You have more than 30+ market experience.
No.1 reason why people lose money in the stock market.
This seems to be a wealth-creation machine from the outside. But we know that more than 90% of people lose money here.
What is the number 1 reason for people losing money?
No. 1 reason is emotions. Like I said before, we read and research about the stock so much, use their product, or we marry.
After marriage, divorce is difficult and painful.
I will tell you a small story about Peter Lynch. He is a famous fund manager in the USA.
You must have read many of his books. He was leading the Megellum fund from 1977-1990.
It was giving a 29% CAGR for 13 years. He was the best-performing fund manager in that decade.
But the return of the average investor in his fund was less than 0.
So it means that fund or the vehicle may perform well but how you are performing is also a matter.
Suppose in 3/4th year, the return was 80%. The person who invested $100, had put $1000 again.
Next year there was a drawdown of 30%. He took $800 from it.
Your behavior vs the fund vs fund performance are different things.
In most contexts, in India as well, the fund will be doing good but our brain will think of timing and beating the fund.
I will sell at the bottom and buy more in the dip. When covid came, many people sold stocks to buy at the dip. Will sell when it goes up and buy when it goes down.
If you have done mutual funds, PMS, or small cases, you have trusted a professional.
Trust his instinct. Don’t use your brain, use it in your profession.
You proceed in that.
90% of retail, HNI, and FII do this mistake. It’s not that FII has come from the top and doesn’t make mistakes.
Discretionary investing has this issue of emotions. It is our behavior that spoils it.
So emotions are the no. 1 reason. Absolutely.
I think you said right that we hear this fund has given great returns in 20 years. But we don’t see people becoming crorepati from it.
We keep fidgeting with it.
For example, a few stocks came into our portfolio which increased by 700-900%.
Our strategy is to let winners run. When a stock is running, we shouldn’t touch it. Let it move.
Problem is that we want to beat the market. We want to put our assumptions, put our brains.
99% of people consider themselves more intelligent than the market. But the market is supreme.
Markets tell you what to do, you don’t. If a stock has come down, people talk about its value.
But the market is also not stupid. There are either some problems in the stock or the sector. Or liquidity outflow is more.
If liquidity outflows from an emerging market, FII are selling rigorously then which we stock with whatever value will come down.
In fundamentals and liquidity, liquidity takes the front seat. It drives everything.