Why Indians Don't Invest in Stocks?

Actual Question:

Why Indians don’t invest in stock markets - because some people have created an illusion that investing in it will either make you rich or a beggar, which is not true?

Answer

Dear Friend!

Thank you very much for broaching a very pertinent point.

Yes I agree with you.

Even though Indian economy had tripled from a US$414 billion to $1.3 trillion in a span of ten years from 2001 to 2010, and the market capitalization of the companies stocks listed on the stock exchanges has multiplied nearly eight times, the direct participation of Indians into equity markets is abysmally low at 1.4% of the population.

I also agree with you that Indians somehow have an irrational fear of the stock markets. Indians associate stock markets with gambling. Their fears are not totally unjustified though. There are many instance of lives being ruined by addiction to and reckless intraday trading/ margin trading. Of course trading in stocks, commodities and currencies not at all investing, but Indians have somehow mixed up these two. Result is how you put it, “… it will make you rich or a beggar” which is not true, though.

Even if Indians do not think that dealing with stocks is downright gambling, many believe that at least it is very risky. This too is fallacious. Warren Buffett is right when he says, “Risk comes from not knowing what you are doing”.

Further, I also believe that Indians unconsciously associate wealth and riches to sin and poverty to virtue or morality. Anyway this is my very personal opinion and I maybe totally wrong. But I think that this belief system, if it really exists at all, is changing rapidly.

Wise, intelligent, learned and long-term investments in to equities is the only and sure path for riches and wealth creation for every common citizen.

It is not true that the stock market is a dangerous place or that the rich-or-beggar fate will befall those who deal in stocks.

Thank you,

With Best Regards,

Anand

My Stock Market Journey

Actual Question:

What is your story about getting rich from stock market?

Answer:

Dear Friend!

I started my relationship with the stock market as a day trader.

Being a chartered accountant by qualification, I dumbly presumed that I know everything about companies, shares and finance and therefore I am the most suited to play the stock market.

I set a goal to earn Rs.2500 a day. This is some somewhat about 20 years back.

Most of the days I used to loose small sums - a couple hundreds a day. Some days I used to end up with small profits - again a couple of hundreds normally but occasionally Rs.500 or a thousand a day.

The constant need to watch the market, anxiety, fear of loss and greed had their impact on my health. I developed high blood pressure.

One day, suddenly the BSE Sensex fell about 400 points within a fraction of a second.

My bets backfired.

I lost almost all my life’s savings.

I vowed never to think about the stock market again in my life.

A few years passed.

I kept my vow.

One day while my family was shopping in a busy local market, I was occupying myself browsing through books being sold on the pavement, when my gaze fell on a book, “The Intelligent Investor”.

Having already realised by now that I certainly was a dumb investor, I wondered how different could an intelligent investor be.

But my inner voice sternly reminded me about the vow not to dabble in stocks ever again in life. My mind reasoned with me that there was no harm in reading - the vow pertained to real action only.

Curiosity eventually won.

I bought the book and devoured it.

It changed my life!

Benjamin Graham, who taught at Columbia University, wrote the book. Warren Buffett had studied and apprenticed under Graham. Incidentally for that particular edition Buffett had written the foreword.

I became a value investor.

I took Warren Buffett as my guru.

I resumed my relationship with the stock market, but under a totally new avatar; a value investor.

I started regular investing; the period was somewhere between 2006–2008.

Then the great crash, post Lehman Brothers, happened.

There was slaughter everywhere.

But it was a great opportunity for value investors.

I used to invest without fear, only to see my investment depreciate as much as 25% in a few days. I used to buy more - without fear - for I knew the shares were worth much more and are available at throwaway prices.

Warren Buffet mad a huge investment in Bank of America.

I think the BSE Sensex plunged from 20,827 to below 8000 - a crash of over 60%!

Unfortunately I had no big corpus to invest at that time.

By about March 2009 the Sensex had recovered to 15000 levels.

While the market was fast recovering on the back of a globally coordinated stimulus program, I was worried that the recovery was not sustainable and crash again.

I was not yet a seasoned value investor. While I had mastered the art of buying I had not mastered when to sell. I am still not on a firm ground when it comes to selling stock that have gained in price significantly, and very little wisdom is available in the public domain.

Anyway, I sold the entire portfolio at one stroke, at about 250–300% profit.

On hindsight it was a bad decision for the market galloped and I was thrown out of the market.

I re-entered the market after a few years.

In the mean time I had started the value investing blog “Wealth Vidya”. In February 2015 I created the academic portfolio, “Portfolio 2K15” for teaching purposes. I have been making regular investments of about Rs.20000 per month.

The results are as follows:

• Money Invested: About Rs.5,50,000/-
• Dividends Received: About Rs.40000/-
• Market Value: About Rs.8,00,000/-
• Un-realised gains: About 45% in about two years.

To conclude I am on the journey, on the sure path to riches, even though I have not reached the goal post yet.

Anyway, what is the finish-line? Has Warren Buffett reached the finish-line? Has he stopped investing?

It is the journey that matters - not the destination - is it not?

Thank you,

With Best Regards,

Anand