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Shit Happens

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. 🙂

Shit happens…like it has also happened here, and here.

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!

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.


  1. Yeah Vishal…
    Shit happens. And when one confuses investors with speculators, a lot of shit can happen 😉

  2. Loved your point of view Vishal..

  3. Anonymous says:

    I work as a journalist and investing remains my hobby. Since I do not cover business in my job, I made use of the opportunity to attend a workshop organized by Reuters for journalists interested in covering business.

    The program was an eyeopener. Journos are thought how to aid speculators! They are thought to survey analysts about expected quarterly results of companies and do stories for their wires. The whole ecosystem is geared towards creating continuous excitement around published financial statements instead of attempting to understand a business.

    Reuters business is to sell terminals to brokerages which thrive on hyperactive traders who in turn live off punting on others money.

    • A clear case of how incentives induce behaviour and outcomes. We must always apply the filter of ‘why’ and again ‘why’ before we reach any conclusion. It should be tested against any possible incentive of the protagonist and only then accepted.

    • That’s a great insider view, Anonymous. 🙂

      Thanks for sharing!

      • Before the 2008 markets crash, an executive at one of the news wire services in the US told reporters about the importance being first with the news. Apparently, some market moving information was flashed ahead of others and a trader at a brokerage acted on the information by buying on margin.

        When the trade was squared off, the brokerage had earned a few million dollars and the trader with the quick reflexes earned a big fat bonus.

        The executive kept hammering home the point that reporters were expected to provide such ‘advantages’ to

        This attitude seems to have filtered down to everyone and the consensus among business journalists is that only the brave or the foolish venture into the markets. Most of them dissuade their friends and family from investing though quite a few are not averse to making a quick buck from insider trading.

        Personally I know of journalists who have made money in the markets covered sports! They got indepth information about companies from colleagues in the business section, plonked their capital and then plodded along in their day jobs!

    • A journalist who does not know difference between “thought” and taught. We know why standards are where they are!

      I think we comment without thinking what Vishal keeps drilling again and again – miss the fun please, ignore the excitement and buy a business. Can we?

      I think we are getting a bit ideological here. The ISB report is alright in stating the facts – whether you want to call her Sridevi (virtuos investor) or Helen (voluptuos speculator) is your choice … the same stufy has been done on MFs and the same thing is true. Investors flock to MFs that have performed and dump that have underperformed and earn substantially less than headline return.

  4. Ashwin Rananaware says:

    Awesome….!!! Keep It up…!! 🙂

  5. Such (retail investors invariably lose, all MBA’s are useless, etc etc ) sweeping conclusions, in any field, deserve little attention. Whenever I read such sweeping opinions I caution myself and try to ascertain the incentive of the author in writing it. Invariably a clear line of incentive comes through which would have prompted such outcome.

  6. Hi Vishal,

    These reports are truly manipulative in nature and also try to drive home a hidden agenda subtly but forcefully. Good that you picked it up and exposed these people.


  7. Hi Vishal,

    I beg to differ here. Of course this can be fabricated/manipulated too to the extent it is aimed at or funded by the big FIIs.

    But it is a clear given that owing to the pathetic state of financial literacy in India, retail investors consistently chase a zero rate of return on their stock investments.

    The very point that we are reading this blog, making a comment here marks us perhaps among the 1% of retail investors who are at least aware of the proceedings.

    Millions of retail investors come flocking to the markets whenever Sensex touching new highs make front page news and throw away their hard earned money in the market. Curse the markets as a gambler’s den and never perhaps return to the market.

    They go back and perhaps “invest” in the exorbitantly priced traditional endowment policy from LIC, feels secure and proud with the 4-5% returns over the period. Happy that their insurance premiums were not wasted and they got money back at the end of the term.

    A certain portion of the same funds are invested in the Indian markets by LIC which is by large the biggest force at our bourses and their investments over the years have gained handsomely.

    The need of the hour is not to ponder upon the authenticity of the ISB report, rather we should put more and more efforts in spreading the financial literacy and help out fellow retail investors from paying large tuition fees to the market.

    Thanks & Regards,
    Rudra Chowdhury

    • Rudra, thanks for your observations and viewpoints. But the people you are talking about who:

      1. Consistently chase a zero rate of return
      2. Flock to markets whenever Sensex touching new highs
      3. Throw away their hard earned money in the market
      4. Curse the markets as a gambler’s den

      …are indeed speculators who still need to graduate to becoming investors. But there are still hundreds of “investors” who are intelligent and have made great long term returns. Casting them in the same mould as speculators isn’t right I think.

      My contention is that people writing such reports need to be very sure of the differentiation between the two – investors and speculators. Regards.

      • Hi Vishal,

        Totally agree with your point. The hundreds of “investors” anyways do not pay attention to the noise created by paid analysts and business channel commentators who feed in multibaggers – day in day out and happily disclose they do not have investments in those stocks 🙂

        Clearly the article grossly misrepresents, as investors and speculators are painted with the same brush. And it talks about “trading behavior” of “individual investors” which itself is contradictory. However, as this article came up in office discussions almost all folks around the table agreed about “chasing zero rate of return”.

        The current state of markets ( still at Dec 2007 levels) do not inspire them to think about equities while they chase < 8% returns in REC bonds which is meaningless over the long term.

        At the other end of the spectrum are value/growth/active investors who have comfortably done 25-40% CAGR over the same period of five years (2007-2012).

        And this divide is so eminent when the same office folks will rush to invest in ULIPs during Feb-Mar tax saving period.

        Like you were saying in the other post, if our little efforts goes some way in bridging this gap between investors and ignorant speculators, we would have created a meaningful difference at the end of the day.

        Cheers to the Safal Niveshak tribesmen. Let the great work continue 🙂

        Rudra Chowdhury.

  8. Hi Vishal,

    Instead of using word ‘retail investor’ the report would have used ‘retail speculator’. Unfortunately the individuals uses stocks/MF for speculation.

    I work in IT industry, when the market was above 12K in last bull run till end of 2007, I remember everybody was trading stocks, giving/following stock tips, applying IPOs. Now nobody talks about the stocks. My suspect is that if Sensex gradually goes up above 25K, all of my colleges will come back for the discussion.

    Some of my observations from the market since some time:
    – Many brokerage businesses are really struggling now, when the market picks up, their sales goes up(individuals start trading)
    – Because of current Indian demography, for every bull run we get new set of young population entering the market and start speculation.
    – During a bull run, indeed some individuals make money in trading, others start comparing price of stock XYZ to its price six months back, they get exited. Only winning stories spreads across people and party continues. Nobody has time to understand what is the PE of stock XYZ and whether the same is justified.
    – Recent news articles say that many individual Folios of MFs are getting closed. In the current market scenario, somebody who can understand value investing / fundamental analysis will not sell-off and close his folio. Indeed highest return is made when the stocks are bought in a low sentiment market. If number of MF folios coming down is true, the retail individuals are speculating even with mutual funds. Possibly those who have entered the market/mf when sensex went above 15K first time are going home now.

    Its not about whether individual investors can be a value investor or not. But I believe in reality, 75% of the individual investors/speculators may not try to understand what is the difference in value and price of a stock. Its the typical human heard mentality, people start following what our neighbors are saying. Instead of questioning the authenticity of the report, may be the investors/speculators behave like that.

    This ISB report was published in September 2010 (see here) I read this report in 2011. PTI reported in December 2012, Don’t know why it took 2 years for PTI to read this ad report in media. As individuals we(including me) never notice/analyses the data until it comes in popular news-paper.

    This is my opinion feel free to comment.


  9. The first point which needs to be emphasized and inculcated in Indian investors(?) is that there is money which can be made in stocks. Investing is not a game and it’s always like “participating in the growth of a business.” I was also too naive and used to happy with 20-30% gain and missed the bigger picture before I stumbled upon One up on the wall street by Peter Lynch.

    Hence investors(?) should focus on business quality and growth prospects a company rather than the stock price, most of the time.

  10. Janak Merchant says:

    Most of the time, the talking heads do not know what they are talking about.


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