Why do we fear Sharemarket?
Do you know that only 5 percent of Indians invest in share market? But 54 % of Americans invest in share market. There are different reasons why we are hesitant to invest in share market.
1.Blind confidence about the banking system– From our childhood days itself we think we can invest only in a banks.I think that thought is similar to a frog in well which thinks that the well is the only place in the world to stay.Our parents thought us that it is the only way of investing.We are just following their footsteps.So let me give an overview.Banks give interest rate of 5-9 % in average for fixed deposits.
But the problem here is inflation. The inflation rate is 2-5%. It has sometimes went up to 12 %. In economics,inflation is a sustained increase in price level of goods and services over a period of time. That means if you buy a kilo of tomato for 20 rupees now next year it might be 22 rupees. So just imagine if you are getting 5% of interest from banks and inflation rate is also 5%. Your net returns will be nil. There could be another case where interest is 8 % and inflation rate is 10 % .In this case your net returns goes to negative. That means if you keep money in banks it can actually depreciate in value. You need to fear banking system also. Is your fear of share market justifiable now?
2. Misconceptions about Market– We often heard some friends or relatives stating that he has lost 50k or 1 lakh rupees. Unfortunately its in share market. So we fear share market as a place where money is always lost. Let me give you an example. We all use gas cylinders for cooking. It is one of the most dangerous things in earth.If you dont know how to use it it will set house in fire. But if you use it properly you can make delicious biryani easily by it.
The primary thing everyone must remember before investing in anything is that money comes only secondary. There are more important things like values and relationships. The problem is that everyone wants to invest 50000 rupees and get 1 lakh after few months.I want to tell those people that you should do gambling or print currency notes for it.Share market is not the field for you!.
After choosing right stocks you should be ready to wait for 5-10 years. If you are ready to wait that much time in a fixed deposit in bank why cant you wait here also? Just understand you are investing in a business. It will take time to grow.The fear of share market comes only when greed of getting rich quicklyovercomes you.
3.Ignorance about the profit making potential of equity/share market-Let me give a screenshot of moneycontrol website here. Please note this is the one of the most important website you will be using frequently if you are investing in sharemarket or mutual funds.We all know about Jockey undergarments. PAGE industries is the licencee of Jockey brief in India.You can see that a share price of around 420 rs in 2007 got an exponential growth of 25462 rs in 2018!. So if we had ivested around 10000 rupees in 2007 it would have already become 6 lakhs now . That is 60X.
Also do you know story how an investment of 10000 rs in wipro in 1980 would have grown to 535 crores ? . But if we get that much returns well and good. But usually if you choose good stocks and wait for enough years for it to grow you can expect annual returns of 12-20% which is huge compared to bank FD rate.But hey dont be greedy For example if there are 100 companies out there people lose if they invest in 90. Only 10 companies are there which have good potential of growth.The trick is to find those gems out of dirt.So now you think you should invest in share market right. 🙂 welcome to my club and remove your fear towards sharemarket.
How to get over fear of share market?
1.Jump into the water if you need to learn swimming – I can take my own example here. Until 2015 I was hesitant to get a trading account. Then when I was working in bangalore a friend who is experienced in sharemarket adviced me. He told me” If you want to enter in market you should do it immediately”. My first IPO(initial public offering) was a loss. Then I understood that theory and practical are different.But I can confidently tell I tried to do everything judiciously after that.Remove the fear of share market by entering in share market.
2.Diversification is the key– Rather than investing in a single share in a single theme invest in different themes. For example if you have 10000 rupees invest 1000 rupees in 10 themes or 2000 rupees in 5 themes. Thereby if you are losing in one or two stocks you can earn money in rest. For example dont invest 10000 rupees in pharmaceutical company. Divide that and invest in pharmaceutical,fast moving consumer goods(F.M.C.G),I.T etc.
3.Try to invest in a field you know – For example I am a medical person. I cannot understand a thing about petrochemical companies. You should be able to understand business in the companies you invest.So should I invest on them. I think no. We all know about Colgate Palmolive. We are using it since childhood. Below graph shows growth of the company.It grew from 90 rupees /share in 2001 to 1255 rupees now.
4.Understand the power of compounding- If you invest just 10000 rupees at the age of 25 years and another person invest 10000 rupees at the age of 30 years and wait until you people reach 55 years you will get 299,599 rupees. The person who has started at 30 years which is 5 years later than you will get only 170,001. I kept interest as 12% compounding annually which is minimum that can be expected from share market.You can calculate it yourself here
A crude law is that reduce your age from 100. For example if you are 30 years,(100-30) ie 70 percent of your investment should go to equity ie share market based investment. The remaining 30 percent should only go to bank deposit. So naturally when age increases risk taking ability decreases thereby reducing the share in equity market. Again it depends on person to person.Likewise by reducing percentage of money invested you can reduce your fear of share market.
5.Seek professional help– If you are still interested and hesitant invest through mutual funds . Another option is that you can seek professional advice from equity advisers for a fee.Thereby you can avoid fear of share market.