Since last two years, people across world are investing like crazy in stock markets, especially in India. Everybody is thinking that they are experts as markets are going up and when it is going up then Who Cares…
Important thing to note is as per one report, out of all people who invest in market, only 5% make money. Hardly anybody knows this fact but when entire environment around you is floating around stories such as Mr X is millionaire by investing in ABC stock etc and on every business channel so called analyst are screaming Buy, Buy, Buy then one ends up thinking he/she has got a Hen that is going to give Golden egg everyday and they start thinking themselves as a great investor but only till the time reality bites.
In stock market, probability of people making losses is way higher than people who make money so better listen to those first who have suffered losses in markets. By listening to them, by understanding mistakes done by them one realises things not to do and that is most important thing while investing as most of the so called analyst are telling you only what to do and that is Buy, Buy, Buy!
First better understand what not to do and that will lead you to making lesser and lesser mistakes and will take you towards higher chances of making money. Many people do courses on how to invest in stock markets but I tell people first learn how not to invest as many people burn their fingers and lose hard earned money and one such example is myself.
I still remember, it was year of 2007 and I had newly joined TCS and at that time I was reading in business papers that sub prime crisis was brewing in US but I couldn’t understand it fully and after few days those news disappeared. Suddenly stock markets across world started going up, I think from Sep 2007. In India it was crazy, you put your money in any stock and that stock was going up. Whatever stocks I bought they were going up. Initially I was investing carefully but when crazy run started, all around hot tips were floating and reaching every other guy, I think I lost my track. In IT companies no body used to work from 9:30 AM till 3:30 PM (duration when markets were open) as everybody was busy trading. Right from top management till bottom layer employees everybody was busy in markets. After 3:30, during coffee break, everybody used to discuss with each other and tell how big money they made and how better they are than Warren Buffet!
In this frenzy environment, I lost my habit of looking at companies – who they are, what they do and started following other’s advises, following hot tips and at that time it was working also. Everyday my stocks were going up, my portfolio was going up everyday by 10,000 rupees which was lot of money for me. This whole setup was working with everybody as at that time horses, donkeys, pigs (all types of stocks) were running very fast. Everybody was thinking that he/she is sitting on good Arabi horse but unfortunately when Sub-Prime crisis broke out people realised that the horse on which they were sitting was not horse but donkey or pig.
In Jan 2008, ‘NIFTY’ – India’s stock index had hit two consecutive days lower circuits and whole world changed for investors. My stocks were hitting lower circuits everyday and forget about profits, I was not even able to sell stocks as there were no buyers. All my profits were wiped out and on top I suffered good amount of losses. Almost everybody suffered huge losses but nobody used to speak about it. Nobody used to open trading portal or even utter a word called ‘Stock Market’. During chats of Coffee breaks all such losers used to tell each other how Smart they were and how they sold before crash but truth was everybody was bleeding!
I refused to give up and decided to dig deeper and find out what actually happened. Later on what I found was when we all retail investors were buying, all big sharks were selling and all of us were stuck in nonsense stocks. I looked back at the events of last 12 months and found out complete madness in which many of us were stuck. I realised how foolish I was. I learned my lessons and few of the learnings are below,
- Value your money – Know that money you are investing is very hard earned money, You have worked many hours, handling work pressures, meeting deadlines and deliverables, surviving all types of politics, so pls value your money as when one starts investing blindly in stock market then he/she loses awareness of how much they are putting in and that too so casually. First thing is know how much you want to put in. Come what may do not cross that limit, whatever amount of profits you foresee and whatever your greed compels you to put more, Stop!, know that its your hard earned money!
- Listen to people who incurred losses – First talk to as many people possible who have suffered losses. Understand what not to do, and note down all the things and see if such patterns exists in you and markets. Avoid all such mistakes and you will be better placed.
- Stay away from hot tips – When any bubble is created, hot tips float around. They reach you and you start thinking that you got something that nobody else knows and you end up putting lot of money in it. Know that when you are putting money, some big shark must be selling as for every buyer there has to be sellers. Fix one thing in your mind that you are at the bottom layer of this structure of Stock Market. If some hot tip has reached you means it has crossed all layers and it is not at all hot tip, it has been ensured that it reaches you to fool you. If at all it is hot tip then it will never reach you, big sharks would have already made money out of it.
- Understand P&L and Balance Sheet– Understanding basic Profit & Loss statement and Balance Sheet of any company is basic criteria and if you don’t understand it then pls do not put a single penny! Stay away from stock market, its not for you!
- Switch off all Business News Channels – Many people follow advises of puppets giving advises on nonsense business channels, pls switch off those. If they knew so much with accuracy then they would have invested that way and long back they would have become billionaires. One true incident that I saw – In India on one such channel, one show comes where in retail investors call them and 3-4 so called analyst guide them on television. It was year of 2008, one investor dialled in and asked one analyst saying I have bought ABC share for 1000 rupees with so and so quantity what shall I do now? On that Analyst replied – Ohh, such a wrong price, you bought it at very high price, very wrong. Hearing this investor told him, 3-4 weeks back on the same show you had advised all people to buy this stock with so and so price target. So called Analyst got red faced and then quickly said ‘Sell Now’ and they quickly switched to next caller. So stay away from these nonsense analyst.
- Nobody is sitting to make money for others – In stock market, no body is sitting to make money for others. Infact everybody is looking at their own portfolio and how can they make more money, so do come out of mirage that Mutual funds and SIPs are there for you. Sorry to say but through these products, people are giving constant flow of money in the hands of fund managers to whom they have never seen or met. People are not ready to give money to their friends, neighbour, relatives or own brother/sister but they give thousands easily to unknown guy because he has promised some good returns! This is absolute nonsense!
- Sellers Make Money – Fix in your mind – Only sellers make money in stock market. If you don’t sell then all your grown up valuation of stocks is on paper and when markets crash then all those profits evaporate and stocks go in negative. People can’t handle this pain and sell in losses and sway from virtual profits to real losses. If you observe so called analysts, business channels etc are 95% of time giving recommendation of only BUY! If you see somebody saying SELL this stock then you start feeling negative about stock and feel something is not good. Know that selling stock doesn’t mean you are doing anything wrong, that means you are making money or reducing your risk.
- Everybody cannot be Warren Buffet – New investors read lot about big investors such as Warren Buffett and start devising various strategies. My simple advise is to stop this madness. All these Multi billionaires operate at very high level, they are well connected with politicians, various Chairmans/CEOs/Directors and know beforehand what is going to happen. They are better placed to make money so come out of mirage that by reading some book you will be billionaire!
- Learn to value things – In India 1 kg rice costs anywhere between 40-100 rupees kg (depending on its quality) but if I offer people same rice at 2000 rupees KG then will anybody buy? Of course no, infact people will make fun of me and ask me to get lost! They can do it because they know value of it. Believe it or not, in stock market people buy such rice (stocks) for 2000 rupees and big sharks end up laughing at them. Learn how to value stocks. How many shares company has issued, per share how much profits company is making, compared to those profits at what price that share price is, what is PE ratio (Price to earnings ratio), how much is debt on the company, how much is book value, is company making profits since last 4-5 years, is annual report showing good prospect about future etc. If you can’t do this then stay away from stock market else you will end up buying rice for 2000 rupees KG. When TESLA was trading at PE ratio of more than 300 (which is absolute madness), retailers were buying and Elon Musk was selling! All such retailers are sitting on good amount of losses.
- Note down your success strategy – Whenever you make money, note down your strategy, what you did right, what went well. Who knows you might have found new way of investing. Better keep track of things that went well.
- Avoid subscribing to IPOs – I avoid subscribing to IPOs (Initial Public Offerings) as most of the IPOs are so overpriced that most of the investors suffer losses. When any company issues its IPO, it ensures that it is priced at very high price as then only they can collect max money from market and all investment bankers help them in doing so as they get huge fees and commissions out of this. When markets are in bubble, maximum IPOs come and even loss making companies collect billions of dollars, currently many such examples are there in India.
- High Risk, High Losses – In stock market, many people will tell you that if you take high risk then there is high return. I tell you this is 100% false. I have seen if one takes high risk then he/she has suffered high losses. Infact if one observes all the big investors, they are hardly taking any risk, infact they always look for cheap valuations and guaranteed returns. No such investor is taking risk, as word ‘Risk’ itself conveys some kind of loss is there. Instead of taking risk, invest judiciously.
- Stay away from futures market – I have seen many people get into it and go bankrupt. It is extremely risky as one can lose huge money in one single bet. Stay away from this
- Stay away from Herd and Herd Mentality – This is the last and most important aspect. Inconfident, less courageous people always follow herd. Such people find safety and security in herd but I tell you if you follow herd in stock market for sure you will incur heavy losses. In this herd, stampede will happen and you will get crushed! Study independently which will boost your confidence and stand firm ignoring herd and you will make money!
HAPPY INVESTING!
—PRITAM—
PRITAM SARADA 