The mirage of get rich quick from stock market trading!

 Everyone would have read The Tortoise and the Hare story in their childhood days. The same is true for investments. The one whose behavior is that of the Hare seems to win in the short run but loses to the Tortoise in the long run. In investments, the Hare is the trader who wants to become rich quickly and the Tortoise is the long term investor.

Let us see what is happening in the real world around us today. We are seeing a lot of online advertisements in you tube / facebook / twitter, who claim that they are making good money by trading in stocks. And they lure us to invest with them for some fee and profit share which they promise to deliver. Since, we do not know how this will work, most of us will start will a small amount. By the time we see some good returns over six to eight months period we get more confidence and will put more money into it. At the end of every month or quarter, they (Stock Portfolio Manager) take their share of fees and profit share. Everything is going great for some time and at some point you will see your portfolio starts going down. It is the nature of stock prices to go up and down. Hence, we try to convince ourselves and decide to wait and watch for the prices to recover. As the Bear market extends the price falling continues. This is when the panic starts to sets in. When we were making money in the bull market the portfolio was small and we added more money into the portfolio. Now the invested value has become significant. Now when the stock prices fall, the loss seems to be bigger than the gains we made in the past. When the portfolio value goes down below the invested amount panic triggers and half of the people will sell everything and runaway from the market. And the remaining people will go through the pain of the Baer market and exit as soon as they recover invested amount and will never return back to the stock market.

 At the end of this, the only the person who made the money is the portfolio manager. Let’s try to understand why this happens again and again.

Stock market is a reflection of economy. When the economy grows fast, stock market will have a bull market and when the economy slows down the stock market will have a bear market. Often this bull or bear market can extend for period from 6 months to a few years. Most people enter the market in a bull- run and exit during a bear market leading to losses. 

In India millions of people join the job market every year and start saving money but they lack money management skills. So every time there is a bull market, the so called portfolio managers / stock market expert traders target these young people with stock trading tips and portfolio management schemes.  And the story repeats every new cycle.

The great investor Warren Buffet said, apart from knowledge and skills, temperament and patience are the two most important qualities for success in investments which are the rare qualities and takes years to put it into practice.

Smart investors should take the help of registered investment advisors instead of trying to take experiment with their money at least till they gain these qualities.

This blog is written Mr. Vinay B N who is a Chartered Accountant with 15 plus years of experience in managing the wealth for high net-worth individuals and also the founder of WR Ventures which focuses on the digital protection, wealth management, tax planning for individuals and families. You can write to hello@wrventures.in or visit their website at  www.wrventures.in for more information.