Who is afraid of speculation !!

Investor euphoria is back! Now people don’t even look for reasons to invest in a company! It is not needed! Newspaper, News channel and Friendly tips are enough to get a 5% weekly return! Prudence? … “Excuse me? What does that damn thing mean?”

Again a set of investors, mostly amateurs and newcomers would lose money. They are investing not out of conviction but out of desperation of being left out. Fear of losing opportunity driving all types of investors into market, into Mutual Funds and into myriad advisory services (we also run one and really having good time!).

But are you sure you are making right choices in selecting your investment? Be it on your own, be it based on TV reports, be it on a friendly tip, be it by trusting a Mutual Fund or be it by trusting people like us, the investment advisers, who deal purely in Equity?

Based on my experience, I feel, people at large, still feel Equity Investment is risky but easy. What people understand by risk is

“stock prices move randomly, so whatever I buy will either up or  down. When market is going up, it must be a good time to invest and whatever I buy have higher chance of going up than down.” 

Similarly, people think, when market is going up investment is easy … Anyone can invest in anything and can expect stock prices to move up and up only, at least for a while. Intuitively, they may know that it’s not possible but their instinct tells them that he is smarter than others and can come out of market with a decent profit ahead of everyone else in the market. So, in effect, the feeling is

“I am smarter than the market and continue to remain so at least in this round of the game”                               

Unfortunately we all together constitute the market. All can not collectively outsmart the market. It is simply not feasible and there would be people standing (and too many) when the music stops in this round of the musical chair called market “upmove”.

You can only prepare yourself in two ways….. Do it yourself if you have sufficient amount of time, experience, passion, understanding, knowledge, skill, conviction and network within market ecosystem. Or you can depend on someone whom you can judge as the right person or company who can discharge the responsibility effectively.

If you are not following a “methodical approach” in selecting your Investment vehicle or investment adviser, then you are not investing but speculating in some or other form.

Here is a checklist which you may think through:

1) What are the differences between an investment in a Mutual Fund and in Direct Equity? Which serves your purpose better? Does over diversification of a Mutual Fund portfolio ably justify the fees you pay to them?

2) What is the effect of compounding on your wealth? Money growing per year at 8% vs. at 10% vs. at 15% vs 20% vs 25% over 5 years makes dramatic impact on your overall return for every dollar or rupee you invest — Check it yourself (alternatively check at our website homepage by clicking on tab “the power of investing”)

3) What are the Risks or incremental added “risk” of investing in Direct Equity through a dependable Portfolio Advisory Service firm? Do they take your money under their control? Do they leave the money with you so that you have full control over it? Are the charges reasonable and at par with Mutual Fund industry? If yes why? And if not why not? What exactly they can do which is better than Mutual Fund or your own investment of your own money?

End of day, it is your money and you are in the market for generating higher return than risk free return (bank rate) and return which you yourself could have generated simply by investing in Index (passive index fund). Why pay any fee to a Mutual Fund or an Adviser if he / she fails to generate consistent market beating return? And if you at all pay, why don’t expect a higher return than the Index or Market return?

If you are not considering these points before putting your money in market to earn you more money, your are not investing but speculating in some or other way.

Speculation is not bad if you are doing for the fun and excitement of it!!

Author is the Founder & Chief Adviser at https://aveksatequity.com — Equity only Portfolio Advisory Firm.

1 thought on “Who is afraid of speculation !!”

  1. True…it is very painful sitting on cash while looking others earning very handsome return. Thus we jump into without conviction, out of desperation of being left out. But left out early in event of slight correction. I believe it would be easy finding gems in this world of knowledge sharing (sometimes however become too noisy!) but very difficult to hold onto them which is where conviction, experience, knowledge play a major role. I am more than confident that with your advisory, we certainly get benefit by overcoming on our weaknesses.

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