There are many forms of gambling and sometimes investment in the stock market becomes an act of gambling. The stock market is such an asset class that covers some risk. Some people act foolishly at the time of investing in the stock market. Then in very rare cases, they gain. Otherwise, in most cases, they lose money. There are many signs or acts that prove you are actually gambling in the stock market. Here are 6 signs or acts that show you are gambling in stocks i.e. signs that you are gambling in stocks.
6 Signs that you are gambling in stocks
Don’t have patience
Generally, most people have misconceptions or fantasies about the stock market. They think that it is a place where a huge amount of money can be gained within the short term and of course very easily. They hear various news about the stock market from their friends, relatives, neighbours or known persons. Then they invest in the stock market and eventually lose money. Some people say that your money will become 100 times in just 10 years. Then you start to fantasy about the stock market and generate interest in investment there. But you do not have any practical knowledge. Without knowing anything you invest and suffer a loss.
So, the lesson is if you have no proper knowledge about the stock market then do not invest like a herd of fools’ investor. First of all, gather sufficient knowledge and learn about the stock market. You may read the Top 15 books to read right now to start investing.
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Generally, many people lose money in the stock market due to many reasons the lack of patience is one of them. After making a proper analysis of any stock people choose and invest in good stocks, but after some time, they suffer loss. It is because these kinds of people cannot have patience, they actually hurry to gain a huge profit from their investment. At least 2-3 years of time should be spent on good stocks to find a profit.
After proper analysis of a company, many retail investors choose the stock for investment. But if the stock does not give profitable return they sell the stock and looks for some other company to invest. Another common proverb is that ‘the castle does not build in a day it takes time’. No company flourishes in one year. It takes time. My suggestion for retail investors is that Infosys or TCS or any other multinational company did not form in a single day. So as a retail investor, you have to be patient and keep investing for a long-term perspective. Ace investor Warren Buffet after proper analysis of stocks selects a stock and continues investment for a long time.
Let’s take an example of Ace investor Rakesh Jhunjhunwala. He chose VIP Industries and started investing in VIP Industries in 2009. After 10 long years, the stock gave him a 29% compounded return year-on-year. So, after investment, you should wait for at least 10 years to get satisfactory returns.
So, Patience is the most crucial factor to get success in the stock market. Patience is the main key to making a fortune here. Like a good investor, you can buy or rather to say invest in stocks and stay calm for a long period. You or any investor must spend a lot of time on your stocks and wait.
Being guided by fake information from the cheat
Very often, as an investor, you may receive various phone calls, messages or e-mails from different unknown sources. There you will find information regarding investment. This information is meant to misguide you and sent by insiders of any company that have a personal purpose to fulfill. They actually conduct illegal insider trading exploiting your interest. In an illegal insider trading, an insider of a company along with a small group of people buys a particular stock and share price-sensitive information. So, huge artificial demand is created for the particular stock resulting in higher prices.
Then, at a certain point when the prices hit the ‘satisfactory’ level, the insider exits the company along with his small group of people. In other words, this insider sells stocks and makes profits. Soon the stocks plummet resulting in huge losses for the retail investors.
As an investor, you should be cautious to avoid getting into the quagmire of insider trading scams. Never invest in a company or an industry that you have never heard of even if you get a tip-off.
Follow the tips or recommendations delivered by so-called market analysts who change their view once in a quarter
Ok, you are mentally prepared to invest in the stock market via direct equity after gathering proper knowledge. How you will make it? Then you move to receive free tips or recommendations delivered by various so-called stock market analysts in different news channels or newspapers, magazines, etc. These experts suggest various stocks picks all day long if you are interested in intraday trading without any proper knowledge. Then you notice that the share prices are decreasing day by day which was recommended by so-called analysts.
This leads to loss for you. Here just think one thing if these experts can predict market and forecast which stock will go upward or downward in the near future, why don’t they do it for themselves? Why are they revealing these kinds of vital secrets to you? In reality, they are paid by respective stock owners or companies to suggest or mislead you. Beware of these analysts whose view changes just within a few months on any specific stock.
According to the author of the ‘The Intelligent Investor’ by Benjamin Graham “You can’t predict Market”.
How retail investors lose money
Maximum retail investors while buying shares do not analyze the fundamental, technical, qualitative analysis, balance sheet, profit and loss account, dividend history, EBITDA Margin, PAT Margin, etc.
Many business news channels show intraday trading tips delivered by various analysts. These analysts discuss various trading tips all day long. Watching this, a retail investor gets amazed and acts accordingly.
When the stock market is up, these analysts give a buy call and when the market corrects they give a sell call.
It is seen that these so-called experts recommend some shares to buy. But after 6 months they recommend selling these shares. What has happened in the last 6 months is that the company has gone bankrupt, or its business has been closed. Then why do these so-called analysts alter their recommendation within the span of 6 months? The reality is they have been paid by those companies to promote or recommend the stock so that the demand for that stock can be increased. Then the owner of the concerned company will get hid money and minimize loss or gain profit. But you as an investor will lose your money.
Read also: Why People Lose Money in Stock Market
Betting a large corpus on short term twitches
An investor should be aware of loss or gain associated with the stock market. If you throw your emergency fund in short term trades it turns into an act of gambling. Nothing can be predicted about the share market. Sometimes the outcomes may be negative and surprise you. In that case, you have no other options left with you as you have put your emergency fund. So we suggest you invest only the amount that is surplus with you and you will not need that money in the near future.
In order to pick the best stocks for consistent returns, you should check out the following parameters of a company before investing in a stock.
- Revenue Growth
- Net Profit Growth
- Earnings Per Share (EPS)
- Price to Earnings Ratio (P/E)
- Price to Book Ratio (P/B)
- Debt to Equity Ratio
- Dividend Yield
Invest all the money in one stock
There is a proverb “do not put all your eggs in one basket”. Similarly, you should not invest all of your savings or money in a single stock whatever the stock’s capacity or the possibility of giving bigger returns is. There are many facts that can turn the profit into a loss. So, the respective stock may not generate the expected result. It is better to invest in at least 10 stocks of various core sectors.
Points to consider while investing in different sectors
The basic investment strategy is that while you invest in the stock market you need to invest in those stocks or sectors whose business model is clear to you i.e., how the company earns money, whether it will exist after 20-30 years, the risk factors associated with the company, etc. The next thing is to consider that the market capitalization of different sectors such as Banking, Information Technology, Finance, Pharmaceuticals and health, Auto, Petroleum, Power, and Engineering, etc.
At the time of choosing sectors, all you need to do is to focus the mother sectors like the above-said sectors which will be there even after 100 years. Then you must analyze the factors like the business model, financial health of the sector i.e., the debt burden on the sectors, future opportunities. After making an analysis of sectors, you need to analyze the companies operating in the industry and choose two stocks of each sector for diversification of your stock portfolio.
Using our emergency fund for short-term trades
An emergency fund can be described as the fund which has enough money so that any individual can bear all expenses i.e., foods, clothes, insurance bills, emergency medical expenses, even sip installments for at least 6 months. In spite of better returns, many retail investors use this fund to execute short-term trades in the stock market. This is the biggest blunder a retail investor makes. You should not make trades with your emergency fund, because you cannot predict the market. It is seen that many retail investors make a loss just within a span of one month. So don’t use your emergency fund to execute the short term trades.
Try to Time to Market
It is an almost impossible task to predict the movements of stock prices. But unfortunately, many retail investors try to time the market or predict the market. Then in this process, they act foolishly and lose money. The stock market has two phases i.e. bear market and bull market. Practically, it is needless to say that the bear market and the bull market are the two inseparable parts of the stock market. An investor who wants to invest in the stock market for a long-term horizon should not get bothered by these two inevitable situations. If you are confused about the best time to invest in the stock market, we offer you this,
Yesterday was the best day to start investment in the stock market. If you missed it then the next best day is today. The worst day to start an investment is tomorrow.
Points to consider
Many novice investors have an idea that the stock market is basically buying a stock at a lower price and then selling the share when it is higher than the cost price. But many beginners are confused about the best time to invest in the stock market either via a mutual fund or buy any stock. What if the share price shows a major correction and comes below the buying price. What shall I do then? In this connection, I offer you this,
The intelligent investor should recognize that market panics can create great prices for good companies and good prices for great companies. — Benjamin Graham.
How Capitalante can help you
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Hope by skipping the above-mentioned mistakes you can avoid loss in the stock market. You need to invest in the stock market looking for long term goals. If you have any questions regarding the above article feel free to comment so that we can have a discussion. If you have found this post helpful, share it with your loved ones.