In India, more than 10 million people invest in the stock market and that number is growing fast. You might say that 10 million people couldn`t be wrong but that argument doesn`t always hold true.
Keeping up with the news, studying broker reports and punching in your own trades all takes time and effort and these days there are hundreds of low-cost, low-effort investment schemes you could choose from.
So, if managing your own portfolio means putting in more time and effort, shouldn`t you get more money back in return?
However, that isn`t really why we do it anyway. The reason why so many of us invest in the stock market is that `Do-it-yourself` (DIY) investing has an appeal that mutual funds will never have.
Excitement
Short-term investing or speculating has often been likened to gambling, not only because of the high risks involved but also because of the way it makes people feel.
Although few people would admit to being stock market thrill seekers, the excitement of the markets is clearly a factor in their popularity and the risks that put some people off are themselves a big draw for others.
The masses of eyeballs glued to ticking prices on broker screens up and down the country are testimony to that.
Enjoyment
For many of us, the appeal of investing is the research itself. Digging into a company`s background or researching a particular industry can be an extremely interesting activity and almost a reward in itself.
I say almost because like many pursuits it`s more engaging when there`s something riding on it.
Only a few die-hard hobbyists would spend hours researching an investment they had no intention of making so the prospect of doing it `just for fun` doesn`t have the same appeal.
Control
In the same way that some people prefer to keep gold at home rather than putting their money in a bank some of us prefer to know exactly where our shares are.
Although a fund manager may be more qualified than us to make investment decisions, there is a certain satisfaction that comes from doing things yourself.
Keeping up with the news, studying broker reports and punching in your own trades all takes time and effort and these days there are hundreds of low-cost, low-effort investment schemes you could choose from.
So, if managing your own portfolio means putting in more time and effort, shouldn`t you get more money back in return?
However, that isn`t really why we do it anyway. The reason why so many of us invest in the stock market is that `Do-it-yourself` (DIY) investing has an appeal that mutual funds will never have.
Excitement
Short-term investing or speculating has often been likened to gambling, not only because of the high risks involved but also because of the way it makes people feel.
Although few people would admit to being stock market thrill seekers, the excitement of the markets is clearly a factor in their popularity and the risks that put some people off are themselves a big draw for others.
The masses of eyeballs glued to ticking prices on broker screens up and down the country are testimony to that.
Enjoyment
For many of us, the appeal of investing is the research itself. Digging into a company`s background or researching a particular industry can be an extremely interesting activity and almost a reward in itself.
I say almost because like many pursuits it`s more engaging when there`s something riding on it.
Only a few die-hard hobbyists would spend hours researching an investment they had no intention of making so the prospect of doing it `just for fun` doesn`t have the same appeal.
Control
In the same way that some people prefer to keep gold at home rather than putting their money in a bank some of us prefer to know exactly where our shares are.
Although a fund manager may be more qualified than us to make investment decisions, there is a certain satisfaction that comes from doing things yourself.
This makes the business of managing your own portfolio seem less like a chore but does have the disadvantage of leaving you with no one to blame if things don`t turn out as planned.
Overconfidence
Like it or not, some of us just fancy our chances. It may be illogical to assume we can beat the market but most of us can be illogical sometimes.
Sure we know that 10 million of us can`t all be winners but that`s no reason to think one of the lucky ones won`t be me. Not only can human nature help us to mentally inflate our own abilities but also the markets themselves have an uncanny ability to reward even rank amateurs.
You would have a fairly good chance of making a profit by randomly buying any of the blue-chip stocks and yet all it takes is a couple of winning trades before we start seeing Warren Buffett in the mirror each morning.
Whatever your reasons may be there are plenty of people who say retail investors are better off staying at home and letting someone else manage their money for them. On strictly logical terms they are correct.
Many fund managers fail to consistently beat the market so there really is no reason to assume that the DIY approach will be the more profitable way to invest.
However, this argument ignores the real reasons why lots of us play the markets. It`s not only to make money (although that is very important), we also do it because we like it. Investing because you enjoy it makes perfect sense so long as you realize this is what you`re doing. If you find yourself spending more and more time shuffling a shrinking portfolio you might want to ask yourself whether this is a hobby you can really afford.
Overconfidence
Like it or not, some of us just fancy our chances. It may be illogical to assume we can beat the market but most of us can be illogical sometimes.
Sure we know that 10 million of us can`t all be winners but that`s no reason to think one of the lucky ones won`t be me. Not only can human nature help us to mentally inflate our own abilities but also the markets themselves have an uncanny ability to reward even rank amateurs.
You would have a fairly good chance of making a profit by randomly buying any of the blue-chip stocks and yet all it takes is a couple of winning trades before we start seeing Warren Buffett in the mirror each morning.
Whatever your reasons may be there are plenty of people who say retail investors are better off staying at home and letting someone else manage their money for them. On strictly logical terms they are correct.
Many fund managers fail to consistently beat the market so there really is no reason to assume that the DIY approach will be the more profitable way to invest.
However, this argument ignores the real reasons why lots of us play the markets. It`s not only to make money (although that is very important), we also do it because we like it. Investing because you enjoy it makes perfect sense so long as you realize this is what you`re doing. If you find yourself spending more and more time shuffling a shrinking portfolio you might want to ask yourself whether this is a hobby you can really afford.
No comments:
Post a Comment