The stock market is a unique place. It has a huge potential for long term wealth creation, if the investor focuses on just a few but correct investment opportunities and if they can manage to make investments in even a few multibagger ideas, they will be on their way to an extremely wealthy life. No doubt that multibagger stocks can be life-changers (as we have discussed here) but even if we talk about the average long-term returns, equity beats every other asset class by a huge margin. Unfortunately, most people still manage to lose money in stocks.
It is because these investors allow short-term events to affect their decisions. They are lured by short-term gains. They become fearful due to short-term volatility. They keep speculating as to what will happen next. They end up picking the wrong stocks, which then leads to large portfolio-level losses. Eventually, they start avoiding markets. We cannot blame the markets for losses incurred by such investors. People make mistakes which could have been avoided very easily had they got themselves the right guidance and that is the whole problem of entering the markets without the right equity investment advisor.
Problems in Investing without the Right Equity Advisor
In India, most people invest their money in stocks based on tips received from friends, relatives and ‘well-wishers’ but neither these people nor their ‘tip-sources’ have much expertise or time to correctly identify the fundamentals behind a stock. As a result, investments made on basis of these stock tips ends up losing money for the investors. Then there is another problem in markets – problem of plenty. There are more than 5000 companies listed on Bombay Stock Exchange alone. So it is not easy to find the good ones worth investing from so many of them. Problem of plenty is not restricted to the number of companies alone. There is a constant bombardment of news and information but all information is not useful. Unfortunately, the investor who is on his own doesn’t know which pieces of information to consider and which ones to ignore.
What happens next?
The investor gets confused. Takes wrong decisions based on wrong stock selection for long-term investment and eventually, incurs losses. That is not all. Busy lifestyles leave people with very less free time. So people actually don’t have the time required to do all the research, analysis and market study and hard work themselves. On-going tracking, periodic review of financial statements, tracking company specific news, etc. Who has time for all that? The diagram below depicts what all you have to do when you decide to go alone in markets: Some people realize their limitations and handover their money to others for management. Once that is done, they have no direct control over their investments. So the risk of being wrong is passed from the investor to somebody else. In addition, there is no knowledge gain for investors. This is where a true equity investment advisor can add value. How?
Role of Investment Advisor
Making wealth through stock markets is not just about picking the right stocks. It is also about deciding how much to invest in each stock position (asset allocation), knowing when to sell and managing various risks at all times. Buy-and-Forget works in theory and not in real life. Real wealth creation happens when you are able to buy the right stocks, book profits at the right time and are also able to remove the underperformers at the right time. A good stock advisor understands this and will always remain on top of the companies to understand their quarterly results and earnings growth. Nobody can doubt the importance of high quality research when making direct investment in equities. So the investment research company or the advisor whose team has experience in all types of markets (bear, bull and flat) will be in a better position to help you take informed investment decisions. A good advisor will not promise you the sky. He will help you develop realistic expectations about the risks and rewards of each investment option. Most importantly, he will help you avoid the common pitfalls that are the cause of big losses for investors who enter markets on their own:
- The temptation to believe that you can time the market successfully every time.
- The fear-driven urge to sell at a loss when stock prices are falling.
- The greed-driven desire to buy when stock prices are going up without any change in fundamentals.
But strangely in India, people don’t seem to recognize the importance of having a true guide on their side. They fail to understand that by paying a few thousands as fees to their advisors, they can avoid losses worth lakhs due to their wrong actions. We believe that having a professional and honest equity investment advisor on your side can help you gain access to valuable insights into the factors that affect the economy, stock markets and ultimately the individual stocks in your stock portfolio. If you analyze the financial lives of the ultra-rich, you will see that they all have access to good investment advisors. So there is no doubt that having a good advisor can work wonders for your wealth. So think about it. Remember that it’s easier to say things than to do them. We all know the formula of becoming physically fit – eat healthy, eat less and exercise more but it takes a gym instructor to get our bodies back into shape. The same goes for investing in stocks. So find your true investment advisor at the earliest.