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Problems of Retail Investors and its Solution

Wednesday 16 October 2013

By Nitin Gupta

Warren Buffet, Father of investment had famously said "Be fearful when others are greedy and be greedy when others are fearful". But practically, it is as hard to follow as it is easy to say. When market was blood bathed in Aug 2013 and Nifty nose down to 5285.85 on 28 Aug 13. Everybody was talking about falling it below 5000 mark. Even some brokerages have given the target for Nifty at 4700. Investor especially small investors feel very afraid in such situations. They don't dare to take risk and put their hard core money in stock market. Here, trap is fixed by HNIs, professional traders, market experts and most importantly by FIIs. They accumulate the best companies of Sensex which are professionally and financially sound. They sold stock of these companies at premium or fair value or when Sensex/Nifty getting higher. This is the time when retail investors get activated and try their hand in stock market. Nifty touched the high of 6155 on 15 Oct 13. Small investors might be thinking that market is getting higher day by day and they should try to make quick bucks from here. But be cautious friends, this is not time to look towards stock market. Wait patiently and opportunities will come to enter in the market.

Retail investors must keep following points in mind before entering this risky zone:-
  1. Decide at first stage itself that weather you are going to trade or invest for longer term. If you are long term investor and have the time horiszon there to five years or more then you need not to be bothered short term volatility of market. But if you are trader then you need to learn all strategies of market as a famous quote says FIRST LEARN THEN REMOVE "L".
  2. Invest for longer term. Take a view of one to three years. If you don’t have that much patience then must invest for minimum six months.
  3. Small investor's biggest problem is liquidity crunch. They every time feel shortage of funds. As they cannot invest huge money at one instance. They need to follow Systematic Investment Plan (SIP) to keep their investments alive for longer terms. The pattern of SIP is to be followed at all cost.
  4. Stock market is not bed of roses and there is no stock which provides comfort of get sleepy with it. Keep rotating your cash with profit booking. For example, you had purchased stock of "A" company at certain price and with passing of time it had reached its fair value. Book your profit at this time and wait for opportunity to re-enter. Problem arises when one get greedy hoping that the stock price will rise further. By the time macro factor of economics get changed and stock price back to where you had purchased after touching high.
  5. You may have followed the SIP systematically but problem may arise when this money is put in wrong stock at wrong time. The solution lies with following SIP but kept aside this SIP amount and keep accumulating this money and wait for opportunities to invest.
  6. It is not necessary that your investments start appreciating from the second day you have purchased it. Give it time to grow. In between it may get positive or negative. If your decision goes wrong and investment bring negative results to you. Don’t get panic and run to book losses. As famously said "if can't manage 20% losses in stock market then you need not to be here".

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