I started my career in the stock market in 2003, when I joined an equity research firm in Mumbai. It was purely an accident that I got into this field, as this was the only decent job that came to my MBA Finance class, among all others that required door-to-door selling of insurance and loan products. We were just coming out of the 2000 dot com crash led economic decline, and thus jobs were far and few in between.
My job, starting day one, was to study companies from the technology space, and write reports around what I understood. Annual reports were available online, but most companies made available only the latest 2-3 years’ reports. Not many companies were conducting investor meets or conference calls, and not many had functional investor relations department.
When I look back at those days, equity research was not such a well-known career and not many people outside finance really knew what investing in stock market was all about. Yes, we had passed through the Harshad Mehta and Ketan Parekh days, but stocks were mostly looked upon as a way to gamble instead of creating serious long-term wealth. Apart from television and newspapers, there were no other media to read about the stock market or investing and related ideas. Yes, Internet was available, but investing resources were not that much available or credible.
Despite this, that period around the start of 2000s was still modern compared to investors who came even earlier, some of whom I have had the privilege of interacting over the past few years.
As they retell their stories, investing was even unpopular back in the 1980s and 1990s. Annual reports had to be fetched from distant places, and information took days to travel. The likes of Warren Buffett and Peter Lynch, despite their popularity in the US, were not well-known names in the Indian investing circles. This was also the case when I started investing.
Jobs in the stock market were non-existent. In fact, when the founder of my erstwhile employer gave a newspaper advertisement to hire “research analysts,” he received applications from people who were medical researchers.
In short, investing was not popular back then in India, till as late as the middle of first decade of 2000s. This was when the stock market was starting on its way up, new information sources came up, more companies started disclosing more information (irrespective of authenticity), and there was a host of quick money making IPOs that caught the fancy of new investors across small town and cities.
When I look at my extended family and friends, not more than 10% of adults owned stocks around 2005. Today, more than 50% own stocks, though it is another fact that almost 80% of them are speculating and not investing.
Anyways, apart from the large amount of wealth that people created and saw others creating from stocks during the 2003-2008 period, and then 2009-2015 and 2016-2019, other factors that have caused stock market investing to become popular in India over the last decade is the rapid spread of business media, proliferation of social media (Twitter, Whatsapp, etc.), ads from stock brokers about how easy it is to create money trading stocks, books that have taught us to get rich with stocks, and inspiration from market-beating investors and fund managers who have graced the covers of magazines over and over again. Weakness in yields in physical assets like real estate and gold have also added to the popularity of equities.
Consider the number of demat accounts in the country. As per SEBI data, the total number of such accounts hit a high of 39.3 million (3.93 crore) in 2019, from 16.9 million in 2009. This number stood at 4 million when I started my career in the stock market in 2003. This certainly is a decent indicator of the growing popularity of stock picking in India over the years.
Not to forget investor education initiatives, like this one run by yours truly, that have also added to the popularisation of the idea of directly investing in stocks to create wealth.
Well, since we are at it, and I have full control over what I write here, let me take this opportunity to make my stand clear about the purpose of the work I do here at Safal Niveshak.
If you meet me at any of my investing workshops, you will hear how 95% of investors learning about investing will not be able to make good investment decision most of the time just because they were learning about investing. It’s not about intelligence anyways, but temperament.
So, my idea of teaching how to invest in stocks is not to turn people into investors who can pick market beating stocks with ease and do it for the rest of their lives. I make no such claims.
The reason I do what I do is because how much ever I say this, that most people are not wired to make sensible stock market decisions, they would still do that. So, they should rather learn what they are doing in the market and learn to do it better so as to minimize the mistakes that can get them into trouble in investing, and lead them to large losses that could evaporate their hard-earned savings.
Anyways, coming back to the idea that investing in stock market has gotten really popular (not necessarily profitable) over the years, and the fact that more and more brokers, money managers, and research firms with a view to sell their services and products keep shouting from their roofs how “anyone can get rich investing in stocks,” it not only overstates the ease of investing in stocks, but also vastly understates the dangers.
Noted financial writer George J.W. Goodman – who used the pen name of Adam Smith – wrote this in his wonderful book, The Money Game –
If you don’t know who you are, this is an expensive place to find out.
By “this”, Smith meant the stock market.
Howard Marks wrote this in one of his memos about the popularisation of investing, which has caused more and more people to lose money in the crises over the years –
Risk” has become such an everyday word that it sounds harmless – as in “the risk of underperformance” and “risk-adjusted performance.” Maybe we should switch to “danger” to remind people what’s really involved.
To illustrate, I tend to pick on Wharton Professor Jeremy Siegel and his popular book “Stocks for the Long Run.” Siegel’s research was encyclopedic and supported some dramatic conclusions, perhaps foremost among them his showing that there’s never been a 30-year period in which stocks didn’t outperform cash, bonds and inflation. This convinced a lot of people to invest heavily in stocks. But even if his long-term premise eventually holds true, anyone who invested in the S&P 500 ten years ago – and is now down 20% – has learned that 30 years can be a long time to wait.
The point Mr. Marks is trying to make is that not everyone is suited to manage his or her own stock market investments. But then, as he wrote in another memo –
Attitudes morphed over time…people became increasingly confident, optimistic and venturesome. Experience convinced prospective investors that stocks could be counted on for high returns. In the last few decades, there’ve been times when people concluded the business cycle had been tamed.
…most recently, people swallowed the canard that innovation, financial engineering and risk modelling could take the uncertainty out of investing.
Over the past few years, the world has seen a flood of fundamental investors, technical investors, momentum investors, quant investors, etc. And if these were not slippery grounds in themselves, a mixed breed that claims to successfully combine two or more of these types has also appeared in the game.
With rising popularity of investing has come rising overconfidence and arrogance of investors. Open up Twitter, and someone or other is claiming his investing prowess and capabilities, or fighting with someone else who doesn’t agree to his claims, or trolling someone who made a bad decision.
Not just that, there are people who lay bare their stock market P&Ls from time to time to show off how much they earned in quick time, as if it were so clean and easy. And there are thousands of takers and worshippers of such claims, showcasing their popularity.
The success of so many scammers in the past and also of companies in duping investors of their savings is proof enough that even educated and often wealthy people can overlook the risks, I mean the dangers, of investing.
So the popularity of stock market investing and of claims that “anyone can do it” and that “stocks always do well in the long run” contains in them the seeds of danger.
To top that, I have seen a multitude of people who have quit their stable jobs to get full time into investing or money management, because they thought they have the “knack for finding potential multi-baggers.”
Lord Keynes once described a fictional newspaper contest, in which entrants were asked to choose the six most attractive faces from a hundred photographs. Those who picked the most popular faces were then eligible for a prize. Seeing how the contestants behaved, Keynes remarked –
It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligence to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.
The way investing in stocks continues to get popular and more new, inexperienced investors overdosed with a lot of smarts, information and confidence enter the fray, we may be anticipating the average opinion to the fortieth or fiftieth degree to make our investment decisions someday. How risky, I mean dangerous, would that be?
Coming back to the point that, despite the growing popularity of investing, not everyone is suited to manage his or her own stock market investments, it is not a matter of pride if you are able to do it or a matter of shame if you are not able to do it well.
The idea is to just let your savings compound at rates that help you maintain your purchasing power over years. Whether you do it through your own stock picking skills, or hire a fund manager, does not make a difference. The only condition is that your money must be handled well.
Seeking help is always a good idea. And accepting that you may not be capable enough to manage things on your own is even better.
Your stocks don’t know you own them. And, whatever those people who entice you to get rich through investing may promise you, please don’t see investing in stocks as a way to get rich. Such ideas are often masked by survivorship bias, which is a logical error of concentrating only on people or things that “survived” some process and inadvertently overlooking those that did not. So, taking inspiration from other investors who have made good money from “100-to-1 stocks” and ignoring others who followed similar processes but ended up with disasters can lead you to false conclusions about your own potential as an investor and stock picker.
Look at investing as a way to keep you rich i.e., help you grow your purchasing power. Look at your work – job / profession / business – to make you rich and thus focus more energy and focus there than on the stock market.
Albert Einstein is quoted as saying –
What is right is not always popular and what is popular is not always right.
Learn to pick stocks not because it is a popular and an easy way to get rich (it isn’t) but because you have the time, inclination and passion to do it. Else, carefully selected mutual funds are the way to go.
But whatever you indulge in, constantly think about the risk that comes attached with being invested in equities. You have to take chances if you expect to create wealth from equities over the long run. Just avoid the unnecessary stress that comes along with it.
Stock market is a wealth creating machine for people who use it well. It is a wealth destroying machine for people who don’t.
But whatever it is, it is certainly not a popularity contest that you must participate in. And there are not always fairy tale endings.
That’s about it from me for today.
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Enjoy your day. Stay safe.
It was always delightful to read your article. I have a query regarding this article. If someone is really passionate about investing and he/she is doing the same with proper knowledge, in proper way and with patience, isn’t it possible for him/her to become another Rakesh Jhunjhunwala or Vijay Kedia or RadhaKrishna Damani (for example) in the long run?
Sorry for the silly question sir. I am curious to know how they have achieved their success. I want to know about their journey of life. I just wonder isn’t it possible for a retail investor to become a value investor of that stature?
Scott Andrews says
Really enjoy your articles and the wisdom. I love your little diagrams (‘Becoming a Full Time investor’) and the way they are set out….the writing is beautiful. Is that an application you use or your own writing. Love to know. Thank you.
Albert Einstein is quoted as saying –
What is right is not always popular and what is popular is not always right.
Simply superb quote from Einstein….and thanks for sharing sir
Amrinder Mann says
Always a pleasure reading your insights on Investing and Life. The wisdom in it is almost universal and timeless in application.
Mohan Lal Tejwani says
Again a very good article. Thank you so much for sharing. It is a very helpful for all investing community. I would like to give a humble suggestion. Please think about a book of your all articles. Kindle and print copy. So many investors or knowledge seekers comfortable on books. And large community is comfortable in Hindi edition also. A huge readers will be benefited.
With best wishes and regards 😊🙏
Himanshu shah says
Wonderful article. Quotes and diagram for a full time investors is simply amazing.