Skip to main content

Investment Advice #1 - Direct Equity - is it really for you?

Image result for free images stock marketDepending on who is reading this article, you may or may not know that I have been investing my money since 2015 when I was just 13 years old. The concept of money growing in value by doing minimum or no work at all intrigued me and led me to learning about the various ways to invest money. Having been in this business for the last four years, I will try and 'advise' you in a way that will convince you to invest in the right way. This article is not going to advise you to invest a certain portion of your income or invest in a stock(s) or anything else that you will probably be able to read elsewhere online. Instead, this article, and the ones to follow will give you my learning experiences that I think may help a new investor. You may or may not agree either because you are in denial of reality or you may not have faced a particular challenge but I recommend that you give these tips a read and let me know what you think!

Tip #1
Direct Equity - is it really for you?

Most of us do not have the luck and the insight to invest in direct equities. That being said, I have invested close to 40% of my net worth in direct equities (I am gradually reducing this number). Direct equities refers to directly investing in the equity market through a stock broker instead of via a Mutual Fund (MF). MFs are also ways to invest in the equity market but they are not 'direct'.

In my opinion, most of us do not have the insight, knowledge, experience, skills and time to invest in direct equities. From Benjamin Graham/ Warren Buffet to the lay man who calls him/her self a so called 'expert', one is always told to invest for the long term. 'Buy a stock and do not expect to sell it for at least three years'. A novel idea; it teaches us to not be impatient and not expect returns over night. However, this does not work. I'm talking out of personal experience when I say that it is extremely difficult to just hold on to the entire quantity of a stock over a period of time. The value fluctuates both up and down and finally when you are in profits, even if it is small, you will be tempted to sell because when you had not the previous time, the value dipped into losses and you had to wait for another few months to see profits.

Another problem is that there is no guarantee that companies that are doing well right now will be performing better in the future even if they have seen YoY growth over the last five years. The automobile industry being case in point.
As working professionals or students, we do not have the time to adjust our portfolio on a day-to-day basis. Even if we do, we are often guided by the 'novel idea' referred to before and tend to err on the side of caution when it comes to selling and buying new stocks every day or week. When I compare the returns that I have gotten in my Mutual Funds to what I have gotten in my direct equity trading, Mutual Funds seem more rewarding.

Continuing with the example of the automobile industry, the common-newbie investor would not have imagined that the car segment in India was going to face a recession because they are not spending their entire day on reading about various sectors of the economy and only after the news manages to make headlines, you will realise that your investment may be in trouble but by the time you check it out, it would have already lost its value.

MFs require no major skills. Go ahead with a reputed company - HDFC/ Franklin Templeton/ Kotak etc. and you can trust that your money will be treated safely. There is no doubt that even in MFs, you cannot expect an exit in under two-three years (unless you are in a bullish market) but you can be guaranteed that a professional with years of experience that he/she has gotten via an educational degree(s), followed by years of slogging in the industry has been entrusted with the duty of managing your money. Look at the history of an average MF. Through thick and thin and all four stages of the business cycle, over a given number of years, it has always done well. This comes at a very small cost for you. You save on time looking for stocks, your fund manager sells and buys stocks to 'adjust' the portfolio and you get brilliant returns because at the end of the day, you are still investing in the equity market itself.

I can already feel a newbie trader waiting to attack me by saying that it is 'super easy' to make 'small amounts of money every day'. To them and those who chose to believe them, all I can say is 'go ahead and try'. I have also tried day trading and believe me that it isn't sustainable in the long run. Luckily for me, I have always traded amounts that I can afford ( I have never used leverage) and even though I have made intra-day profits, on those days when the value of the stock fell, I have taken delivery of the stocks and waited patiently for weeks if not months to make a profit. In those weeks/ months, I have not been able to continue intra-day trading because I would have run out of money by taking delivery of the said stocks. Therefore, my intra-day trading career would have been put on hold for months together, thereby making it un-sustainable.

The conclusion of this article is that you must figure out whether direct equities is for you or not. It sounds extremely glamorous for one to say that they trade in the market. When I told people that I trade, people were extremely interested but when I changed that sentence to "I'm focusing on Mutual Funds because it saves time and gives me better returns", people were not as interested. "Boring Mutual Funds", most of them thought. End of the day, the winner is one who makes the most amount of money. MFs may not be glamorous and give you the status that you will get when you tell your friends that you trade in the stock market but in 9/10 cases, it makes you more money. Most of us do not have the skills, time, experience and knowledge to actively manage our investments. It is better for someone with years of experience who is regulated by the authorities to do it on our behalf while we can focus on using our time advancing in our professional lives. After all, if we were so good at trading in the market, we should have all just quit our day jobs/ school and focussed on it. 

Comments

Popular posts from this blog

Visiting the Kasturinagar (KA-03) RTO - a tumultuous but manageable experience to get a Learner's/ Driver's License without an agent/ driving school

Ask anyone, and I can guarantee that they will have a story (and in most cases, many stories) about their trip, or rather, numerous trips to the RTO for something as simple as getting a Learner's License (LL) or a Driver's License (DL). In this blog, I hope to make your life a tad bit easier by guiding you through the entire process, which may seem easy at first but is full of (overcome able) challenges if you know what you are doing. I turned 18 in January this year, and besides cutting a cake, I worked on my LL application online. I challenged myself to complete the entire LL to DL process by myself and without the help of an agent or a driving school, unlike what the majority do. The lengthy application process and multiple visits to the RTO, impressed upon me why most people decided to pay a little extra to get an agent to do it for them. Still, I was determined not to pay a single rupee more than the official cost. I succeeded.  Do note that this answer is concerning the K

Kicking off a 'political career' in an idea-based, grassroots level political party

Despite having been following politics for the longest time, and now studying it full time, I never joined a political party. When people used to ask me "who do you support?", my answer was standard, "no one". Luckily for me, ever since turning 18 and being eligible to vote, there hasn't been an election in which I'd be forced to cast my vote and tell people that I have made a definitive choice about a particular political party. At a time when politics has become ever so polarising and dirty, I couldn't be happier to associate myself with the BNP. It was in February 2020 that I was introduced to the Bengaluru NavaNiramana Party. I found their vision, leadership and ideas incredibly refreshing. Though I was aware of their launch/ kickoff meeting that took place in Freedom Park in early 2020, due to a friend's TEDx talk taking place simultaneously, I could not attend. Then, between Board Exams and the lockdown that took us all by surprise, I forgot ab

The Young Adults Series at the Bangalore International Centre

 November 2020 With France reimposing lockdown restrictions, closing universities, and restricting people's movement to just 1 hour per day, I decided to fly back to India. My rationale was simple; rather than attending online classes in a foreign city, with no roommates, no extra-curricular activities during which I would have usually interacted with people, and it being illegal to meet anyone you are not living with, it made more sense to return to a safer environment in which I could enjoy more freedom, as Bangalore was in a pretty good state, at least compared to France.  While waiting to board my flight at Charles de Gaulle Airport, I was mindlessly scrolling through Instagram and came across a post published by the Bangalore International Centre . Clickbait-ly titled  'MUN Ki Baat'  (for those who don't get the reference: PM Modi has a monthly radio show called 'Man Ki Baat'), it piqued my curiosity, and I found myself watching a recording of it. When I in

A few questions we must ask ourselves about the situation surrounding the Babri Masjid/ Ram Mandir controversy

August 5, 2020, was a historic day in India for two reasons. First, it was a year since the special status of J&K was revoked, and the state was converted into Union Territories; it resulted in it being directly controlled by the Central Government in Delhi and no longer controlled by an elected government under the federal setup. It was simultaneously followed with a year-long (and still ongoing) internet and communications blockade. Second, it was a day celebrated by right-wing Hindu nationalists because of the  ground-bre aking ceremony (Bhoomi Pooja/ Puja) that was held to begin construction of a temple for Lord Ram; a temple being built on a land where a mosque that was demolished by close allies of the BJP in 1992 lay. Reaching this point was not easy. It was a struggle that lasted for decades, multiple cases in court, contributions from the Archaeological Survey of India, claims of Muslims invaders building a mosque over a temple etc. The court finally ruled in favour a temp

Ministry of Railways 'Disposes Of' my RTI request regarding deaths on (Shramik) trains

Similar to the Vande Bharath Mission that was launched by the Indian Government to repatriate Indian nationals stranded abroad during the COVID-19 pandemic (when regular flight operations were banned across the country), the Government of India launched the much-needed project to enable reverse-migration of its nation's most destitute - our migrants. Migrant labourers who are typically from rural parts of India, due to a loss of income, livelihood, coupled with a fear of catching the virus and 'wanting to die at home', began walking back to their villages, at times 1000s of kilometres away. With all trains and buses ceasing operations, their journey was on foot, in back of trucks, and has resulted in many deaths. At the same time, it has shown their grit and determination with heart-breaking stories of people like the 15-year-old girl who cycled 1200 km with her father to reach home. After not even acknowledging the problem for over a month, the Government launched special

How the Indira Canteen is a Failure and a Success

Source Indira Canteen is a fast food joint that has been touted as CM Siddaramaiah 's pet project in the city of Bengaluru, Karnataka. The canteen aims to serve 500 people per meal per day. Rahul Gandhi inaugurated this populist scheme of the Congress led Karnataka Government on Independence Day 2017. This was done in run up to the Karnataka Assembly Elections that is taking place five days from today. All 197 wards have their own Indira Canteen, built at a cost of approximately INR 30 lakhs each {1} . The setting up of this canteen is obviously to reduce hunger among the poor. Indira Canteen serves food at heavily subsidized rates by the Bruhat Bengaluru Mahanagara Palike. Breakfast can be availed at Rs. 5 and lunch at Rs. 10. The entire scheme has been well thought of and according to reports has been running smoothly {2} . The canteens are still operational (this is itself a major win for the Government), food is being cooked at remote locations by companies to whom thi

Micro Light

What we did On the 6th of November 2011 my family friends and my family went on a Micro Light plane ride. The plane was a two seater. All of us got a chance to ride on it. When we were in the air we were allowed to steer the plane. Then we could align the plane to the runway. When my mother went in the plane the pilot decided to scare us by flying over our heads and our car!! When the oldest one in our group went there was so much wind that the plane went in another direction! It was a nice and wonderful. About the plane  The plane is manufactured in Bangalore. Only the engine is imported from Australia. The plane weighs about 200 kgs without people inside. The plane can carry on 200 kgs of additional weight. We took off at 65- 75 kms/h. When we were in the air we were at a speed of 80- 90 kms/h. The plane flew at 600 feet. It can go only up to 1000 feet. About Jakkur Airfield (Where we took off). Airport Type: Public Location: Bangalore Length of the runway: ft