1st mistake - not starting early
When I started my professional journey, I believed in spending the money. It was like a reward to me for working hard for last 22 years. I spent money on everything I wanted. New phone, new shoes, new bag, new girlfriend, new everything. At the same time my friend (who had similar salary) automated an SIP (Systematic Withdrawal Plan) which transferred 5k into a mutual fund every month. We hung out together, we had our weekends together, we watched movies together. In short he enjoyed as much as I did. Fast forward 2 years, I had zero savings in my account. I was living pay check to pay check life, so did he but his savings read 1.5L approximately. This was the amount that he kept investing every month plus that giving him returns. If you backwards, the extra little things I did for past 2 years with 5k every month was not actually a necessity. In reality I can not think of where exactly I spent 5k that he did not.
2nd mistake - penny stock
The second mistake I did in the field of investing was buying a penny stock. This was the second stock I bought. I had no clue about investing. I wanted to invest and double my money in no time. I thought a stock that values at 10 per share has more chances of becoming 20 than a stock of Rs. 1000 becoming 2000. I did all my researches, searched for the best penny stock, best industry and zeroed in on a stock called JBF Industries. This stock was giving 5% returns everyday. I could see only buyers in this stock and it was priced at Rs. 22. Honestly, my calculation goes like this.
If I buy this stock for 10k, 5% up everyday would mean Rs. 500 on day one, 525 on day 2. 1k profit in just two days and in this rate I can double my money within 2 weeks. Even in worst case it might just slow down but since it is a small stock, I have higher chances of getting higher returns. Once I make good returns I had plans to buy different stock with the extra money that I earned and that would give me more returns. The cycle went on. Only inside my head. I bought 500 shares at 22 apiece. 11k worth of investment. Like imagined it gave me 1k plus returns in just two days. After 2 days, the stock took a reverse turn and never looked back. Never. My 11k was soon worth 9k. I thought of holding onto it till it comes back to 11k so that I sell it. It went down to 7k in few days. I could not take more beating and thought I will sell the stock and take a hit of few thousands. But now there where no buyers. I place the sell order but would get rejected since there were no buyers to buy the stock. It fell to 5k and this is where I could make an exit eventually. Just for fun, I looked upon the stock today while writing this. The stock is at Rs. 12. That is like 5 years after my endeavor. My 11k would be now valued at 6,000 today.
3rd mistake - sell too soon
I had a firm belife in Tata Motors. I saw them doing wonders in their designs. I saw their cars were now getting accepted in the market. They were rebuilding their brand. Thier passenger vehicle line up was getting stronger day by day. Their new strategy was making their cars as competitve as other big brands in India. Jaguar - Land Rover brand was also getting revamped. Their finances though was not strong enough, was poised for a turn around. They were looking to get net debt free in few years time.
I bought their stock at Rs. 130. It was growing well and I was happy. The news of brexit started to make noise. The stock started to tumble every now and then. I was nervous about losing money. Brexit was around the corner and Jaguar - Land Rover has a strong presence in Europe market. I felt the need to withdraw my money for short term. I felt the stock would fall for short term and I could take advantage of the situation. I sold all my Tata Motors stock at Rs. 180 and thought of buying it when it falls after sometime. But it never did. I eventually had to buy Tata Motors at Rs. 300 a share. I made huge opportunistic loss because I paniked when the stock was vulnerable.
Well, if JBF Industry was the second stock that I had bought, my first stock was Infosys. I opened my salary account in axis bank and the rep asked me if I wanted to open a demat account. I agreed and to activate it I was asked to make some investment. So I decided to buy the stock of the company that I worked for i.e Infosys. When the rep asked me how many shares I wanted to buy, I said 1. At that time the share price of Infosys was 1,100. I felt that was too expensive but went ahead to buy just one share. Since that was my first ever investment, my father casually said to keep it for as long as I can. I still have that stock in my portfolio. Never sold it. The stock actually went down for a few days initially. I don’t exactly remember how far down did it go but I remember seeing a value close to 900 after a few days. I forgot about the stock later. Infosys did a stock split few years ago. It is now trading at 1,900 a share. I have 2 shares because of the split and hence my 1,100 in 2015 is now 3,800 giving me an overall gain of 230%. Had I invested 11k that day in this stock, it would’ve been 38k today.
Though slightly different time frames, you see how a good stock and a bad stock plays out. With a good stock, we tend to be a long term investor because we want it to earn as much more money as possible. With a bad stock, we are forced to be a long term investor because we would never be able to recover the money we invested. A good stock can compound your money while a bad stock can lose you money.
I don’t mean to scare you. I am just making you aware of the world that we live in. We buy stocks blindly just because someone said to do so. We invest blidnly in a stock in the fear of missing out. We do not want to learn about investing but we end up investing in penny stocks hoping that it becomes a multibagger. I know you hear a lot of stories of how an ace investor invested in Titan when it was trading at Rs. 3 and today it’s a multibagger. There are many such stories out there. But they have not invested in those stocks without any due diligence. They do a lot of research before buying a stock.
When it comes to penny stocks, they are penny for a reason. A stock is valued at a price that market deems fit. If its low, it means that the market thinks that is the fair value for that stock. Can you think ahead of the market? If yes, then you could be the next big bull. Do you want to take a chance? Well, there are thousands of penny stocks out there. Chances of your stock to be a multibagger is 1 in many thousands. My friend has invested in a stock with the same mentality with the hopes that it would give him good returns. When I checked the stock, it has zero sales. Literally no revenue. How do you expect a stock with no revenue make you a Millionaire?
Now the next place for us to get information on buy and sell is from experts in YouTube or TV channels. Following this makes you a trader and not an investor. Trading involves short term decision makings to take advantage of ups and downs of the market. It is for the experts. It is for the one’s who live and swear by the stock market. Trading is not for an average Joe like you and me. We lose lot more money than gaining.
Investment should be seen as an instrument that grows with time, that becomes a side hustle for you and might even be one more source of revenue stream in years to come. Investment can make you rich but that does not happen overnight. It takes its time and effort to bear its fruits.
What are the usual fears of the first time investors? And how are they supposed to be tackled?
Comments