The beginner investor's dangerous journey | Value Research What is likely to happen to an innocent new investor who ventures into equity investing?

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The beginner investor's dangerous journey

What is likely to happen to an innocent new investor who ventures into equity investing?


A few days ago, I received an email from an investor who wanted to invest a large amount of money that was lying in his bank account, but was apologetic that he didn't have time for trading every day. It sounds like my friend feels that trading every day is the default way of making money in the equity market. Therefore, not being able to trade every day is a serious handicap in making money on the markets.

This is not fringe view. Well, statistically it may be a fringe view because a majority of Indians seem to believe that the only ways to make money is fixed deposits, real estate and gold. However, out of people who have anything to do with the equity markets, a lot of them believe that the way to make real money on the markets is to trade every day, all day long.

But why do people who have no familiarity with the equity markets arrive upon this conclusion? One possibility is the marketing machine of the investment industry. When someone who has a substantial amount of money suddenly decides to invest it, what happens next depends entirely on chance. How does our potential investor decide to start off? Does he ask a friend, neighbour or colleague? Does he start Googling? If he does, what exactly does he Google? Does he click on the search results, or the ads?

Depending on what happens, our newbie investor could end up having a different idea of what to do, and indeed, of what investing is. However, in many ways, the situation is primed for disaster. Unless they already know something that makes sense, a fresh customer is most likely to be snared by whichever type of product has the most aggressive sales process. Unfortunately, in personal finance, the most aggressive salespeople are found in the products where they are likely to get the biggest cut of your money.

But here, at Value Research, we believe in a calm and measured approach of which a long-term approach is an integral part. The equity markets are a rollercoaster ride even at the best of times, and investors need to find stability within the chaos rather than make the chaos worse. This is not a hard thing to do if you follow our approach. Fundamentally guided investments, chosen keeping the principles of value investing in mind, and keeping your own financial goals, aspirations and limitations in mind. That's all it takes.

This story first appeared in June 2015.

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