If you are a stock market investor, no wonder you think the game is rigged against you.
You believe the financial services industry is a racket, and the stock market is a game reserved only for the chosen few.
You also believe that the stock market experts appearing on business channels and other financial media try to lure you into stock advice that only serves their selfish interests.
But despite these truths – yes what your believe is true – there is no other asset class that has provided better long-term returns to investors than equities.
So I feel sad whenever people, after facing a loss on their stock investments, or after going through a short-term correction, or after getting duped by a greedy advisor, leave investing.
In fact, here are the three most common reasons I’ve heard over the years from people who’ve thought about completely exiting the stock markets.
Reason # 1: Investing is too risky for me
One big loss, one major crash, and this is what you hear from people who’ve been through it.
“Investing is too risky for me,” they would say. “I’m fine with the safety of bonds.”
It really amazes me when otherwise smart people think that investing in the stock market is risky.
This is especially true when they are already taking much bigger risks by listening to their greedy advisors and wasting their money on financial products that are never going to make them any money.
What I tell them is that if investing is risky, so is swimming, crossing the road, riding a bike, and driving a car. One small incident won’t lead you to leave doing any of these activities. So why leave investing in stocks?
The truth is – investing isn’t risky. And a crash doesn’t make it riskier!
Most of us nurture the dream of becoming rich one day. But most of us would like to follow the beaten path of “work hard and get rich.”
See, hard work is definitely a virtue. But why not let your money also work hard for you? It’s, after all, your servant. And the only way you can handle the role of a master is by making your money work hard for you.
Investing is risky, but only if you are ignorant about the subject and still try your hands at it. If you do not understand it, or if you aren’t properly educated on the risks involved, investing can be incredibly dangerous.
But don’t leave investing in stock markets just because you hate the feeling of seeing temporary red marks on your portfolio.
Have patience, be disciplined, stay invested in good stocks, and these red marks will turn to green (or whatever colour you associate with rising stock prices) over a period of time.
Reason # 2: I can’t beat the market, so why invest?
This ‘beating’ stuff has been long ingrained in our brains as the only metric to show our power, intelligence, and value over the ‘beaten’.
So, while getting a salary hike of 20% would make me very happy, knowing that my colleague got a 25% raise would make me feel pathetic.
Or as a scene in the movie 3 Idiots suggests, “It feels bad when a friend fails, but it feels even worse when he comes first.”
This mindset is very much visible when it comes to investing in stock markets as well.
But the truth is that ‘beating the market’ is not a sensible, proper goal.
The only two goals of investing you must have are:
- To keep money (capital protection), and
- To make money (capital appreciation).
This is what will help you reach your long term financial goals with comfort. Trying to beat the market will only bring your frustration and constant heartaches.
Reason # 3: Stock market is a casino…and I’m not a gambler!
The stock market has indeed become like a casino for too many people.
“Haven’t you heard about the guy who bought an unknown stock on a tip from his brother’s friend’s colleague and watched it turn into the next Infosys,” asked a friend. “I wish I was that guy!”
With such a thought, which most people in the stock market have, they buy a stock. Then they check the ticker every 10 minutes for the next month, just like the gambler watching the wheels turn on a slot machine, waiting for that “Yes, I’m the millionaire!” moment.
If it doesn’t pay off, they speculate on another stock, just like a gambler goes to another slot machine to try his luck. However, the market does not operate exactly like a casino. It’s the gamblers who think it does.
In a casino, the longer you play, the more you will lose (remember, the house always wins!). However, in the stock market, the longer you play, the more likely you are to win.
Of course you will hear stories of people who made a quick killing in the stock market, just as there have been people who left the casino with millions, but always remember this for a fact – these are exceptions, not the rule.
The rule is that you can create wealth from the stock market only by buying quality businesses and holding them over the long run.
So is you are looking to leave investing in stock markets believing that it’s a casino, wait!
Casinos are for gamblers but the stock market is for investors. So if you treat the stock market like a casino, you will be a loser in the long run. And if you don’t, you’ll be a winner.
It’s entirely up to you.