Doubts about the stock market

This is an important point to note. Investors entering the equity markets with a very short-term horizon to make quick money are exposed to very high risk, as the markets are volatile in the short run and can move either way. These investors generally invest when the bull market is peaking. A rising market attracts money which would not have come to it otherwise. Confidence among investors goes up and they start believing that the markets cannot fall.

This is an important point to note. Investors entering the equity markets with a very short-term horizon to make quick money are exposed to very high risk, as the markets are volatile in the short run and can move either way. These investors generally invest when the bull market is peaking. A rising market attracts money which would not have come to it otherwise. Confidence among investors goes up and they start believing that the markets cannot fall.

A major reason as to why investors in India, and abroad, do not opt for equity as an asset class is that they believe the stock market is for gamblers. That's not true. Gambling is zero sum game, that is, gain for one is loss for the other. In gambling the result is dependent on the outcome of throwing a dice; only one participant will win. In equity markets, if five investors hold the shares of the same company, and if prices go up, all of them will gain.

Many believe that the stock market is an exclusive club of brokers and big investors and that one needs a lot of money to profit from investments in it. The stock market was out of the reach of lay investors till some time ago. But technology has changed the rules of the game. Now, with a demat account, investors can buy just one share. The cost of transaction has come down significantly from 5 per cent of the value to 0.5 per cent. I think there is more of India in the stock market than anywhere else.