Here are 7 truths which no one will tell you about equity investing
- If you are an individual investor, the best chance you have of making money in stock markets is to be a passive investor in an index ETF.
- It is very difficult to pick individual stocks or actively buy and sell and invest and create long term wealth. Index will outperform you easily. Warren Buffet took a bet on this with a fund manager and won. Hands down — Warren Buffett Won a $1 Million Bet, But The Real Winner is Charity
- Timing the market never works for individual investors. The best bet you have is to do an SIP on an index fund with a reasonably low cost.
- Forget everything which the guys on TV say. I used to work in a trading desk with real traders who used to trade a few 100 million dollars of bets. None of them had time for TV. In fact, if there is a celebrity trader on TV and social media, there is a high likelihood that he is not. The real trader is a ghost who likes to remain anonymous
- Almost all news is discounted. All the smart money in the world gets to know the news before you do. So if you think you can turn on NBC and make money by just following the news, you are smoking high-quality pot
- Most people who try to catch falling knives end up killing themselves. Think of all the fallen angel stocks which have never risen. YESBANK, TATAMOTORS was 400+ (70 now), JETAIRWAYS was 700+ (13 now), Suzlon was 400+ (5 Rs now), GMR Infra was 130 once (16 Rs now). Reliance Power to name on more. The list goes on. Imagine what happened to all the people who bought when the stock was down 50% from the top
- People think we can read the balance sheet of companies and find out something which all the banks and hedge funds have missed. They think they can make some great investments based on fundamental analysis. That is an acid trip. Reading balance sheets is not simple. A lot of details are lost in creative accounting (mal)practices. Only an extremely trained eye with deep experience and insider knowledge can do that. It is highly unlikely that you will find something in there which trained analysts doing this as a full-time job missed.
BONUS: 99% of the equity investors who pick stocks are underperforming the index. 99% of the F&O investors are in losses. Only 1 out of 1000 fund managers beat the index in a 10 year period.
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