WHY INVESTORS FAIL IN SHARE MARKET
The share market generally is known as the place to trade equity shares. Also, known as the stock market. In recent years, the craze of investors has shifted from the traditional way of investing in the equity market.
Equity investing can benefit you in many ways,
· Beating inflation in long term.
· Yielding a minimum of 12-18% returns per annum.
· Choosing the ideal penny stock at attractive prices can make your wealth growing faster.
· Holding more liquid assets
The real fact is, most people (90%) come here to trade, earn money. But, there are only a few people (10%) enter to create wealth by making a long term portfolio.
The futile scenario is, most investors become traders as time moves, which themselves don’t aware of. Here we will be discussing on failures of investors and not on traders. The mistakes done by traders will be covered in another topic.
Come let us focus on the common mistakes which investors make and fall under the trap of speculation. The speculation trap will make them bleed in investing.
1. INVESTING ON PRICE OF THE SHARES:
This is one of the common mistakes which investors make. They feel the stock price is the only weapon to analyze before investing.
We have seen many people invest in the share market seeing 52 – week low or all-time low. They feel, buying at a low price can make wealth. This will not be working at all times. You might end up bankrupt.
The price of a stock is not a prime factor to decide. We have seen many people, who say “I have invested in x shares because the price has moved from 100 to 200 and expected to move to 400.
Instead, you should understand the business of the company, fundamental and financial performance on average of the last 5 years.
Check our articles on,
1. Quantitative Fundamental Analysis
2. Qualitative Fundamental Analysis
2. DEPENDING ON TECHNICAL ANALYSIS:
As an Investor, you shouldn’t check technical analysis. Technical analysis is used by professional traders, who check the exact entry point and exit point.
You should understand technical analysis can’t make you a long term investor. If not investing and holding for the long term, you will not be an investor, it is known as speculation.
Apart from price growth over the period, there are many benefits a company provides to its investors,
· Dividends.
· Bonus.
· Splits.
These factors and basics are covered in our previous topics, Benefits of share market. Kindly have a look for a more clear understanding.
When you run behind the price of the shares, you are going to miss many benefits associated with the share market.
If you have bought ITC at Rs.10 in 1993, the current price is Rs. 175. So in the last 27 years, the price has grown only by CAGR 11.18% P.A. It is only 17.5 times higher. Even if you calculate with an all-time high price of Rs. 300, it is only 30 times the growth.
Actually, if you have invested 1 lakhs in ITC in 1993, the current value will be about Rs. 5.04 Crores (current price of Rs. 175 per share). Which is almost 504 times growth.
ITC has offered,
· 1:1 shares bonus – 3 times
· 1:2 shares bonus – 2 times
· 3:5 shares bonus – 1 time
· 1 split of FV 10 to FV 1.
So, while investing you would have 10,000 shares for 1 lakhs invested at Rs. 10 per share. Currently, by bonus and splits, the shares will be 28,80,000 shares.
Just be aware, if you invest in seeing the price, it generates only 30 times of invested amount. If you invest in seeing other parameters and stayed 27 years investors, the wealth will grow by 504 times.
3. EMOTIONS ON INVESTING IN SHARE MARKET:
The people who can control their emotions are one who can win as a long term investor or intelligent investor.
Most people fail in this category.
The major emotions which make into tragedy in wealth creation are,
· Greedy
· Fear of Missing out (FOMO)
Let us check one by one.
Greedy:
The main emotion which makes people bleed their wealth is greed. An interesting fact is, they don’t understand this mindset have traveled alongside. It is always to have a fair idea on the return which we can expect.
No company or share will perform in the same way as it’s past.
What makes peoples greed?
The mindset comes with media, people we trust, YouTube, and articles of the various top websites. They hold an attractive title stating the past performance of 400% growth in 6 months.
These make people be in an agreed situation, “let me also try the share” and buy the shares at a high price or overvalued.
Fear of missing out (FOMO):
This emotion always tends to happen at the time of market correction or stock correction.
Investors always try to buy the shares at a low price. They don’t understand the factor behind the correction. It may be due to,
· change in CEO.
· Criminal cases on decision-makers.
· Regulatory Issues.
· Continues degrowth in revenue and market share.
· EPS fall for continues years
· Huge debt burden, promoters share pledged.
You have to analyze this first before investing in shrinking shares.
In fact, before analyzing these factors, many investors start investing the shares as it is available at the lowest price. The mind will be filled with, “if I miss it now, the shares price will move up”. This is meant to be fear of missing out.
This is what happened when YES bank started to fall and due to media, people invested as long as the price fell down and many became bankrupt.
4. INVESTING WITHOUT CALCULATING SHARE’S VALUE:
You will buy a Pen costing Rs. 10 for Rs. 50 or more. In the same way, the shares also should be bought. So, there are many methods to calculate the value of a share.
· Business overview
· Book Value
· EPS – Earnings per share
· P/E ratio
· Intrinsic Value
· Excess Liquid cash per share
· Debt to equity ratio (DOE).
· Interest coverage ratio.
· Financial performance.
When you don’t look into these aspects, you will not be considered as an investor, you will be just a speculator.
When you don’t buy a share without understanding its value, you will never know the reason for share price going up and going down.
When you don’t know the value share, you will tend to sell a multi-bagger stock when it falls to 10% or more.
In the same way, you will purchase a stock that is falling in revenue since it is less than industry P/E.
It is your duty to do all kind of quantitative and qualitative analysis of a stock before investing. If you can’t invest your time to analyze on your own, please move your focus towards Index funds or Index ETF’s.
CONCLUSION:
· Remember, you are the only reason for the failures in investing.
· Share market investments always have market risk. So, kindly avoid these practices if you have any.
· Before investing in any company completely do an analysis of your own.
· Even from our articles take the information, analyze yourself. Calculate the value of the shares on your own.
· As an investor, don’t focus on technical analysis. Technical analysis is meant for professional traders.
· Practice well and control your emotions of greed and fear of missing out.