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, ┬áthe 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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  1. Nice one on subramoney
    Time dedicated to equity is crucial slightsmile emoticon
    Too many people in other industries trying to make a quick one in equity trading
    Atleast that is what I see in it
    Simply because you are in front of pc or nowadays Mobile…

    comment on sms…

  2. May I offer a different viewpoint?

    Find (or be lucky enough to have) an advisor whose competence and integrity is beyond question, who knows you (your background, your financial status, your risk taking ability) and has only your interest at heart. Do not try to time the market or try to make a quick buck. Invest, do not trade. Buy shares in ten well run companies with a good track record, in spheres of interest that you can “see” every day. Four groups could be: Pharma, FMCG, cement, IT. Buy Glaxo, Pfizer, Sun Pharma, HUL, Colgate, P&G, ACC, Grasim, TCS, Infosys. Buy what you can every month and hold for a long period, say 10 years. Enter all transactions in My Portfolio of valueresearchonline.com.

    Do this with half the money that you plan to invest in equity. Put the other half in 2 or 3 mutual funds. Index or “actively managed”.

    Compare the performance of the shares and mutual funds once a month on valueresearchonline.com. Check with your advisor once a year if the choice of shares and mutual funds stil remains good.

    Do not sell. Buy and hold. Coffee can approach. It works.

  3. lakshminarasimman

    sir,

    thank you for your eye opening post

    for a long time I used to feel bad not investing in share market and feel jealous when somebody told they made 3 times 5 times money in short span.

    I know I don’t have the time or knowledge about business or economy. sometimes I don’t even understand what they talk in tv channels

    I realized long back i am not suitable for direct share market. I am happy and comfortable putting money in mutual funds.

  4. This is the nice blog for those traders who are fresher in the market and interested for investment in the equity market, they can also join financial advisory.

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