...but, be sure that you don't fall prey. market conditions today are far too lucrative for retail investors. this makes it easier for them to make blunders, observes deepak ranjan patra
October 27, 2008, the Bombay Stock Exchange benchmark
index – Sensex was at a multi-year low of 8,509. On that day when Delhi-based Sahadev – who has been a keen follower of the market and an avid investor – was asked about his investment plans, he answered, “Are you crazy? The market is going through a real bad phase and if you don’t want to burn your money, just sit quiet. Wait till the bulls return to the market.” Today, the market is again on an upswing and the Sensex has climbed over 3,000 points in less than 50 trading sessions between July 14 and September 18 to come close to 17,000 from 13,800. This rally has given Sahadev enough confidence to return to the market. And he is not alone. Millions of retail investors who kept themselves away from the market after losing billions in the market mayhem of 2008 are now returning with renewed expectations. Probably, they all think the way Sahadev thinks. But the question remains, is it actually the right time to invest? Well, as some market man had once said, there is no right or wrong time to enter the market. It’s all about how and where you park your money!
Traditionally, it has been a fact that steep fall in indices and volatility at the market place has seen a sharp fall in Indian households’ investment in shares, debentures and mutual funds (all scheme categories) as percentage of total financial savings. On the other hand, whenever the stock market is at a boom, they were happy to put more money, allocating a larger part of their savings. And the case this time is no different. Perhaps that is why Indian households invested only 2.6% of their savings during the financial year 2008-09 as compared to 12.4% for the financial year ended on March 31, 2008. Moreover, investors, who pumped in Rs.56,799 crore in mutual funds in FY08, pulled out Rs.10,478 crore from these in FY09, exactly opposite to the golden rule that suggests buy low, sell high (on an average market was high in FY08 as compared to FY09). And the result, well, we all know it, losses, losses and more losses.
But then it’s not the investors who are to be blamed. Average retail investors hardly have the deep knowledge to decipher the complex web of financial markets. So, most of them are guided by just the price movements. A price movement in an uptrend or a downtrend is their only signal to buy or sell. They believe, the stocks that have gone up recently (especially those with a lot of media hype and recommendations by market commentators) are the best possible opportunities available. But what they miss is, if the share is making a lot of noise that actually means that it’s already on a high. It’s possible that the stock may still surge further, but in most cases when an investor buys such a hyped up stock it only means that he is entering at a higher level. This could either result into lesser profit or just losses. Ashok Jainani, Vice President – Research & Market Strategy, Khandwala Securities avers, “Average investors are ‘tipped’, or rather we say trapped, into buying or selling when the entire trending move is about to end. Thus, they end up buying high and selling low in the continuous process of wealth concentration.” He further adds, “It is easy to follow the ‘anchors’ (of various market related talk shows where analysts suggest their stock picks) and see your hard-earned savings disappear. To make money in the stock market, you need to be a lot more serious than merely following a guy standing next to you on the roulette table.”
October 27, 2008, the Bombay Stock Exchange benchmark
index – Sensex was at a multi-year low of 8,509. On that day when Delhi-based Sahadev – who has been a keen follower of the market and an avid investor – was asked about his investment plans, he answered, “Are you crazy? The market is going through a real bad phase and if you don’t want to burn your money, just sit quiet. Wait till the bulls return to the market.” Today, the market is again on an upswing and the Sensex has climbed over 3,000 points in less than 50 trading sessions between July 14 and September 18 to come close to 17,000 from 13,800. This rally has given Sahadev enough confidence to return to the market. And he is not alone. Millions of retail investors who kept themselves away from the market after losing billions in the market mayhem of 2008 are now returning with renewed expectations. Probably, they all think the way Sahadev thinks. But the question remains, is it actually the right time to invest? Well, as some market man had once said, there is no right or wrong time to enter the market. It’s all about how and where you park your money!Traditionally, it has been a fact that steep fall in indices and volatility at the market place has seen a sharp fall in Indian households’ investment in shares, debentures and mutual funds (all scheme categories) as percentage of total financial savings. On the other hand, whenever the stock market is at a boom, they were happy to put more money, allocating a larger part of their savings. And the case this time is no different. Perhaps that is why Indian households invested only 2.6% of their savings during the financial year 2008-09 as compared to 12.4% for the financial year ended on March 31, 2008. Moreover, investors, who pumped in Rs.56,799 crore in mutual funds in FY08, pulled out Rs.10,478 crore from these in FY09, exactly opposite to the golden rule that suggests buy low, sell high (on an average market was high in FY08 as compared to FY09). And the result, well, we all know it, losses, losses and more losses.
But then it’s not the investors who are to be blamed. Average retail investors hardly have the deep knowledge to decipher the complex web of financial markets. So, most of them are guided by just the price movements. A price movement in an uptrend or a downtrend is their only signal to buy or sell. They believe, the stocks that have gone up recently (especially those with a lot of media hype and recommendations by market commentators) are the best possible opportunities available. But what they miss is, if the share is making a lot of noise that actually means that it’s already on a high. It’s possible that the stock may still surge further, but in most cases when an investor buys such a hyped up stock it only means that he is entering at a higher level. This could either result into lesser profit or just losses. Ashok Jainani, Vice President – Research & Market Strategy, Khandwala Securities avers, “Average investors are ‘tipped’, or rather we say trapped, into buying or selling when the entire trending move is about to end. Thus, they end up buying high and selling low in the continuous process of wealth concentration.” He further adds, “It is easy to follow the ‘anchors’ (of various market related talk shows where analysts suggest their stock picks) and see your hard-earned savings disappear. To make money in the stock market, you need to be a lot more serious than merely following a guy standing next to you on the roulette table.”
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