Over the course of your life, you will probably invest at some point or other in the stockmarket. It is important to understand what the stockmarket is and what it is not. I will outline some very basic ideas below.
The stockmarket is a risky investment. If you invest in a broad-based way (that is, covering many types of companies in many sectors), you have lower risk because while some of these may do badly, chances are that others will do well. At the other extreme, a single stock by itself is quite a risky investment.
The risk also reduces over time. If you think you may need your money at short notice, the stockmarket is not the right place to invest it. Put money in the stockmarket only if you don’t mind leaving it there for 5-7 years.
Beware of people who promise to invest your money for you claiming that they will get you better returns than the market. Even if you escape the Madoffs of the world, remember this: it has been proven that most money managers are no better at picking stocks than monkeys throwing darts. And unlike the monkeys, the money managers don’t work for peanuts!
Be even more skeptical of business newspaper columnists. If they knew how to predict the markets, they’d be retired! I read everywhere these days that “this is the perfect time to buy a house”. Haha, this is definitely some PR money at work.
The only way to possibly beat the market is to develop great understanding and intuition about how things will evolve. Not many of us will get there. A few people like Warren Buffett have managed to beat the market on the average, but even they are wrong once in a while. This is why they do not go and bet all their money on a single outcome. They know that at the future is always a gamble and they gamble wisely.
The investor who is most dangerous for himself or herself is the person who first invested when the market was in a bull run, i.e. rising continuously. He or she does not have the experience of markets that go down and stay down for years. That is why I am warning you – you are lucky to grown up in a time of resilient markets that cannot be kept down for long. But that may also prove unlucky if, by the time you have money to invest, you start to believe that markets will always give you supernormal returns.
There is no free lunch.
12 comments:
Hello Sir,
I will keep these learnings with me for life.These will be of great help when I will start investing in the stocks.
Thank You Sir
Pankaj Gangwani
Spring 09
Hi Sir, The insights are as pure as real diamond. This is also true because we need to understand that if we would know of market turns then there will never be supernormal returns. We also need to diversify the risk by investing in different stocks. As it is said by one of the great investors that "Invest when market the market is bearish and get out of market when market in bullish".
Hey Manas - two things
1) anyone thinking of putting his money in the stock markets is advised to read Benjamin Graham's classic "The Intelligent Investor"
www.buffettsecrets.com/benjamin-graham-biography.htm
2) the past 20 years have been difficult for the stock markets around the world. Historically, the returns from equity would outpace and outperform returns from fixed income securities (like bonds). This has since stopped happening. That has led to large scale flight of capital from equity markets to moneylending markets, thereby dangerously making corporate profits seem inflated (large) whereas they are based on paper profits (financial only, not real economic activity). This is another core reason behind the recent global crunch.
So it'll be an interesting and difficult time ahead really.
Respected Sir,
Warm greetings...
I think my opinion is not matched with your opinion because I think STOCK MARKET is the place for GAMMBLING only. Because what I have learned from this that "NO BUSINESSMAN ARE THERE MADE MONEY FOR YOU” because they look only their benefit in IPO'S & during company existence like how to expand his business because in dividend how much profit he will distribute to share holders he is only the responsible person to make decisions.
Thankyou for your valuable blogs.
With regards
Vikas Jaithlia
Fall 09
Dear Sir,
Thank you for sharing such a wonderful practical learning of stock market. Today, most of investor (during first time investment)are not applying practically Warren Buffet's golden rule of investment. Because they are only focus on growth of market, newspaper columnist, short time investment and broker advices. So chances of failure is very high.
"Dalal Street" magazine is most useful for first time investor to gain primary knowledge and awareness of the stock market.
Regards,
Meenketan Patel
Spring-09
Dear Sir,
I have done five groups of CFA (chartered financial analyst), also did share trading to understand the market. On the basis of my experience I have realized that Indian capital market is not at all run on the theory of stock market. It is run on sentiments. Whatever theories An MBA student or a professional study for stock market is a waste in Indian context. A great example of my learning can be seen in ‘Gafla” movie.
Ravi Kumar Jain
Sir, Is it really necessary to invest for an individual in stock market, my recommendation always is never to invest in stock market.
I see a lot of people are frustrated with the stock markets and suggest one should avoid investing in them. As a businessman, I must say that would be a mistake. From time to time, a businessman feels he can do much more but capital is a constraint. It is important for a businessman at such a juncture to have a chance to raise capital, whether from angel investors or venture capitalists or the stockmarkets. Even if the businessman is partly concerned with improving his own prospects, there is usually a net benefit to society if the markets are transparent and regulated and if the investors behave sensibly. On the other hand, if an investor is determined to be stupid, this saying comes into play: "a fool and his money are soon parted"!
hello Sir,
your advices are realy helpful. But, it is my perception, that if we concentrate on one script or one sector then it will make you master and gain you more returns rather than indulge and focus on different sectors.
Dear Sir,
Warm greetings...
Its nice to read this post.
By reading this, I have cleared my doubts about investing in stock market.
Thanks to share this,its very informative.
Regards,
Namrata Rajput
Respected Sir,
In my opinion whatever you said about the money maagers holds true because they would have been bang on the target had stock market worked on the some pattern but since stockmarket works according to people sentiments so its highly wrong on our part. At the peak its sin to invest since one never when stock may fall but at bottom the best always rise above the rest.
With Regards
Proton Nikhil Sukhlecha
Dear Sir,
It was an eye catchy article having a great insights. Thank you for sharing this with us.
Regards
Rahul Singhania
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