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, practising doctors, company secretaries, Chartered Accountants, the connect to equity is at best remote. They are never in the thick of equity. If you have not studied law, accounting, economics – you have some serious issues while investing. Sure it involves psychology, philosophy, etc. but there are other issues too. Moreover I strongly believe that to make your money grow well, you should concentrate on your main profession. A dentist can earn anywhere between 2-15L a month in a city like Mumbai. Should he try to earn an extra one or two percent in his portfolio? The answer is NO. He should first create a nice corpus. Yes, if you are an employee in mid management of a government / with a PSU or a Private sector company with the attitude of a PSU and can find enough time, you should be investing in direct equities. You need to learn about equity investing…..however……
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. How will you achieve geographic, industry, management diversification in your portfolio with a small amount of money?
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. It is easy to buy and sell some shares and believe that this ‘portfolio’ will create wealth. It will not. Trading a few shares is very different from creating a wealth enhancing portfolio. It requires far greater skills than to just buy and sell some shares
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. IN fact if you do not wish to learn even how to pick up a specific fund, go for an index fund. Remember it is not about ego, it is about creating money.
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!
5. Keep score: not enough investors know what return they are getting in their portfolio.
6. If you need an excel sheet and a lot of paper to explain what you are holding – you may be over diversified.
7. If you have not handled the painful Indian documentation, it is no fun doing it with direct equity….
keep reading…also see why people lose money in equities..
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