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Investor Perception for Stock Market: An Incessant Rollercoster

Dated: 28 Aug 2009

” We must take the risk to script our own perfection, and to go as far as possible using conscience as our compass, serenity as our barometer, and the wisdom of great sages as our inspiration.” 

Dated: 28 Aug 2009

” We must take the risk to script our own perfection, and to go as far as possible using conscience as our compass, serenity as our barometer, and the wisdom of great sages as our inspiration.” 

A surge in the sensex level must have brought a hope in the mindset of investors. A sigh of relief is seen these days among the investors as their portfolio seems to show a positive output as compared to what it highlighted in 2008. With this scenario, I being a financial advisor have witnessed more funds flowing
into market. While in the last one year, the market seemed to be taking rest with the surplus investment amount of investors lying in their safe deposits and in lockers. Was this correction of market erroneous? Why the swings in market movements fright you? I met an investor during the fall who was not at all keen to buy on dips, instead felt the locker to be safer. With the escalation in the level, he snivelled on his own decision. Isn’t the history of stock market a concrete evidence to
boost your confidence to invest and expect returns on the higher side? 

Investing can be an emotional process unless you understand what you are investing in, what you’re trying to accomplish and understand a few basic facts and statistics! Because investors often get into the market too late and get out too early! 

You should never let emotions cloud your trading judgment. But you can turn the crowd’s fear and greed to your advantage! To exploit market psychology, you must act in a contrarian fashion, taking the contrary course when the crowd falls prey to its emotions. 

Most investors look favourably upon stocks rising in price and reject those falling.

The conventional model of thinking that self made decisions are always rational causes to overlook quality companies with prices that have fallen because of events or perceptions that are transitory in nature. Investor behaviour is characterized by overexcitement and overreaction in both rising and falling markets.
The average investor has the tendency to purchase or increase their holdings in investments that perform the best in the short term. At the same time, these same investors tend to sell or reduce their holdings in investments that have performed poorly, again, in the short term. As a result, just prior to a market correction, the average investor will hold a portfolio that is heavily weighted in asset classes that have demonstrated the best short-term performance. Since a large proportion
of monies have been added to these investments after most of the growth has occurred, this strategy leads to a dramatic decline in their portfolio when the market corrects. 

During a stock market correction, investors tend to panic, believing that they will lose all or most of their money, and so the most common reaction is to sell to “cut their losses”. This behaviour drags the market down further than fundamentals suggest – it is a self-fulfilling prophecy. 

The investors restrict themselves by saving grains out of seed in seeking advice of a good financial planner and impede their tree of revenue. They consider charges levied by the advisors as fee not fitting their pocket; not putting a thought that this charge is for the quality of service, advice benefiting them and
the time & money spent on the research work and team handling. If the Investment/Financial advisor has a proven track record of delivering consistent returns then I personally feel that investors should avoid doing such negotiations, as this is not a FMCG product wherein you can compare between the prices of products. Financial Advisor or an institute who’s managing your finances and is taking substantial efforts for your stable financial future should be treated quite seriously.  
 

The future of Indian Financial services sector is heading towards a fee based era wherein you don’t need to pay entry charges or brokerage, what you have to do is to pay for the quality advice given by your advisor, recent example of this is the removal of entry load in the Mutual Fund industry. 

Every individual has its own ways of analysing Markets. I have observed Analysts quoting that investing in fundamentally sound companies for 3 to 5 years or identifying Multibaggers cannot create wealth. I wonder without identifying Multibaggers and without investing for a long term how wealth can be created? This is
a serious question.    

Investors often have a tendency to get married to a share, They don’t sell it even if the prices have gone down steeply and hold on to the position despite of the fact that it is not moving in line with the markets when they are moving upwards. In such situations investors should shift this position in some other
good stock that have a potential to go in line with market. This process should not be treated as loss booking, instead this is just Shifting. 
 

“If you make the right kind of decisions you will make the right kind of life.” 

Being vigilant in your approach is the keyword to success. The unpredictable swing in the market movements doesn’t stop me from voting for equity as a profitable investment avenue. Almost 100% appreciation in the sensex levels from recent low of 7697 to 15800 accompanies my opinion. With my views I would like
to give a message to investors beforehand not to repeat the wrong decisions taken when the market was in downtrend. We may witness a pause in this
upward trend and see some downward movement for some time but then the uptrend which will emerge is going to be a mother of all Bull Run. I
don’t mean to lure all your income into stock. A share of your savings should be contributed to equity and treated as a part of an asset allocation
in your portfolio. The road to success must be paved with behaviour, attitude, opinions and visualization to ‘live life to the fullest.’ 

  Disclaimer :

The content of this information is for general informational & reference purpose only. 

Article provided by
Amol Dhake,
Managing Director,

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