Just met few folks in Airport and on flight, everybody is talking markets!
Time to shoot a mail which I shared internally few months back.
Statutory Warning: Stock Market is Not Easy Place to Survive
Feeling fortunate meeting and talking to so many buddying investors, I can
see fire in their eyes, anxiety at heart and determination in talks.
Exciting days to see so many people seeking stock market, question is for
what? If you think it’s financial freedom then RE-THINK, with a stroke of
mid night it can become never ending nightmare.
This mail is for those guys in FAQ style (only few questions). I am no
celebrated investor but failed so many times in journey (both financially
and emotionally) I can share you the nuggets of experience.
Why such a mail when there is optimism in air?
Imagine you are asked to give an entrance examination, you score among 10%,
study for four years in a premier institute and then get recruited in some
company. You work for 10/12 hours a day and still see money is not
compounding even 12-15% per annum.
Visualise another situation- open a demat account with a PAN card and
photo, address proof. Within 7 days you got a key to buy and sell shares
sitting in any corner of world. Buy 10000 shares at 10 AM in morning for 15
rupees and sell at 17 by 11 AM. A neat 20000 rupees on 1.5 lac investment
for 1 hour. Theoretically you can make 320% per day and 116800% in a year,
fascinating? This is what draws scores of people to stock market. Media
makes it rosy by throwing names of multi baggers or how someone make 10 Cr
in 4 years and even he before turned 27!
*The reality is advent of online execution and crowd participation has come
a boon for seasoned guys. Earlier they had to fight with a lot of people of
similar mindset (as entry barriers were high with physical work), now they
have tonnes of crowd and make them their prey, take a ride on them. *
It may not spell doom for everyone, but be wary of fact market is also a
zero-sum game. You gain when someone lose.
Category: General
Q. The only way I can retire is 60 or say 3 years earlier. Stock market is
a place where I can retire even before 40. Isn’t it true?
Answer: the good news is you can make a lot of money before 40 which is not
possible in employment (not for all at least). But that has nothing to do
retirement or stock market. In both quadrants of investing and
entrepreneurship the owner takes the risks and rewards both. A good deal of
money can ONLY be made in these two quadrants. Second retirement doesn’t
mean to have a lot of money in bank and sleep every day. Not only you will
lose everything in few years nor this attitude will ever make a lot of
money either. Additionally, not everyone becomes a billionaire in stock
market.
All our fathers and forefathers worked for years and retired. Happiness,
obstacles, dreams and excitement were also part of their life. Happiness
and success has nothing to do with age and money. They survived, you know
why? Because all of them loved their life and work. If you do not love
investing you will never like life even if you are not making money.
Q. So many stocks are delivering 10/20 bagger in few years. Isn’t that a
stupendous return comparing fixed deposit? Why shouldn’t I join the party?
A. Stock exchange is a free market place where buyers and sellers determine
the price. In any free market speculation is bound to build up in price
which also means price comes down as well with more force. A wealth is
created by entrepreneur over a period of time with a combination of
business strategy and good people. Unless you know why prices are going up,
what is the business value (which is an extremely confusing and complex
process) included price and what is speculation element included you will
never be able to get out in time. The prices are abstract numbers or
information comes out of a system called stock exchange at a particular
time, it changes rapidly as well. The 10/20 bagger depends on a. when you
enter b. when you exit.
Q. Investment in equity can be managed with another profession. All I have
to do buy and sell, isn’t it?
A. Not at all, investment is a quadrant higher to employment, doesn’t
matter whether you like it or not. If one has to move to a higher quadrant
he has to cleanse himself first psychologically. Then prepare a fresh plan
and set out a method, modification is a continuation process. End result
still can be negative. It’s a lot of work, not possible while having a job.
Category: Research and Execution
Q. What’s the point in doing research? All I have to do is follow Rakesh
Jhunjhunwala, he may earn billions, at least I can make millions.
A. Mr Jhunjhunwala sits on a stock for 20 years, you have to reincarnate
yourself 20 times for achieving that discipline. Holding a losing position
can be your worst nightmare. Those who have practised it they only can tell.
Q. What good these books are after you learn basics? I don’t get time to
complete my office work, you know I am extremely busy.
A. Books are reflection of ideas and research. They allow you to build
blocks and modify your system ongoing basis. You have survived decades of
employment without flipping a page, here you will get whipsawed in few
months.
Q. You know my friend/brother/father is an astute investor, he gives me
tips and I buy. Little chance of failing, he will let me know when to do
what?
A. Same like Mr Jhujhunwala analogy, when fear grips sentiment and market
place; only few able to sustain that maniac depression. In short, it’s not
possible to survive on tips.
Q. All I need to know is where the stock will go? Up or down, and how far?
A. True, answer is no one knows ever and will know either.
Even if you spot a dozen fundamentally good stocks and vetted by even
Warren Buffett, still chances of making money can be zero. Wealth creation
is a convergence of crowd behaviour, good fundamentals with industry
forces. Crowd behaviour, industry forces studies can be learn but not
overnight. It takes years to understand a good risk management, position
size customised to your portfolio. So equity investment is not about
selecting a good name and the buy blindly and hold. The scene is very hyper
now as we just saw a massive bull market, and any bull market will produce
abundant amount of fortune tellers.
If you want to fall in love madly with equity then you are welcome. That
means think, sleep and talk markets, stocks and associated subjects. Do you
have time? Do you have resources? I meet folks who flips data, information
till the sun arrives next day which includes me as well. Had I not been
madly in love with markets I would have definitely consider doing something
as well. It’s not money drives the people but their love for work, which
happens with any profession.
To sum up equity is an incredibly dangerous instrument and asset class to
deal with. Your love of price watching may not come to your rescue when
things goes contrary (which happens always!). Equity investment is not buy
stock and watch price only, much more beyond that and unfortunately, it’s
never ending quest for those even who have achieved stardom via investment.
Don’t get carried away speculation, always remember someone will make money
out of you unless you are diligent enough to protect yourself. That
protection includes 6-8 hours research every day, if you can’t manage time
then limit your exposure, stay with mutual funds or any other alternative
actions which deem fit. Or else losing 95% of money is a regular folklore
in stock market!
I started in 1996 while I was studying (actual investment), lost almost
everything twice before standing on both my legs. Had there been an
official bankruptcy in India I could have been declared bankrupt and
invalid by CA institute and other from which I am holding a certificate.
But you are determined and want to go all out of course anyone can do it,
but only when you are committed in terms of time, resources!