Bears ‘N Bulls

Apparently, 2007 was an amazing year for experienced traders and investors, but to what end? JAM investigates the loopholes in stock market investments for the young investor, as it turns out, it isn’t that simple!

Markets are more volatile than ever today. Leading news channels and analysts are finding it difficult to place profit and loss scenarios both, on long and short term perspectives. Some blame the diminishing influx of investments by overseas funds, others point at the ever increasing crude oil prices.

The fact still remains though, that the young Indian investor, battling it out with a 9 to 9 job finds very little time to track investments, leave alone trading in a 10 to 4 market. Here’s where youngsters need to check their market fundamentals. Late 2007 saw a huge number of teenagers and young executives entering the markets and indulging in what can only be termed as headless stock investments in an attempt to make something extra, probably cover taxes. Quite naturally, with growing markets back then and seeing rising numbers everyday more and more joined in and eventually to the young investor, the Indian stock markets became nothing more than a giant slot machine. Risk it, play it and hope for the best! What followed was quite a disheartening state of affairs.

Early 2008 saw a bunch of well to do stocks dip or sometimes fluctuate because a large number of fundamentally weak investors entered, exited and entered again! Fundamental based investments, simply put, investing in companies like Reliance or the Tata Group, are generally considered safe because of good track records and market monopoly. It’s not surprising to see these stocks behave very abnormally owing to a large population of uninformed investors making unplanned moves.

So what’s the solution? Earlier on investors cribbed about a 2% entry load on Mutual Funds. In a very recent development, the Securities and Exchange Board of India has revoked all entry loads. Mutual funds houses sport various schemes, some sector specific and some diversified wherein a fund manager, an expert in the field, enters stocks on behalf of the investor. The returns are passed back to the investor as a dividend or reinvested basis the application instruction. Apart from mutual funds, once can buy into some high value a.k.a. large cap stocks like DLF and L&T at current pricing, with a long term perspective. Whether it be Mutual Funds or Stocks, the young investor needs to diversify into as many sectors as possible; Banking, Infrastructure and Natural Resources being at the forefront. This ensures a fall back in the event that one particular sector sees bad times.

The bottom line is in reading up sufficiently about market linked investments and recognizing risk taking potential. A new investor must get into watching business news channels and their end-of-day summaries rather than trying to resonate with the supposedly market savvy next door neighbour or worse, mistaking the markets for a casino. The idea should be in going long, and not treating investments like savings. Indian markets being emotion driven, a constant watch is also in order. There’s loads of value in the Indian markets today, one just needs to completely understand what’s going on!