Investing

Your Biggest Enemy in the Stock Market

Who is your biggest enemy in the stock market? The one who stops you from making money? Take a guess.

The ‘enemy’ is you, your own self!

Let me tell you a story.

A friend of mine has been in the market for the last 5 years (from 2016) and hasn’t made any money.

Zero.

In fact, he is in loss because of brokerage charges and losses booked in low quality companies.

He has been investing for a long time and had even bought a few good companies. Yet, the returns have been close to nothing.

The reasons?

  1. Not staying invested in the market. Entering and exiting the market too often.
  2. Booking small profits.
  3. Chasing stocks which everyone else is buying.
  4. Always looking for new stocks to invest in.

I asked him a simple question: What if you had bought the Top 5 listed companies and done nothing for 5 years?

Let’s analyze.

The Top 5 largest companies ranked by their market cap today. All of them are well-known companies and industry leaders even 5 years ago:

Company2016 Price2021 PriceGains
Reliance₹ 503₹ 2071312%
TCS₹ 1324₹ 3217143%
HDFC Bank₹ 624₹ 1422128%
Infosys₹ 530₹ 1631208%
HUL₹ 925₹ 2332152%

Note: The 2016 stock prices above are from the beginning of August 2016. The 2021 prices are at the beginning of August 2021. Exactly 5 years.

What do you think of the table above? It is surprising, isn’t it?

If you had randomly selected a few top companies or industry leaders, invested in them and held those shares – you’d have made a lot of money. Definitely more than returns from a fixed deposit.

All you had to do was ‘hold’ – do absolutely nothing (which is very difficult) – and you would get 2-3 times return on your investment.

Yet, most people who come to the market – look for small caps, penny stocks, multibaggers, IPOs – all to make some quick money.

Everyone likes talking about a stock which is rising. Result: Everyone wants to buy the same stock.

If the stock falls a bit, they get worried. Suddenly, everyone wants to sell the same stock too.

If the stock rises even by 20-30% – book profit and look for a new stock to buy.

Sure, a lot of money can be made in good quality small-caps or cyclical companies. But they are highly volatile. You need time and experience in the market to know how to invest in them.

That won’t be the case with bluechip stocks or large companies like Reliance or HDFC Bank.

If you can hold a quality company for a long period of time – the chances of them not giving you decent returns is very low. Even if they do not give big returns, the chances of not losing money is high.

Quick tips:

  • You need to be invested in the market for 5-10 years to make money.
  • Learn to differentiate between steady compounders and cyclical stocks.
  • Always have a minimum of 50% of your investments in large companies.
  • If you are new to the market, do not invest in companies which have a market cap of less than 10,000 crore.
  • If you exit when the market crashes (like March 2020) – you will regret when it rises back.
  • Many people sold their shares between September – November 2020 thinking the market has gone up a lot.
  • This mindset of fearing that the market has reached its top and selling all the shares – is one of the biggest mistakes investors can make. Usually, in such circumstances, the market will never give you a chance to buy again at those prices.
  • Always remember the ‘human psychology’ factor in the stock market. When you feel like selling or buying something, a lot of other people will be having similar feelings too.
  • Learning to do the opposite of what your mind is telling you is a super power.

Investing is simple. We make it complicated.

The biggest enemy in the stock market is your own behavior. Work on changing this and you will start making money sooner than you think.

Disclaimer: This article is for educational purposes only. Any kind of investment in the stock market carries risk, please consult your financial advisor. Also note, past performance does not guarantee future returns. Buying the Top 5 companies today, may or may not give returns in the next 5 years. Do your analysis before making any investment.

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