happening in
the markets. Now the Investor starts to believe that this time the market
has no way to go but up and he well may profit from the rise. And because be
believe be will get out at a small profit, he invests much more than he
would have done any other time. The markets continue their rise and the
Investor gets into profit. But our Investor is not selling, because he has
come to believe that the markets are not going to see the earlier levels /
rates and since his luck is running great, why not take advantage of it. He
also believes that even if there is a small fall, it is advantageous since
he will be able to get into his favorite stocks cheaper. He believes that he
has the capability to withstand such small falls.
The markets now start to slide a little bit. But our Investor is not
worried. Of course, he knew such a thing would happened. He may even try to
enter a few more stocks since the rate is cheaper. But the slide continues a
little bit more. Our Investor in not unduly worried since he believes it is
just taking a little more time to recover than he expected and isn't it true
that the Analysts are saying that. Suddenly one good day there is a very
huge drop. This is where Fear comes to him. He hopes that the market may
bounce back. But the markets continue to fall. Investors who had invested
with the help of margin money are the first to get out (kicked out). With
regard to Investors who had invested their hard earned and saved for a very
long time money, they curse their luck and hope that some day, their rate
may come. { Infotech Boom Investors are still waiting!}
This phenomenon is not limited to India, but is the same everywhere. Every
bull market is followed by a strong retraction if not a bear rally. Small
Investors get butchered never to return to the market. But in the next rally
a new wave of Investors come. As old water flows away new water takes their
place. Only if Investors follow prudent Investment policies can they avoid
falling prey to this cycle of Butchering.
Regards,
Regards
Puja Singh
-----------------------------------------------------
Blog & Register for free letter http://crnindia.blogspot.com/
No comments:
Post a Comment