The very mention of stock market is enough to infuriate my friend Ashish, 35, who lost big time during the stock market crash in early 2008. For someone who followed the stock market news and views on a particular business channel, it was the very feeling of being left out in the Euphoria that propelled him to invest all his savings in a few real estate and capital goods stocks during the period from October to December 2007. Ashish had been following the stock market news almost everyday, sneaking time out from his work and spending time in front of the television screen in his office cafeteria to catch up with the latest buzz.
In March 2008 when Ashish could not bear to see the huge losses that he had incurred in his short stint with the markets, he decided to sell all his holdings at more than 50% loss and promised himself never to invest again in stocks. The analysts who had earlier given buy signals were now recommending selling the holdings to pare the losses.
It is human tendency to expect more and in pursuit of higher returns we are ready to take the plunge even in the absence of proper knowledge of the subject matter. With the advent of so many business channels people are constantly being bombarded with so much information that they are getting confused because each analyst has got different views of the same subject matter.
Secondly, it is has been observed that a lot many people have opened online trading accounts so they can trade online on a daily basis and try and earn that “elusive” extra rupee which seems to be so easy to earn while watching the analysts give you a range of the stocks movement.
In order to avoid being in the situation of Ashish there are a few recommendations that one can follow.
- Watch the business channels to gain a better understanding and knowledge of sectors, companies and the general economy but don’t use that knowledge to trade in stocks. Remember if it was so easy to make money in the stock market by just following the analysts, then we would have a lot more millionaire investors today and everybody would be doing the same thing which is practically not possible.
- Please don’t follow the so called “Stop loss” and “Book profits” mantra of the analysts blindly. Set up a proper asset allocation strategy with the help of a good financial planner and everything will fall in place. You will realize that now you have more time for other things than follow the stocks on a daily basis and most importantly- peace of mind.
- Shun the short term trading strategy as advocated by stock analysts as it will only lead to pain and desperation. Please keep in mind that “Rome was not built in a day”. Equity investments deliver superior returns over other asset classes over a longer period of time. Trust your financial planner and work towards long term wealth creation, instead of gambling your money away.