Monday, 30 January 2012

Why not to invest in Individual Stocks

David Castillo Dominici
Time and again we hear and read that investing directly in individual stocks is Risky. Finance Guru’s say don’t invest directly into stock market if you don’t have Time and Temperament. Why do we ignore all this and still attempt to Make Money by investing in direct stock market. There could be some driving factor that tempts common man to invest directly into stocks.

Facts Like:
  • 10000 invested in Infy in 1985 would have grown to 40 Crore+ Today.
  • 10000 invested in Wipro in 1980 would be now 100 Crore + 
  • 10000 Invested in our Multi bagger recommendation has grown to 40 Lakh.
  • 5 of our Multi Bagger Recommended have given more than 12000%+ returns.
  • SMS – Try our stock recommendations – 99.9% accurate
Well such information would drive or tempt anybody to invest directly into stock market.  This is only one side of the coin and it is really wonderful. This is the face that is used for marketing or showcasing the Stock World.  There is another face of the coin that is never shown to us. Let us see what is in store on the other side of the coin.

Facts Like:
  • One Lakh invested in Satyam in 2008, your Investment Value would be Two Thousand Odd Rupees in Jan 2009. (Satyam Stock tanked from Rs 544 to Rs 11.)
  • One Lakh invested in PentaMedia Graphics in 2000, your investment Value today would be around 50 Rupees. (Yes I mean it, PentaMedia was 2130 in Feb 2000. Today it might be trading around 1 rupee or so. )
  • One Lakh Invested in GTL Ltd, your investment value would be less than Ten thousand in a years’ time.  (The stock price tanked from 430 Levels to 30 rupees. Loss of more than 90 %)
No brokerage company would show this side of the coin Right? Anyone would like to see only the Goody Goody Picture. We see only the picture that is shown by the stock broking companies. We fail or ignore to see the other side of the coin.
We presume that one can make money in stock market by reading Warren Buffets investment Principles, attending seminars that speak about Rakesh Junjunwala’s  style of investment or by reading books of Benjamin Graham. One should remember Theory is quite different than practical.
If we were to become successful like them by reading books or attending seminars the world would full of people like Buffet and Benjamin Graham. Practically speaking how many Benjamin Graham and Buffets do we have today?
Well the bottom line is: Though Stock Market has the potential to give amazing returns. It is not everybody’s cup of Tea.
Do not invest into directly into stocks if:
  • You are too emotional about stocks you buy.
  • You invest based on broker’s recommendation.
  • You are investing because somebody else made money in stocks.
  • You have tendency to fall prey for Penny Stocks,SMS TIPS.
  • You have habit of catching falling knife or average out on every dip.
  • You are not an analyst or don’t have time to do trough research of companies
The most convincing reason to stay away from investing directly into stocks is the risk that is involved due lack of diversification. You may not have enough funds to spread your investments across different companies. Concentrated portfolio or owning few companies might result in losing a major portion of your investment in case one of the companies underperforms.
For Common man like us it is next to impossible to beat the market consistently. Even Fund Managers fail to beat the Market consistently. 
One solution for this is invest in Stocks Via Mutual Funds.  click here to know why you should invest in Mutual Funds.
Do you agree that investing directly in Stocks in Risky ? 


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