A rich kid, in his twenties, borrows few from his dad and takes on his journey to stock market. Few years passes by, the rich kid adds more value to his bank balance. His stories are well known among the veteran investors of stock market and are often cited to the newbies in stock market. However, when this story is cited to a poor or middle class teen, he comes up with excuses. The list of excuses ranges from he had a rich dad, he did not had to fear losing and he had networks. But aren’t excuses that limit us from where we want to reach? Aren’t excuses that undermine our potentiality?
Just like the excuses that we make in our day to day life to refrain from investing, there are certain myths of stock market that new comers adopt before even entering the stock market. In this article, let us dissect these myths once and forever.
Stock market is a gamble. You need to know to play it right.
I absolutely agree the later part of the sentence. You need to know to play it right in stock market. However, is stock market really a gamble? Well, during Dashain, we all gather together, sit down in a cozy room with our closed ones and play cards. If we keep on playing these cards, recklessly losing all our money as we take one sip of beer to another, leading to a situation where we are ready to give up our wedding ring, wouldn’t playing cards turn out to be gambling even when we are with our closed ones? In the midst of losing money while playing cards, what do we usually do? We take a break. This break is applied even in stock market which rational investors call as “discipline”.
Our destiny is molded in stock market with the attitude that we hold. If we take the market simply as a gamble spot, there is no doubt that our hard earned money will be lost. When the world was backing up from the stocks of Coca Cola, Warren Buffet rather bought more shares from the company. Had he perceived Coca Cola simply as the rest did, he would not have made his fortune. In similar ways, if we perceive stock market as gamble simply because most of the people do, we will always remain where we are. I absolutely understand- it looks so easy to quote a person who has already earned fortune with his intelligence! Nevertheless, the quoted person; Warren Buffet is not free from mistakes. The 1998 purchase of General Reinsurance was a mistake that cost shareholders of Berkshire Hathaway more than it should have. Regardless of what happened, Buffet did not stop investing. Similarly, regardless of what might happen, we should not step back before even start investing. Stock market can be a gamble if we don’t learn from our mistakes. However, if we understand the dynamics of market and align our goals with those dynamics, it will be a safe heaven.
Stock market needs networks. You don’t know people; you can’t make your move.
If we visit any broker house in Kathmandu, we will often come across investors discussing on politics, interest rates and even personal life instances. These investors stay within the broker house from 11 am to 3 pm. It is likely that the bonds they form are just as strong as the bonds we form with our colleagues. However, is it really necessary that these bonds are created simply for their own self-interest? Probably, not.
When someone says, we need to have networks in stock market, I believe it directs to an unethical way of earning money. It rather indicates the inside information these investors would want to gain. However, does it work every single time? In the recent fiscal year, there was one common discussion in every broker house: Nepal Bank’s expected dividend after twenty two years. A lot of investors bought shares in the hope of dividend and remaining did not. In a way, those who looked at the financial reports and compared commercial banks’ potentiality to provide dividend won the race rather than those who had pool of networks in the stock market.
In international market, an investor is one of the most desired professions because of one specific reason: the freedom that the profession provides. We can stay in a room look at the live chart and make an investment decision or we can be on a beach look at the live chart and still make the investment decision. We do not need networks in stock market as much as we do in a corporate career to climb up the corporate ladder.
Oh! He/she got lucky. Luck is all that works in stock market.
Only if we were a fortune teller, we could clarify the significance of luck in stock market. However, since we are not, let us look for evidence that suggests stock market is beyond luck. If only stock market was based on luck, the entire concept of investment banking would be absurd. Investment banks recruit and retain employees based on their expertise, knowledge and proficiency in stock market rather than on their luck. Therefore, I assume it is irrational to align stock market with mere luck. Besides, the courses such as Chartered Market Technician are gaining popularity because it is knowledge that works in stock market rather than luck. In addition to this, if only luck was a driving force, why would companies publish their financial reports at the first place? Until and unless an investor looks at these reports, there is no form of luck that shall surpass his/her past returns.
Only piles of money on hand can help you enter stock market.
We cannot deny we need money to earn money from investment. However, we don’t need a big amount of money simply to invest. Let us put it this way. If you have ten thousand in your bank account whereas your friend has one lakh in his/her bank account. Who would earn higher interest return? Well, there is your answer.
If we invest more amount of seed money in stock market, we have the flexibility to diverse our portfolio, maximize our return or even minimize our risk. The same flexibility might not be attained when we invest small amount of money. Having said that, we can still earn some return and slowly maximize our return from the profit earned over time. Therefore, it is not necessary that we enter stock market with chunk of money. In fact, it is always better to start with less.
Finally, there is one thing common about the myth of stock market and our excuses to enter the market: if we do nothing about both of these, we will remain just where we are even after few years. Every newbie in stock market has heard at some point of his/her time, buy when it’s falling. We all know that NEPSE has been falling overtime, yet why are we reluctant to place that first order?
Reread the article if you will give me the same excuses. However, if you have some other excuses, feel free to dot it down in the comment section below so that we all can discuss together on it.