Financial Markets – “A Speculator’s Paradise or an Investor’s Heaven”

The quest to learn is a journey and not a destination
- Rakesh Jhunjhunwala

Lately there’s been quite a hustle about the SENSEX and the NIFTY reaching groundbreaking levels and whether or not the market will sustain itself at such soaring heights. Naturally, questions have arisen on whether to invest in the Financial Markets when its hovers at its all-time high or wait till the correction clock ticks in.

So let’s clear the air first – “What do SENSEX and NIFTY mean?” These essentially are benchmark indices, constituting the weighted average of market prices of the best performing Indian entities on the Stock Markets. Taking for example, the SENSEX constitutes of the Indian Big Bulls such as Tata’s, Larsen and Toubro, Infosys etc.

These Indices move on the Economic “Law of Demand and Supply”. There are two classes who pool in their money - the Domestic and Foreign Investors. The Indian Market derives most of its value from the foreign investors rather than the Domestic Investors, thus making it very susceptible to the Global scenarios. India, being one of the most populous countries, has a miniscule 2% of the population investing in Financial Markets, thus making it very volatile to the Global tensions.

As must be the case, we take pride in the fact that our country’s literacy is nearly 74%, but are we all financially literate? This is something to ponder upon. Personally, I believe that growing literacy Rates alone will not solve India’s age old problem of growing disparity between the Rich and the Poor. So this calls for Value Investing, and putting your eggs in several baskets to mitigate risks and maximize returns.
Investment prodigies like Warren Buffet still regret the fact of not having started investing at an earlier age than they did. It’s never too late to start a sound habit which would be a decisive factor in your future. Once the initial stigma is addressed, one can easily create wealth over a period of time taking the Dalal Street route.

It’s been rightly said by Robert G. Allen,” How many millionaires do you know who have become wealthy by investing in savings accounts?”

Then you would be probably sensing what an ideal investment strategy is? There’s no hard and fast success rule in Investing, but certain contours can be taken while drafting one of your own.

“The individual investor should act consistently as an investor and not as a speculator,” says Ben Graham, father of value investing. Investing regularly, irrespective of the market movement mitigates the risk and averages out the cost of investment, in technical terms it’s known as Systematic Investment Plans (SIP’s). Diversification reduces the volatility of your portfolio but wide diversification is injurious to its health. The quality most sought while investing, is managing emotions and not intellect.
The Movements in the stock market are cyclic in nature and follows the Basic rule of “What goes up, comes down”. The situation of market coming down should inspire the investor to invest, rather than suck the enthusiasm out of him. Pick your own stocks through fundamental analysis and know why you own the stocks.

It is a known fact that majority of the people fizzle out with market investment, thus it is very important for a new investor to learn from history rather than memorize the historical dates and names. Thus, one must take a note of common pitfalls and avoid his first incursion in stock markets to end drastically-:
• Buying a stock because its trading low
• Making a quick fortune by short term trading
• Herd Mentality

Equity Markets have become the most talked and desirable investment avenue as they continue to outperform other asset classes albeit being one of the riskiest avenues. Reports from Morgan Stanley predict that that “Sensex will breach the 1,00,000 level in the next 10 years”.

All I can say right now – “Time your duration in the market, and not the market itself”

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