Stock Market or Shock Market?

R Jayaraman

Author: R Jayaraman

Date: Mon, 2016-10-10 12:55

Very few of us are not tempted to enter the share market. The majority (or the losing majority) is forever itching to try its hand at the hustings. In some unfortunate cases this “hand” soon becomes a leg, followed by the shirt, the pant, the house and thus it goes the litany of woes. In spite of the very few big bulls like Harshad Mehta, Jhunjhunwalla, Sucheta and other Dalals, Ketan Parekh actually seemed to have made money and then come to grief.  It is much like buying a lottery ticket – once bought, return to buy.

What lures people to the stock market, aka shock market? To be sure the lure of lucre. Moolah is what some people are after and the sooner they can accumulate it the better. What they don’t realise is that, as any operator at the Reno, Las Vegas and Goa  casinos knows fully well, you can never win against the house, the odds are always stacked against the individual. Once I played the over 7/ under 7, I won the first two rounds, accumulated a decent three figure amount, and then continued. Sure enough the green changed hands and I was left with an empty hand. One should know when to stop. My suspicion was that the croupier allowed me to win and then turned the tables. This is where the dilemma is. The one who knows when to stop also decides never to start!

After the demat system kicked off in India the operators became far more circumspect in trying their antics. With SEBI also coming down hard, it is now very difficult to do the many things that used to happen routinely in stock markets. The demat system has made many punters turn to the share market to  “have a go at it”. Only, they realise too late, they will be the ones to go.

For those who wish to stay the long run the stock market is a hospitable place. While no one has found out the secrets of why the markets operate the way they do, there are some smart people, like Warren Buffet, who seem to have learnt the ropes, and kept it out of their necks. Buffet has consistently beaten the market, but I don’t think he has shared his secret, if he has figured it out.There are some important points about the way the markets move. For one, when there is a serious political or economic event the market moves down, and this movement is agnostic.

When there is a boom even a donkey starts running fast. Dud shares start doing well and sections of punters start getting into these. This is a potentially wrong move. Some punters stick to the BSE 30 or the NSE 50. This is a sure shot policy for long time gains, but such punters, also known as investors are rare. Take, for example, scrips like Maruti, HUL, MRF, Eicher, Hero, Grasim, Ultratech – some of the stars in the market for many years, and the Birla companies that came in later.

So what is the secret of negotiating the stock markets without getting shocked? Some tips. Buy into “good” investment grade shares. In a booming market, sell and shift to new scrips which are on the upswing. In such markets one will have to sense the short term peaks and sell out at these, and then come back to buy these scrips once again . In short, in a booming market, maximise your profit by scrips hopping and profit skimming. Profit skimming is a method to pull out some part of your profits which you constantly make by scrip hunting and salt it away on a fixed type of investment like a mutual fund or FD or debenture. This way when the downturn arrives – what goes up must come down – you can lose out on the existing exposure but your salted away kitty will be untroubled. This could be your saviour in times of recession.

The investor will neither buy nor sell at any point – he will buy IPO’s from the company through applications etc and as soon as the shares are allotted, put it into demat and forget about it . Much like what Hero Honda used to advertise – fill it, shut it, forget it. He will live off the market returns – capital appreciation through stock splits, bonus shares, rights issues etc, and regular returns through the dividend route. The usual long term yield for such investors is about 5 to 6 % in the long term and a bit more in the longer term.

The Good to Great companies returned 17 per cent compounded on their share prices over 35 years, between 1965 and 2000. If you had owned shares in any of these 11 companies, and CASHED OUT at the end of 2000, then you would have received 471 USD per dollar you invested in 1965. Dream Big, but invest wisely, all the best.

 

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Comments

Very well said, sir. This blog is a highly educational for any newcomer who wants to enter share market. Your description of share market with its pros and cons are concise and easily understandable. Example of game Over 7 /under 7 and its relation to stock market is effective. Explanation of share market from trouble times (1990s) till toady (D MAT introduction) is very well described. Guidelines to invest in market are very simple and effective. Like you mentioned, wise investment is always better. The amazing return of 471 $ (for every dollar) will attract everyone but not all stocks will give you that return. As you rightly said, we should not put all our eggs in one basket. Some money can be parked in conservative investment instrument like FD and rest can be invested in share market. We all are hearing only success stories which are marketed by Mutual funds and banks. But nobody is telling about losses that people has made. As you told, you can never win against the house. But a smart and wise person should not fall into the trap and exit from this game of money without too much greed. That is why we have to invest wisely.

Thank you sir for sharing your views. When it comes to stock market investing, herd mentality prevails. This I believe is the primary reason behind even dud shares starts doing well at the time of boom and even good shares faltering at the time of downturn. People start investing in stock market when it has already reached or near to its peak and eventually lose money. There are umpteen examples of retail investors losing their hard earned money in stock market. This coupled with a series of scams in 1990s and 2000s led to disenchantment of many people from stock market. However importance of stock market in the economy can never be overemphasized as stock market is considered as barometer of country’s economy and share prices reflect every major change in economy and indicate overall direction in which economy is moving. More importantly it democratizes economy and gives fair chance to larger section of society to participate in country’s economy. Numerous companies were able to access permanent capital for their business plans through initial public offering (IPO) route. Reliance industries is an example of creation of world class enterprise largely through wider public participation via stock market route. If India has to become developed nation in next 20-30 years, a robust stock market with wider people participation is a must. Otherwise it will be very difficult for the country to augment required funds to grow at requisite rate of 9-10%. So there is serious need for increasing financial literacy and strengthening institutional framework in our country as this will ensure wider people participation in stock market. In my opinion, to prevent stock market from becoming shock market, one should do in-depth country, industry and company analysis before investing. Apart from this, an eye should be kept on international events and their impact on Indian economy. I believe fundamental analysis coupled with long term perspective is key to make money in stock market on sustainable basis. If at all a person does not have wherewithal to do such research, one can always participate in the stock market through mutual funds and leave the decision making to the experts. Legendary investor, Warren Buffet’s this timeless piece of advice can always be guiding principle for timing the investment- “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. If these principles are followed diligently, stock market investing can be made shock proof, at least in long run.

Dear Sir, This article is a reality check for many of the short term investors who gains “Moolah” in one or two transactions and loses money in the next transaction. These investors follows the crowd and takes buy or sell decisions based on his/her fear and greed. A very well-known fact is that only 5% of stock investors earns profit from the losses incurred by 95% of the stock traders. Big bulls like Harshad Mehta, Jhunjhunwalla, Sucheta falls under the category of above 5% of stock investors. Even I tried in the stock market as a short term trader and incurred heavy losses. However, what I learnt is that stock market is kind to those who invests money for long term. Long term investors don’t see companies as scrips but as a business partner. This change of mentality is very important because the moment investors believe that they have invested in businesses, they will start looking for company’s fundamentals, operating performances, management and promoters of the company. Second aspect is the financial behaviour of a trader. One needs to control his behaviour when stock market crashes or surges. Our behaviour decides whether to buy or sell a stock. We often get tempted when stock price rises and in a hurry we sell. This is what 95% of the investors do and they end up gaining a small amount or losing a large chunk of money. I totally agree with your views that we should invest in “good” shares and earn nominal returns every year. The risk is lower in this case but it is far better than investing in risky scrips. Few lessons which I learnt is that an investor should conduct fundamental stock analysis before investing in any stock. Once, the investor buys, he should think of long term association with that company. The investor should use recessions as a buying opportunity since all recessions always lead to recovery.

Thank you for your great insights into the world of investing, sir. I sometimes ponder, does the phrase “Investing in stock market” make sense? After all, the majority of people putting their money into equity, are in it for short term, quick, yet high returns. Not many are “investing” as such. As you mentioned, an “investor” is always in it for the long term, and is different from the ubiquitous “stock market investor”. In this day and age of rising prices, and inflation, there’s a clear and growing need for secondary income sources and the stock market presents just the opportunity. It is a way to make money, not earn it though. That makes almost everyone get into the crowd. However, all said and done, as you rightly pointed out, no one has been able to beat the system. Casinos are a great example. So much so, that with evolved technology, beating the system, will become more and more difficult. And therein lies the million-dollar question: How do you make money? What to invest in, when to invest, and when to sell out? Many people have tried to answer this, but no one has got closer to answering it than Warren Buffett. His method of “value based investing”, is a key lesson for novice investors. His idea is very simple, find the real value of a company, and if the current market price is less than what you perceive as the “real value”, go ahead and invest. But again, he hasn’t mentioned how to find the “real value”. Lack of more such techniques, and financial analysis tools, makes people to go with the market trend. If it is a boom, people buy more, and if it is a bust, the opposite happens. People, tend to safeguard themselves, by making themselves part of the “crowd”, or the market. As they say, the nail that sticks out, gets hammered. And no one wants to be that nail. In this day and age, there’s a strong and inherent need for preparation and analysis of markets. One needs to understand that stock market is not a place for luck. Yes, luck plays a part, but preparation, and in depth analysis of context, industry, company, countries, can go a long way in protecting you and your money. Preparation can help bridge the gap between an experience of a “stock market” vs. “shock market”

Indeed, a great article which will make you think. Warren Buffet had once given a formula for investment in shares. ‘Be fearful when others are greedy and be greedy when others are fearful’. This explains that, people will start investing when markets are already high thereby increasing demand for shares, this is the time for you to sell your shares and book profits. While when share market is crashing, people become fearful and sell their shares thereby reducing the demand, this is the time when you can buy shares at very low price. Common people can earn better results from share market if they invest in long term instead of short term trading. To support this, Warren Buffet rightly says that ideal time for keeping the investment is forever. Hence, to earn good returns from share market, you need to act like an investor and not like a trader as trading needs knowledge of all minute details about share market which investors may not have. Technology has made investment in share market very easy with tools like demat accounts, easy availability of company’s financials, government policies and related market research. These tools if used effectively, will help you to invest in share market very effectively. Investment in shares has one more added advantage: once you invest your money in market, you start analyzing the market conditions and company’s performance. This keeps you updated about the current affairs on policies, economy and business scenario. The disadvantage of investing in long term is, it becomes difficult for investor to dilute his/her investment in case of emergencies if share market is trading at low levels. Hence, careful investments in share markets can fetch you better returns than traditional investments.

Mr.Jayaraman, thanks for your enlightened views. Every one dreams to earn quick money. Unlike other unethical and antisocial activities share market is one place where a wise investor can earn the highest rate of returns on his investments. But it is not easy at this seems. Share market one of the most volatile in nature. The greed of earning more money at faster speed motivates almost all of us to participate in share market activities. Among all the instruments available stocks are the most lucrative mode of getting higher returns relatively in a shorter period. Most of the investors do not have detailed knowledge of the companies they are investing in, they completely rely on market driven tips and information received from friends, relatives etc. Broadly stocks market sentiments are driven by various factors like global happenings, political developments, economical status, seasonality and cyclicality. Generally investing in stocks runs on Herd mentality, people but stocks which others are buying and sell stocks which are being sold . The stock markets has witnessed many big scams during 1990’s and 2000’s which temporarily refrained retail investors from investing stocks for some time. I fully acknowledge Mr. Jayaraman’s views on investing in quality scripts and booking partial profits (profit skimming) during boom period and switching to new scripts which are on upswing. These days investing in stocks has become more safe after introduction of Demat accounts, also there are portfolio management services available, on TV channels , Technical analysts are recommending scripts with safe upside potential , many web sites like moneycontol.com, equitymaster.com are sharing details analysis on segments, companies and their financials. Though all this support and guidance is easily available the decision when to purchase and when to sell stocks is a critical decision investors are required to take. I have many times faced embarrassing situations where the stocks I bought have suddenly started sliding and stocks I sold showed upswing. Before investing in any script the investors should check the financial performance of the company, the future outlook of the industry, may scan through various financial ratios like ROCE, Debt Equity ratio, PE ratio, PEG ratio and many more. In the end I feel “Patience” is the most important quality a wise investor should exhibit for consistent and attractive returns.

Thank you for this value added material for market investors. I completely agree to the fact you mentioned about losing majority in stock market. In casino big bulls always create atmosphere similar to casino where initially so called punters win and then with the craze and obstinacy they are stuck in the net of big bulls. But With SEBI like governance, governments across the nations are keeping a good eye on the market movements. Big swings in stock market always creates/disturb the country image government is trying to build. This is why we don’t get surprised when we see firms like LIC are being used as a vehicle by government which somewhat comes to its rescue. We have seen this through the times like year 2004, 2008 etc. In these times government managed to absorb the shock very well and was successful in limiting the shock for relatively shorter period. Typical behaviors of retail investors as mentioned by you are absolutely true. Take my example, even having CA background I did not realize when was I carried away by the glamour of market and I invested when market was booming. I shifted my investment from gold to pharma & IT Company which had better prospects than gold as per experts and sudden unexpected election of new president in US shook the world including my pharma & IT scrips. This was a PESTLE effect on my personal investment. So as a wise investor we should time out investment right. But one of my friends who is market savvy/expert says you cannot time the market. This is correct in the sense that you need to be a big bully and time your investment. Professor, you have mentioned very good technique which small investors like me can use. Usage of profit skimming and hopping from one to another good scrips in booming market will definitely help. But some people might say who has all this time to look around and check the health of scrips to buy or sell? I think we have very good option like Mutual Fund for such investors. MFs are easiest way for lazy investors (active in their core occupation) to invest in the market. MFs works on resource pulling method where number of investors form a corpus and expert known as fund manager invests it in market in an agreed framework

Very informative article, thanks a lot. It is true that the market cannot be predicted; no one can understand or gauge the sentiments, that’s why it has become shock market from stock market for about 95% of people. Some reasons are as follows:- A. Most of the people don’t have detailed knowledge about the companies and they rely on paid market driven tips. They must understand that the market behaviour is based on various Global, Political and Economic factors. B. People become fearful when market crushes and they start selling securities and create big losses. In crushing market you should buy to earn more. As “Warren Buffet” rightly said, “ideal time for investment is forever”. If you want earn from market don’t be a trader, be a fearless investor. Don’t invest for a short period. C. Share market doesn’t run through luck though defiantly luck plays a part but investor must do homework about the company, industry sentiments etc. This homework will bridge the gap between experiences of Stock Market vs Shock Market. D. Don’t put all your eggs in one basket. When market is up, sell and shift to new scripts, maximise your profit by scripts hopping and profit skimming and protect your hard earned money. Skimming is a process to pull out some part of your profits and invest in a fixed type of investment like a Mutual fund, Fixed Deposit or Debenture. Here are some rules to invest in Stock market, which can help and investor to protect hard money :- A. Avoid the herd mentality, do homework and take the informed decision. B. Invest in a business you understand. C. Never try to time the market, top and bottom of market is a myth. D. Follow a disciplined investment approach keeping a broad picture in mind. E. Create an extensive diversified portfolio. F. Have a realistic expectation, during the great Bull Run of recent years, many stocks had generated more than 50%, but you need to keep bear in mind as “Warren Buffet said”, “earning more than 12 per cent in stock is pure dumb luck”. G. Invest only your surplus funds and monitor rigorously, for you should be in the position to bear the loss.

Thank you, Sir, for sharing your views with us. We Indians have always been skeptical about investing in the stock market. The scams perpetrated by Harshad Mehta & the likes had only deepened this fear. Indians rather sought refuge in gold. But this hoarding of gold has been one of the reasons for high fiscal deficit of India that invariably affects the power of INR. At the same time, it has eaten into a huge pie of Indian household savings which could have served as equity capital for companies. With SEBI cracking a whip on fraudulent brokers & the advent of dematerialized shares, Stock market workings are now more transparent than ever. The rise of BSE SENSEX from 1,000 points in 1991 to 30,000 in 2017 has been stupendous. This rise hasn’t been a smooth curve. Every stock market has periods of boom & bust. One has to remember that “Returns are subject to market risks” and one has to time the market to get above average returns. But is it possible to time the market??After the Economic liberalization in 1991, the interest of Foreign Portfolio Investors in Indian markets has grown steadily. Our markets are now closely linked with the Global Markets & any event of global economic significance has a bearing on the Indian markets thus making the market more volatile. Hence for an average investor, timing the market may be difficult. The best way to enter the market is investing in Mutual funds over long term. With MFs average investors benefits from the expertise of Fund Managers. Another way is to invest in Value stocks & keeping tab of their fundamentals on an ongoing basis. To make above average returns one needs to have patience & discipline. If decisions are driven by fear, then one would end up in the red. A good knowledge of the economy, political situation, global events & company fundamentals can only create a successful investor. With time, one can learn to time the market. According to an Economic times article, over the past fifteen years Gold returns have been comparable with that of the stock market. As Warren Buffet rightly says "Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn't produce anything."

Thank you sir for your advice. When it comes to stock market, many beginners starts, with the hope of gaining huge profit, but soon they find themselves in trouble. There is a famous quote from Nelson mandela “I never lose. I either win or learn” but stock market is such a uncertain place where you can lose everything with every time a new mistake and new learning. In such a field people need such piece of advice to have some relief. Once one loose something, in attempt to recover that lost money they lose more and more, and end up losing everything. On the other hand there are investors with lots of insight of market, good understanding of every movement of market they earn, they share their story, they lure the common person, then the game starts of one losing and the other one is winning. In India people still afraid of stock market because there are lots of stories of failure of the common person but the attraction of the earning money in seconds is so much that it pull person into it. As of February 2015, the number of demat accounts with the two depositories — NSDL and CDSL — stood at 23.3 million which is very less as compare to the population of the country. The growth is about to come in future and such a good piece of advice is required for every common person. A beautifully drowned analogy of Hero Honda for investors fill it, shut it, forget it.

That is indeed an amazing analysis Sir. The greater point here is it lands exactly where it has to be, that is, on students like us who will or have started investing. The insights you provided are relevant and useful. You talked about strategies as well. I would like to provide some of my learnings and how I have changed as an investor. I had heard the success stories of many investors and every time I was amazed by them. I always wanted to learn about stock market when I was doing my engineering. I had this notion that stock market can get me more money than any other job. So I started practicing it with virtual money and soon I made good intraday profits. This further strengthen my false notion of making quick money on stock markets. After engineering. I worked for 2 years before joining SPJIMR. I earned sufficiently enough so that I could save around 30 % of my salary for myself and invest in stock markets. I was waiting for my first paycheck so that I could invest. I started investing real money. And in two days, I made a huge loss. I was shocked. How can this happen? I have done this so many times before with virtual money, how could I not get it right here? I thought something is seriously wrong and I consulted my math teacher who is apparently pretty good at stock markets. He said “If you have made profits virtually doesn’t signify that you will make it in the real stock market. You were missing the biggest element, the impact on markets due to change in sentiments of investors around the globe. And that is what drives the local markets as well”. I was confused for a bit that a math teacher is relying more on sentiments than on numbers. It was hard to digest this fact. Yet I believed that his insights will bring new learning to the table. He then explained that the reason for this fall in stock market was because of the lack of liquidity of cash in US markets leading to its worst fall after 2008 recession. It affected the Asian markets very badly and hence Indian stock market also crashed. Investors lost faith in stock markets and the pulled out their investments. This was the reason for fall of stock price of the company I invested in and not because of my company’s poor performance. I realized this when I changed the perception about stock market. I learnt that stock markets can get you profits which is at an expense of someone’s loss. And that someone could be you. I realized that there is no point in intraday trades if you want to grow your capital. Had I invested with a view to gain in long term, I would have not made that loss. One strategy during such events is that if you are looking for long term gains and when he market is down, you buy more shares at a very low price thus bringing down your weighted average. As and when the market correction happens, these stocks do give a decent payoff. I learned from this and followed a similar strategy during Brexit, Trumps elections and Demonetization. These global disruptors can take all your money. But if make use of them wisely, it adds to your benefits.

It is refreshing to read a blog on stock market investing, or rather ‘trading’ that most of the Indians are getting interested in every day. As you rightly mentioned that people are increasingly getting attracted to the stock market because of a few success stories of some of the big investors or their ‘neighbors’. I believe the major issue is that still most of us do not understand the difference between ‘investing’ and ‘trading’, and we still use these two words interchangeably. I totally agree with your point that there has been no one who has mastered the behavior of the stock market and investors like Warren Buffett, who have made their fortune through this frenemy, have just mastered the art of being disciplined. However, if one reads books prescribed by Warren Buffet, or a book written on him i.e. Snowball, any reasonable sound individual would understand basic investment techniques. Mr. Buffett has also given insights on his investment methodology in the book Snowball and has shared his life-long journey in the investment world. His strategies are quite simple to understand but quite hard to implement as they require quite a lot of patience and reading into documents from many sources. I believe that an individual should be well read before entering the market and should have an appetite of absorbing losses when markets are not in favor. It has been proven that if a quality stock is held for more than 7 years, the chances of incurring a loss is close to 0. However, I have a slightly different point of view when it comes to selling during peaks and buying at lows as it is next to impossible to time the market. One can always search for good quality companies and wait for the right time (get interested when no one else is interested, as defined by Mr. Buffett) to buy the stock. The key for such investing is being patient and being greedy when other people are getting fearful. Since, India’s financial market space is still under development, with ~3.2% of retail participation in the market, it is believed that there are a lot of opportunities for a well-informed investor. The facility of Systematic Investment Plan (SIP) in mutual funds and even in stock is quite a good proposition for a novice investor. One can benefit from compounding by investing every month a manageable amount and being disciplined in his / her approach. There is still a lot of scope of providing financial awareness to individuals regarding available financial instruments to channelize their savings. As correctly mentioned by you, the stock market is not a casino where people make money every day, it is rather a place where you get rewarded for your patience, discipline, and composure. It is a cruel place for the ones who are looking for ‘moolah’ and get excited by looking at 4-digit growth in portfolios of investors like Mr. Jhunjhunwala. These people have made money by reading a lot about good companies and have tried to reduce their portfolio’s churn rate as minimum as possible and holding the investments as long as deemed profitable. Happy Investing!

Should I go long (buy) or short (sell) is the most important dilemma faced by any trader? There are only these two possibilities in stock trading after-all, a simple problem with two choices with a probability of being right 50% of the times. How can then one go horribly wrong in picking out one choice out of the two? Is trading really about buying or selling? To me it is a game of nerves. What it really tests is your patience and discipline and not so much your knowledge of stock markets. You can spend hours doing detailed analysis on shares, and still make huge losses. In fact trading is often compared with art or sports; it is more of a talent than an acquired skill. I was once told by my manager,” trading is not a job, it is a profession. A trader once, is always a trader.” That is probably the reason why retail investors are hardly successful in long term. Trading is often viewed as a source of extra income; a way to earn those few extra bucks. With this being the major motivations, they are then forced into the herd mentality; buy when everything is going up and sell when the market is heading downhill. Often, in such situations, you end up buying at market highs or selling at lows. Then when the market trend reversal happens, you panic and end up cutting your losses without having a proper stop loss target in mind. If by chance the stock does perform in your favour, you get greedy in booking your profits, again displaying lack of trading discipline. The news can again be a misleading factor when it comes to trading. Though ideally markets should react to the economic data, it is hardly ever the case (unless it is a major disruptive data e.g. Brexit, fed rate hike, market crash, etc.). Thus there goes a popular saying in the market which says “news just follows”, which implies that the market adjusts first in the anticipation of the news and by the time the actual news is out the major movement has already happened and you just end up playing the noise in the market. To me trading is not about trying your luck in the market every day and but waiting for that one big opportunity which comes once in a while and then giving it your best shot. Do you think Warren Buffett or George Soros trade regularly in the market? Being selective is the Key. They observe and study the market all the time, but the actual trades are just taken when they feel the time is right. E.g. Soros made billions when he betted against the Bank of England in 1992 (sold British pound) or during Brexit when he went short on pound but bought gold and gold miners. So wait for the right time, show enough discipline and patience and be selective, very very selective in your trades and you never know you might be the next Jhunjhunwala of India or perhaps the next Warren Buffett of the World.

Thank you, sir, for sharing your valuable views. I completely agree with you on the point that most of us are tempted to enter the share market with an idea of making some quick money. Though there are investors who look beyond short-term money and enter the market with long-term goals, many of us fail to realize that each stock that comes into our account brings a certain share of ownership of the underlying company. It, therefore, becomes important to track a company first than its stock price. To my mind, an increase or decrease in the value of a stock does not drive a company but the company’s growth affects its stock. However, I must accept that this was not my idea when I first entered the stock market. I wanted to try my hands at the markets from my college days but not to make money. I was fascinated by the numbers running on the business channels, experts giving their views on what stocks to invest in, the forecasts and all the fancy trading terms. The only thing I knew was that people buy and sell stocks of the listed companies to make profits. Rest of the information was not very well known to me and the curiosity to understand how it works rose with every passing day. I did read about how markets work but was waiting for an opportunity to enter the real world of share market. Like any other first-time investor who just got out of college and eager to make his/her first stock investment, I used some part of my first paycheck to invest. Knowing that I could horribly go wrong, I decided to start very small and try to learn the game better. To understand how to go about this, I approached one of my colleagues, a regular investor, who helped me open a Demat account and walked me through the process of investing. That is when I realized that there is much more to the Share market than a simple buying and selling of stocks. The markets (NSE/BSE), the limit price, the intra-day, the short sell and a lot more. My first investment was not based on any analysis but only on what my colleague was investing in. It did turn out well and I was doing good until I put my money in a company whose price plunged and was not moving up for months. The day I decided to take my money out, the price started moving up and it was back to a profit-making stock. This was the point when I realized the importance of understanding the company first, having a long-term goal and not just go by the trends in the market. As you rightly mentioned, the stock market is indeed a hospitable place for the ones who wish to stay invested for long. Though highly unpredictable, a good performing company tends to always give good returns to its investors in the long run. Hence, careful investments with long-term goals are mostly expected to give good returns making the markets rationale.

Mr. Jayaraman thank you for your valuable advice on this tempted topic. I am too young to wright about stock markets, investments & retirement but I have interest in this subject which I developed over the years by watching my father. I have few thoughts to share. Today’s young generation like us is attracted towards stock market. Most of these investors are eying short term rather than long term returns. Short term game is risky for any small investor. As you rightly said no one has found out the secret of why the markets behave unexpectedly. There is an old saying “No knowledge is better than half knowledge” it fits perfectly for all the young investors who desire to get maximum returns as fast as possible & invest in stocks without doing basic study. Many of them get carried away by brokerage firm’s promotional calls & sms. Historical data suggests multibagger gains if one invests for reasonably long periods. Long term gives benefits of stock splits, bonus, and dividends over the years & risk is also minimized. If we consider past 20 years data Indian stock market has given 10X returns. 30 stock index rally from 3500 in 1997 to 32000 in 2017. During these times it has also witnessed major downturns of 2008-09 world economic recession when Index fell down from 14000 to 8000 in six months. Many small investors sold their stocks in panic & lost big amount in this process. Same Index rose from 8000 to 21000 in 9 months & now it is eying 35000 mark. If the same investor would have decided to wait for the longer term then he might have doubled his investments in 2012. There are many such incidences which proves long-term perspective in stock market gives healthy returns. One should play safe & show patience in stock market. Invest for more than 2, 5 or even 10 years & let the power of compounding work for you. Mutual funds are also safe options for those who do not have thorough knowledge about stock market but want to gain returns. Top Mutual funds have shown that if you wait for 6-7 years you are likely to get more than 100% ROI. Many of young working professional who are early in their careers can start investing small amount in monthly SIP plans. These pocket friendly investments can be our retirement friends. It is cruel to say that you don’t know how many days you will live. It doesn’t mean you should not consider retirement or think about days beyond 55-60 age. If we start investing from early days of our career then we will surely able to get maximum returns in stock market. Stock market could be shock market for those who invest under influence of others, who do not bother to study company’s history & financial health, who are impatient & sell in market panic conditions. But who invest for long term, who invests after understanding company parameters, who keeps eye on market conditions & don’t panic in market crack downs can get a retirement benefits out of stock markets.

Thank you sir for giving your insights on investing in stock market. This article gives basic but good information on how, when & in which company to invest in Stock Market Everyone wants to make quick money & what better than the stock market. I completely agree that majority of investors do not have an idea that what drives prices of the stock. They basically want to earn easy & quick money & hence they invest in stocks based on the tips. As author said in most of the cases investors lose money & once they start losing money they invest more to nullify their losses & they lose further. I do regular invest & would like to share my experience on investing in stocks. I have been through the above phase & experienced it in a difficult way. The most important thing which we should understand that stock market should not be used as a tool for Gambling. If you want to invest in a company it is important to go through last 5 years Balance sheet & P&L statements of the company. Also important to go through the company website & understand the segment they are catering & whether that segment is growing or not. Also directors annual report helps understand the short & long term strategy of the company. There is also scenario where amateur investors buy stocks which are at 52 week low without knowledge of stocks. This is more destructive as “Those who try to catch a falling knife only get hurt”. There are also cases where stocks which have reached 52 week high wait for correction to invest which depending upon the stocks doesn’t happen. Take example of MRF tyres, the share price in last 5 years rose from 10,000 to almost 70,000 without any major correction. Secondly I also agree with author that stocks should be purchased for long term investments however once the stocks have been bought we should not forget it, constant monitoring in important. Also focus on “A” category stocks like Asian Paints, Reliance, TCS, Infosys, etc. which will give stable but long term returns. Finally as Warren Buffet said “Stock market is a device for transferring money from the impatient to the patient”. Hence it’s important to have patience. The 2nd quote he said that “don’t save what is left after spending but spend what is left after saving” Invest wisely. Best of Luck!

Dear sir, thank you for giving a true picture behind this gilded mirror called stock market. It is not quite shocking to note that most of the participants who loose many are speculating(trading) almost 95-97% of the traders looses money and less than 1% makes profit. Looking into the behavior of this traders tells a bigger picture than the number themselves. Most of the traders loose money because they follow herd mentality, stock tips and don’t understand the underling instrument in which they are trading. Understanding why someone who has little experience investing wants to get involved is because everyone else in their social circle is, advertisement are all over tv and even their favorite show on news channels is talking a lot more about how the market is so good. In such environment you can be certain there will be lots of “helping hands” to welcome this investor to the crowd, teach them to be a part of the crowd and initiate them into the world of the blind leading the blind. As John Maynard Keynes says “Market can remain irrational longer than you can remain solvent” the market is unlikely to reverse to any significant degree until almost everyone is on one side. That means almost everyone who joined the party late is going to lose. However, a bunch of people those 1% may decide to wait, but so will the market. People are the catalyst in the process of boom and bust and without people to create an extreme the market won’t hit an extreme and reverse–remember the market does not act on its own, we the people are the market. In other words, the boom and bust cycles will not end. We progress and regress and then progress again. It is true that historically equity market has been money minting machine Given its track record with investors. However, here we should understand that stock market rewards hard work and discipline, day trading is speculating which involves neither of the qualities mentioned.

Are you looking for an investment which can give you the returns of 100000 per cent? Do you want to make your money work even when you are sleeping? Are you searching for options to park your surplus funds which can give you higher returns than bank deposits? Do you want to be a part of the growth story of your country? Are you looking for good secondary sources of income? Do you want to beat inflation? Do you want to start a business from as low as 1 rupee? Are you a risk taker? If your answer to all of the above questions is yes, then stock market is the right place for you. However, people usually compares stock market to the gambling. That’s why less than 2% of India’s population invest in stock markets. But they are principally different. Gambling is a zero-sum game, it simply takes a money from a loser and give it to the winner. It does not create any value. On the other hand, by investing in non-fraudulent companies which tend to compete and increase productivity, we are increasing the overall wealth of our economy. Stock market shares very close relationship with its country and its investors. It has become an integral part of our lives. It slips if our economy slips, it rises if our economy is booming. It is an indicator of the financial strength of the country. To gain better understanding, let’s go back to its origin and understand the reason behind its existence. The stock market started way back in 1602, with the Dutch East India Company. The stock market exists so that the company can raise money without incurring any debt. They issue shares of their company to the public in terms of IPO which is known as Initial Public Offering. Investors buy and sell these shares to one another on stock exchange, thus making stock prices move up and down. However, stock market is mutually beneficial to investors also as they invest in business and try to make their money grow. The movement of shares can be largely explained by the principle of supply and demand. The increase in demand of the share can be contributed to three main factors: company fundamentals which will help in creating long-term demand, second is some news or inside info which will help in creating mostly short-term demand and the third is due to manipulation game played by the operators. It is very important for investors and traders to identify the third reason and stay away from those stocks where operators play a major role. On the other hand, supply factor i.e., no. of shares to be traded in market is decided by the company only. Thus, stock market will be good most of the times to those who look it from an investing point of view rather than money creation. An investment can give you both good or bad returns. The investors are successful more number of times than the traders. This is because while investing your approach becomes totally different from those who are into stock markets for just money creation. Investors studies deeper into the technical fundamentals of the company and tries to forecast the company growth. They closely follow the company and are always aware of the news relate to them. On the other hand, some people just trade on tips which are wrong most of the times, thus end up losing money and start calling stock market a gambling. It is better to know nothing than something in the stock market. You should have clear understanding of what you are doing with your money. Think of a partially informed surgeon, the mistakes could be severely injurious to your financial health. Be patient while investing in stock markets. If you are investing for a long time and drop in market will make you nervous. Losses are on just paper until you sell your investments. The best 5-year return in the US market began in May 1932 – in the midst of the Great depression. The next best 5-year period began in July 1982.when the US economy was in one of its worst recessions. Thus, in longer run, you will be able to ride out bad phase as a winner. At the end, you will find many inspirations like Warren buffet, Rakesh Jhunjhunwala, Vijay Kedia to invest in the stock market. You will also be tempted to make big money in the stock market in a very short time. But for me the most inspiring thing is the growth story of India. The India will become the third largest economy by 2025.Thus, to increase productivity companies will grow and our money will also grow. HAPPY INVESTING!

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