The EPIC of the ERRATIC INVESTOR

The do-it yourself. investors often end up with the wrong stock because they trust what they hear and what they see, instead of what they could learn on their own.

Manik Kumar Malakar

Dhritarashtra had a clear view of the battleground Kurukshetra, thanks to Sanjaya’s real-time narration. But he was foxed when Lord Krishna pulled Bhima away and placed an iron statue in front of the blind king. There was no one to guide the bereaved father that what he was holding was not a human being. Bhima could avert the fatal embrace but Dhritarashtra lost his chance to avenge the death of son Duryodhana.

That’s precisely what happens when some investors rush into the equity markets and base their moves on what they hear and what they see. The lack of a professional advisor in most cases drive them to wrong stocks. Along its wild and unpredictable movement through the second wave of the pandemic, the Indian equity market has seen the emergence of this new-breed of investors.

Meet the DIY brigade of the stock market. The do-it-yourself investors believe they do not need any professional guidance to pick the right stock and reap the most out of their investments. And, in the process, they overlook the fine print. More than 95 per cent of all stocks do not even end up beating the returns yielded by fixed deposits – the simplest of investment options – over a long haul and almost 99 per cent of the wealth is created by the top 1 per cent of the stocks.

Much like the young Abhimanyu, who had ventured into the Chakravyuh with only the knowledge of entering the trap and no idea of how to step out of it, the DIY investors park their money trusting only what they hear in the market. This self-deception is a fundamental mistake the DIY investors make.

“The biggest error that these investors commit is not doing an adequate amount of research on their own and just relying on brokerage reports or media hypes,” says Kishor P Ostwal, chairman and managing director of CNI Research. “They should ideally spend more time on analysing the company, its operations, cash flows, and its management.”

It’s as simple as opening the annual report of a company and checking cash flows as this information is mandatory for a company to submit. Cash positive is a good sign. There are more tell-tale signs for a DIY investor. A stock with a high P-E (price-to-earnings) or a stock that has seen a run-up or increase in prices are also red flags for investors.