Being a student of finance, I tend to mostly discuss economics with you. Many times we have put our minds together to understand relationships between interest rate and growth, demand and supply and between micro and macro variables.
This time however, let’s come and unravel a few myths about the capital markets.
Take a minute and think what comes to your mind when you think of the stock markets.
Investment or Speculation ?
This is the primary distinction between a rational and a get rich quick thought about the stock markets.
Statement 1: It is a Gamble –
Now this is one argument which never fails to die.
But what is a Gamble? According to the Oxford dictionary it means
“To play games of chance for money.”
And what is Investing? Investopedia defines it as
“The act of committing money or capital to an endeavour (a business, project, real estate, etc.) with the expectation of obtaining an additional income or profit. Investing also can include the amount of time you put into the study of a prospective company, especially since time is money.”
You got that right bud
Stock markets reflect the value of businesses as perceived by prospective and existing owners of its equity. This value is arrived upon through study of a Company’s past performance and future prospects (though the prices at times swing wildly, in long term the true value does come up). Since, a study is not an equivalent to a game of chance, thus, stock markets shall not be paralleled to casinos.
Statement 2: Penny stocks make more money –
And I can beat Usain Bolt in 100 meters! It just won’t happen. Penny stocks are counters which are trading at Rs 10 or less. These basically represent Companies which have been beaten down to such low levels due to either complete obsoleteness of business, mismanagement on part of the promoters, or near insolvency of the organisation.
In any case, expecting a penny stock to rebound and making money on hopes of turnaround are nothing just wishful thinking. Quick gains mean quick troubles.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson
Statement 3: Hiring a Financial advisor guarantees gains –
Taking advise from n number of professionals does not guarantee you gains. Risk is an inherent characteristic of stocks. Any of the asset class- be it bonds, equity, gold, currency, land, all of them carry risk. The best an honest market intermediary would help you do is make you enter stocks of reputed businesses with stable future earnings.
If you want guarantees, go for a public sector Fixed deposit or G Securities.
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen
Statement 4: Investing requires time to monitor –
With the spurt of AMCs (Asset Management Companies) and professional management of funds, a novice investor is not required to keep his ears stuck to the investing ground. One may take this route either for lump sum investment or opt for a SIP (Systematic Investment Plan) and let his/her funds be managed by experienced fund managers.
One may then go about carrying on the daily routine without looking at the quote chart for years to come. In the long term, rest assured, it shall grow.
Ha, this is always there
Statement 5: Tips make money –
“Tips are for waiters, not for investors”
Tipsters abound all around. I bet, if you haven’t heard someone giving somebody a tip.
I mean, it’s one of the most hilarious things which can happen. Day in and day out, from news, to websites to people, everywhere there are get-rich-quick-schemes. Had making money so easy, the businesses would have shut down and put their money on tips of others. It’s funny.
As the Oracle, Warren Buffett puts – “There is a lot to be made in the centre of the court, no need to trudge along the sidelines”. Opportunities are all around in the market. It’s all about attitude you see.
Views presented in the article are those of the author and not of ED.