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ShareSpeculative gains even out over a long term
I watched this Hindi film, Johnny Gaddar, just a while ago. In one of the scenes, Vinay Phatak, who runs a gambling joint, is amusing himself with a pack of cards. He is able to come up with the sequences he wants, like a magician. He is mighty pleased with himself, when an acquaintance comes along and invites him to a game with high stakes. Vinay agrees. But, in very little time, he is down by Rs10 lakh.
He needs the money to settle and his partners bicker...
Sounds, very familiar. In gambling, a gambler always thinks he can win the next time. Gambling is like a seductress who keeps one interested, but is always around the next corner. The gambler keeps chasing the damsel, who seems ever so near. But, it's a chimera. A gambler seldom wins. Even when he wins, he does not keep it. The lofty frame of mind that he is in, he somehow starts imagining himself as being endowed with special powers, something close to invincibility - and starts taking much bigger bets. Then, he loses and is back to square one.
This theme has been played over and over in stock markets, for millions of punters. Most have somehow got the wrong impression that stock market is about gambling. Right now, many of those punters have lost big time, and are licking their wounds.
It is indeed very surprising to note that the stock market is perceived to be a gamblers' den, instead of the investment vehicle it really is.
Stock markets are full of stories and legends about those who have made their millions in the stock market motivates others to join.
Most are scared of the stock market because of the spooky stories they have heard. They join in only when the rally is well underway and is poised for a fall. They also end up holding dubious stocks which they bought on tips, but which do not have any intrinsic value.
When the correction does take place, they see their investments vaporise before their eyes. This sets into motion a vicious cycle, when there are just sellers and no buyers and the market gets into a bear run. Investors retract into their shell, vowing never to ever look at it again.
Years pass.
Then, one day they notice that when they were going about their business, the stock market index has more than doubled and everyone seems to be making money by the bucketfuls.
The investor is not convinced and waits further. The markets move up. The retail investor puts in some money and then some more and then a lot more. After a time, the markets crash. The story repeats all over again.
Retail investors don't even realise that they are gambling. They think they are investing!
It stands to reason that a market that has corrected by about 30% will eventually go up. Granted that it may correct some more, but the index cannot go to zero, as some seem to fear. Such periods of panic depress the prices of stocks well beyond their intrinsic value, giving a value investor a chance to get in. That chance is upon us.
Investors need to take a somewhat long-term view of 2 years or more -- the longer the term, the better the chances of good returns. Equity beats all other asset classes, but only for marathoners. In a hundred-metre dash, it could work either way. The rewards of patience are indeed sweet.
The author runs Ladder 7 Financial Advisories and can be reached at ladder7@gmail.com
