I don’t read newspapers (I read for 30 hours a week, but almost never a newspaper) and neither do I use foul language.
But when someone tipped me on this article, I allowed myself some insanity and picked up the paper and then started mouthing abuses whatever little I had learnt as a kid.
The headline said – “Retail investors tend to lose in stock markets, says ISB study”.
Like anyone, I got interested as it was coming from “ISB” (authority bias).
Anyways, the news report started – “Retail equity investors in India systematically lose to other categories of players because they sell winning stocks too quickly and hold on to losing stocks too long.”
I could not understand what the author meant by “other categories of players”, given that the stock market has just one other player other than retail players – the massively over-hyped and massively under-performing institutional players.
The report than said – “…retail investors in India, numbering 2.02 million, largest in the world, consistently chase a zero rate of return on their stock investments when they make decisions themselves.”
This is when I realized that I must replace “investors” with “speculators” in the entire report. India does not have 2.02 million “investors”, but just a fraction of this number. A majority are speculators, who are confused (or confuse themselves) as “investors”.
Then, this sounds like a planted story by a union of mutual fund houses! What the above statement implies is that you, as a small investor, are a fool if you base your investment decisions on your own research and judgment. (Sorry if you had started to think otherwise reading my posts all these months!)
As the author of the study says, “Since on an average they lose more than they gain, trades of the retail investor end up being value-destroying for themselves and beneficial for institutional investors, who are usually more informed as well as more rational.”
What? Institutional investors are rational!
To take a leaf from Charlie Munger, “I have nothing to add.”
By the way, the ISB study was funded by Citigroup and Goldman Sachs foundations. 🙂
By the way, the long history of stock markets suggests that shit has happened, is happening and will happen in the future.
In life, the key question is not ‘will shit happen’ but rather, how will we react when it does?
So don’t just sell all your stocks and join the company of “rational” institutional investors as the business media would want you to believe.
Shit is inevitable. How we deal with it is optional. 😉
You can read the ISB report here (page 11). And I am sorry for using the “s” word in this report!