Billionaire investor Rakesh Jhunjhunwala once famously said : “markets are like women, always commanding, always mysterious, always volatile”.

Investing in stock markets is not every one’s cup of tea. Stock market investing is a totally different ball game. But if you make the right investments, stock markets offer much higher returns, compared to traditional investments like bank fixed deposits or government savings schemes.

Those who understand equities well, can directly invest in the stock markets. But those who can not venture directly into stock investing, can invest in equity mutual funds which are managed by professional managers. However, one should always invest a part of their total financial savings in equities in order to get higher returns.

Association of Mutual Fund Industry (AMFI)’s data for 2018 shows that less than 1.5% of Indians invest in mutual funds. It means in total of 134 crore people in the country, the mutual fund industry has 2 crore unique PAN. In simple words, the industry has only 2 crore investors. These 2 crore investors have 6.60 crore mutual fund folios which is like 3 folios per investor on an average.

Unique client codes registered with BSE in 2017 were 3.23 crore, who are the total registered stock market investors in India. Many of these registered investors may have multiple accounts with various brokerage companies. Therefore, actual number of investors in stock markets may be much lower – anywhere between 2 to 3 crore. 

Myths about Stock market:

Many people still consider investing in stock market as a stigma or taboo, because of several myths about stock markets registered in their minds. We will try to debunk such myths, in order to inculcate an accurate and objective understanding about stock markets.

1) Investing in Stock markets is akin to gambling: 

This belief makes many people to stay away from the stock markets. Gambling is a zero-sum game. Gambling merely takes away money from the loser and gives it to the winner. No value is created, nor any productive purpose is served by gambling. In contrast, stock markets channel public money into productive uses, by facilitating easy and cost effective access to capital for efficient and profitable companies. This in turn leads to better productivity and more economic activity in the country and creates wealth for all stake holders. Hence, long term investing in stock markets helps in the growth of economy and wealth creation. However, short term margin trading or leveraged futures trading is not advisable.

2) Stock Market is an exclusive club of brokers & HNI’s:

In the integrated and globalized markets, stock market movements in any country can not be pre-determined or dictated by a few privileged brokers or HNI investors. Due to the spread of internet and other fast communication modes, there is real time and easy access to information for small investors. Also, stock exchanges and SEBI have put in place strict surveillance measures to check any manipulation of stock prices by brokers, operators, promoters and big investors. However, due to the advent of AlgorithmicTrading, it has become an uneven ground for trading for small investors. But this is not an issue for long term value investing by small investors.

3) You need lots of money, to make money in stock markets:

This myth, rather than any other myth, probably discourages small investors from investing in stock markets in order to improve their financial position. Many people believe that they must have plenty of money in order to make investments in stock markets. Now a days, small investors can make regular, small investments in equities or mutual funds through SIP (systematic investment plan) mode. Such regular, disciplined and long term small investments made can create huge wealth over a period of time. There are many stories of small investments made over time that have turned into large fortunes.

4) The quick way to make money is by investing in hot stocks:

If you are investing in hot sectors or hot stocks, then you are just following the crowd. You will gain or lose just like all others. You are not ahead of the crowd. Many a time, differentiated thinking and contrarian value investing helps to earn market-beating high returns.

5) This stock is down 90%, how much more can it fall? Let me buy it:

It is like ‘catching a falling knife’. It can only hurt you. If a stock was quoting at Rs 100 a few months back, but it is now hammered to say Rs 10, there must be some good reasons for such a substantial fall in its stock price and we may not be aware of the full ‘inside story’. It can fall further and become a junk stock. What is cheap need not necessarily be good. Fallen angels may not rise again.

6) This stock has done well in the past – Let me pile on it:

In stock markets, there will always be new stars born and old stars fatigued or fully priced. Those who have invested in a WIPRO or Infosys in the eighties would have minted money. But if you have invested in the same WIPRO or Infosys only a few years back, you would have probably made no money. 

Warren Buffet used to joke that “if the past was what the market is all about, then librarians and archaeologists would be the wealthiest people in the world”.