In a country with a per capita annual income of Rs 1,26,968 and people living mostly in the just above the poverty line, it’s natural to seek ways to get rich quickly. Today, the stock market industry gives them that hope.

Thanks to the recent bouts of frenzied bull-runs, which began after one of the sharpest market corrections in 2020 (for many it was ‘to hell and back’ experience), every household is betting big on stocks. Frankly, there are many stock market anecdotes. Some about a particular stock doubling its value in less than 3 years or the good fortune of investing in a new fund that produced sizable gains. This invariably assures the investor of having unlocked the secret code to wealth creation. And there are some who would lament this exceptional bad luck and ill-fate of not ‘getting into the bandwagon’. 

Given that we now have off-the-shelf Algos and curated options basket, it’s almost a cakewalk to take risks. Now imagine a common man making an enormous amount of money without sweating much. It drives him/her to assume that the market is always a positive-sum game and any suggestion to the contrary will not go down well with them. Meaning even if you were to suggest a stable and systematic investment plan, they would turn a deaf ear to it. And the common man/woman continues the stock market investing by mostly tapping the friends or relative’s network. 

At this juncture, encouraged by the initial success he or she becomes a studious disciple of stock market. They track news and information related to the markets meticulously. Still, when markets taper and don’t fetch the desired results, they find it difficult to fathom the reasons for the fall. Wise friends and family will no longer be around to advice appropriately.

This is when the problem arises.

Going by past wins they strongly believe that it’s just a matter of time before the money starts pouring back. This belief is the worst enemy for any serious investor. And almost addicted to stock market investing they seek loans and get trapped by loan sharks. Then you know what happens! 

Frankly what we have just said above has solid evidence to back it up: 

India’s total Demat accounts have moved from 39 million to 89 million in the last 3 years. Most of them are first-time investors from Tier2 and Tier3 cities. Before they could realize their depth, they get swayed by short-term gains on derivatives and market positions.

So how can one prevent from being trapped by such a situation? Here are some questions to ask yourself before you start investing.

• Should you quit your career to get rich quickly? 

It takes years of persistent efforts to build skills in any profession and you may lose out on everything by an overnight shift simply going by some success. 

• Should you understand the risk involved?

We all would have noticed this on our automobile mirrors, “Objects on the mirror are much closer than they look”, its very similar to Investments as well, “Actual risk is higher than the perceived risk”. We should never venture into any investment, without knowing the worst outcome. Positive outcomes are always welcome but that preparation of oneself for the worst outcome is not that easy, comes with being conscious of the possible risk.

• Should you take it personally? 

Returns are always unpredictable in the stock market, trying to build a livelihood around it takes a long time, and one should have the passion to be dispassionate about wealth creation and be prepared to live without returns for the first few years.

• Should you involve others? 

Wealth is personal, be careful before you pull in your friends and family along with you. Because if they make money, they may not share it with you, but if they lose money, you know what happens.

• Should you judge before you invest? 

In India people invest less than 5% of their savings in financial assets and the rest in gold and real estate. The former is considered slow and the latter dead. So, it is a good excuse to sell financial assets quoting TINA: There Is No Alternative. It is Hobson’s choice for the common investor, and they get embroiled in the multiple intricacies of stock market options, kindled by returns, and getting carried away by their own greed. 

How do we tread the path towards wealth creation and financial independence? Should we drive it all alone? Or with the help of a chauffeur to drive long? Here is where Mutual Funds comes to the rescue “Mutual Funds Sahi Hai”, yes, it’s true.  

To be Continued

Disclaimer:

Author is the co-founder cum COO of Figital Technologies and the views mentioned above are his personal views. One of the core business offerings of Figital Technologies is distributing Mutual Funds and there can be a vested interest in promoting the same.