I was surprised to read a report in the India Today magazine yesterday which suggested that small investors are fast exiting the stock markets.
One reason for my surprise (and sadness) was to think about the future of Safal Niveshak.
After all, if small investors stop investing in stocks, who would read my daily rants on sensible, long-term investing?
But a bigger reason for the surprise came when I read this…
Most retail investors have lost faith in the capital market…Investors are exiting because there has been no capital protection in India.
Then I read this…
Investors are fast losing confidence in the capital market and unless Securities and Exchange Board of India (Sebi) brings in radical reforms, they would hardly return.
Now my question is – who was worried about “capital protection” during the heydays of 2004 to 2007 when everything they touched turned to gold?
Did the experts who are blaming the SEBI now – for not bringing radical reforms – warned investors then that they could lose most of all of their wealth when the bubble bursts?
Did the investors themselves control their emotions instead of flowing with the rising tide, only to realize later that some of them were swimming naked?
As far as the thing about capital protection is concerned, it is a stated rule that stocks have never guaranteed capital protection – not in India, and nowhere in the world.
Capital protection is something people must be worried about while risking their hard-earned savings speculating on bad stocks and derivatives.
SEBI won’t guarantee you capital protection and neither can it help you get your capital back once it’s lost in a stock market crash.
An investor’s capital is his sole responsibility, and he must worry about it while making an investment decision – not after making it and then seeing everything go down the drain.
The magazine report also suggests that around 16 lakh investors operating through systematic investment plans (SIP) in mutual funds have closed their accounts over the last year.
Well, if I’m right, the term ‘accounts’ means ‘folios’ here. And 16 lakh accounts mean 16 lakh folios, not 16 lakh investors.
I can assume this safely given a recent case where a friend’s father had invested in mutual funds through 190 different folios/accounts. So that was a case of 190 accounts but just 1 investor.
Even if I were to assume 1 investor having 10 different folio numbers (and this is a very conservative number), the 16 lakh accounts closed (as the report mentions) would represent just 1.6 lakh investors…or 90% lower than what the report suggests.
Out of this 1.6 lakh ‘investor’ accounts, 95% would belong to those who wouldn’t be ‘investors’ at all…but ‘speculators’ who are fleeing seeing poor short term returns.
These 95% speculators are anyways ‘momentum chasers’ and will be back once the bull market resumes.
So assigning their exit to “SEBI’s carelessness of not protecting capital” is absurd!
As far as the remaining 5% investors who have closed their accounts, there could be several reasons for their exit.
They may be upset with the way their fund managers were mis-allocating money.
Frustrated by this, they may we pulling out money to invest on their own, and in a more sensible manner.
Or else, they may be closing accounts with bad funds and redirecting the money to their existing good funds.
So there can be several reasons I can think of why these 5% ‘investors’ are not exiting the stock markets but just reallocating money more sensibly.
Of course, it’s difficult for even the most sensible of investors to keep a calm mind and invest in such volatile markets…but you don’t just exit stocks completely when times are bad.
Remember, you miss 100% of the shots you don’t take, so exiting and getting to the sidelines is not a profitable plan for long-term investors.
Staying in the game always has been, and always will be, the way to profit.
In short, if you are also thinking of exiting the stock markets, don’t!
Instead, re-think why you were here in the first place (for long-term wealth creation) and how you can re-align your investments to fit the current investing environment.
But wait…are you seriously thinking of exiting the stock markets?
Let me know in the Comments section below.
After all, I should be prepared with my plans for Safal Niveshak if I know in advance that not many people are going to read me in the future. 🙂