Direct Investment in equities: Problems

Whenever I do a program on investments or personal finance, people rush to me, and ask “Are you saying direct investment in equities is so difficult, that we should not do it ourselves?”

My answer is normally yes. That is because for most of the people I meet – whether they be Relationship Managers in banks, employees of some engineering company, employees of a fund house or a life insurance company, the connect to equity is at best remote. They are never in the thick of equity. Normally they all have the following problems:

1. Not enough capital to create a portfolio: To create a sensible portfolio today it will cost you at least Rs. 10 lakhs. If you start out with Rs. 20,000 to invest, you can achieve really little.

2. No knowledge of portfolio construction: Buying just a bunch of shares will not (sorry may not) create wealth in the long run. You need to construct a portfolio consisting of value stocks, growth stocks, large cap, growth cap, across business houses, across geographies, etc. this is not easy.

3. No time commitment: For heavens sake do not treat direct investing in equities as a part-time activity. It takes a lot of reading, talking to people in the market, trying to figure out the economic indicators, – if you are not ready for the effort, go to a mutual fund or a unit linked plan.

4. Confusing between trading and investing: If your long term portfolio is all your short term decisions gone wrong, man your portfolio is in trouble!

keep reading…also see why people lose money in equities..

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6 Responses to “Direct Investment in equities: Problems”

  1. Ravinder Makhaik on July 6th, 2008 at 9:46 pm

    I will vouch for that: Equities is no small or short term game.

    It is as serious as trying to raise a horitculture farm. Each tree will only fruitfy many years later.

    Till then it is only trying to grow and nuture the right tree which will bear fruit that pays rich dividends after the many years of gestation.

  2. Why bother when you get the job done with an index fund? Unless there is passion (which ushers in the necessary effort and know-how) I see no need for direct equity investing.

  3. in India the problem is poor Index construction. Too many psu scrips because of their high capital….

  4. These days too many scams and gone are the days that fundamentals, technicals and performance do not matter. Look around us we have scams of coal, banking, airline, telecom, nuclear, pharma, defence, IPL, Sathyam, Sahara and Sarada. Equity investment looks terribly riskier these days than ever before. Worse, stock market itself was manipulated and made it to climb higher and higher on account of frauds. Not just one time but couple of times.

    Look at justdial IPO. It is oversubscribed almost 15 times and the purpose of IPO looks to me as irrational.

    I am not sure whether valueinvestors are exist in the Indian market in today’s environment.

  5. Dear sir,
    I have a question regarding point number 3 above “if you are not ready for the effort, go to a mutual fund or a unit linked plan.”

    Should we invest in ULIP also?

    Rgds
    Hari

  6. Being in equity only increases the probability of making money. Did i say “probability” ? 🙂 Take it with a lots of salt. If an individual is unlucky / dumb, nothing can work for him/her.

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