I’ve been investing in the stock market since 2004. Over these 10 years, I have seen two big rallies in stock prices and one shattering crash.
Now, 10 years isn’t a particularly long investment resume, but in these years, owing to my work first as a stock market analyst and then as an educator, I have spent a lot of time researching businesses, studying human behaviour, and meeting thousands of small investors.
Anyways, what I have known through these years is that the stock market can be absolutely brutal to your net worth if you are not wise and prepared.
If you planned to retire in 2008-2009 you were absolutely crushed if most of your investments were in stocks. Most things have rebounded five years later, but that means you lost five years of financial freedom with a whole bunch of worrying while you worked through the recovery.
Now, when you’ve been as involved with the stock market as I have, you see a lot of ugly stuff. Leave aside the occasional financial and economic crises that dot the timeline every few years, you also get to know…
- How stocks and IPOs are (mis)sold;
- How equity research analysts make (read, fake) recommendations;
- How professional money managers (mis)manage investors’ money; and
- How corporate managers mask bad performance through fraudulent accounting.
You see, nothing is exactly what it seems.
In fact, if you, as a small investor, knew everything behind the scenes, I fear pandemonium would break out.
Amidst all this, I have seen a lot of fear and mistrust towards the stock market, especially among small investors, and especially when the stock market is down in the dumps.
Some mistrust believing the stock market is “only made for insiders and rich guys”.
Then there are some who carry the burns due to bad advice from their brokers or financial advisors.
Some fear getting into the stock market because all they have heard about this place is scary stuff.
And then, there are many who remain out of the stock market just because they don’t know or understand what happens inside.
Now it goes without saying that stock market has been one of the best mediums to grow wealth gradually over the long term, and for a lot of investors.
People who understand the power of compounding, the benefits of owning good businesses, and have the capacity to be extremely patient with them, have created great riches from stocks.
But I am sure, when they started, even they must have been surrounded by a sense of fear – a sense of the unknown.
So, I ask you today, as you may be starting out in stock market investing, or you may have been investing for a few years like me –
What is your biggest fear of being a stock market investor?
Basically, before or when you put your money in stocks, what worries you the most?
Image Source: Open Mind
Manage Fear, or Get Managed By It
You see, we’re all scared…of some things…and many things.
I’ve never seen an investor, or any person who has no fear.
But as I look back to my life and to the lives of so many others, I have realized one very important thing. It is that, in our life, the issue is not really ‘fear’ but rather, what we do despite it.
We can either get managed by fear, or manage it. We can either acknowledge fear or fall into an emotional whirlpool. We can either accept fear or pretend that it doesn’t exist at all. We can either give up or get up in the face of fear.
Of course, your response to fear will be different than mine, but what will be common between the two of us is fear itself.
So let this tribe know about your biggest fear of being a stock market investor. Share in the comments section below.
Maybe I have an antidote to your fear. Maybe someone else from the tribe has. So, please get going!
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Hi Vishal,
Nice post and I’m really looking forward to the comments section for this one. First of all, sharing my thoughts.
My biggest fear:
The thing that I fear most is giving in to my own self, falling prey to behavioral biases. I am a conservative investor, who is always following the Graham advice of keeping equity:debt ratio 50:50 with +/- 20 depending upon under and over valuation respectively. But, after the recent rally this year, I see that I have gone against my principle and done a lot of things I would not have done if I had kept calm. I became hyperactive. I fear that in the years to come, I will go against my own principle just at the wrong time.
What I am going to do about it.
I think just talking about the fear is futile without thinking about how you are going to overcome it. The first step, of course, is to identify the fear and face it. For me, I vow to be calm and follow the principles. I read a lot of books on this topic. Taleb’s “black swan” and “fooled by randomness” are awesome books that can help getting over once false self-confidence. Here is an article which I found very useful and is sharing here for my fellow tribesmen.
Thanks,
Subhashish
Reminds me of the “Productive Paranoia” – discussed by Jim Collins in his book Great By Choice.
Productive Paranoia is an attribute of great achievers like Bill Gates and other highly successful people.
The idea basically is that these people ,inspite of being highly skilled/confident and considering all possible scenarios in their decision-making process, are still hypervigilant in good times as well as bad. They consider failure on a regular basis and thus put themselves in a superior position to overcome danger.
But this fear is channeled into EXTENSIVE PREPARATION and CALM HEADED CLEAR ACTION.
The situation is similar for a stock market investor. Even after carefully considering everything about a business, there is always a possibility of things going wrong. So being vigilant is always better. (I prefer checking on my companies every once in a while – events that may affect value in the long term not short term) . Only then we can stay calm and see through a clear course of action.
Just as an aside, this resonates with the “punch hole” card system for investing, that Warren Buffet also suggests.
Hi Vishal,
The biggest fear for me as a small time investor is financial irregularities…….as a small time investor,its difficult to asses things first hand and we mostly depend on balance sheets. but what if these finacial statements itself are cooked and dont show reality……the case of Satyam in point……
1. In this case, think of base rates. There are about 7000 companies to choose from. What is the probability you’ll end up with something like Satyam?
2. Lets say, you have equally divided Rs. 100 into 10 different stocks, and one or two of them go bankrupt. You still have 8 stocks which can go up 2, 3, 4 or 100 times more than making up for the losses. What matters is this – Are you patient enough to hold them that long? If yes, even a Satyam can’t do you any harm.
BTW, Satyam had purchased 3 dotcom companies making 25 lacs a year, in total, and paid 500 Crores for them. Assuming zero growth, it would have taken Satyam 2000 years to recover the 500 Crores in an inflation-less world. If a Satyam investor had read this before buying, he shouldn’t have and if he hadn’t read about this diwoseification, he hadn’t done his homework. 😉
Hi Vishal,
Knowing that the share is worth buying, however having that “what if” at the back of mind….resulting in poor decision making… Many times that, what if it goes wrong hampers our decision making very badly… Any suggestions to overcome the same? Please do share.
Thanks,
Jalaj
Dear Vishal,
As mentioned by others the” permanent loss of capital “due to unexpected fraudulent financials is always on the back of my mind. Another thing which also disturbs me is when I find a company worth investing I feel hesitant to commit a substantial sum for the same. This also I think because of this fear of permanent loss of capital due to unexpected events or ” Black Swans” .
Hi vishal,
Confidence in fair value computated is one of the fears.
Cos much of buy decision will be based on this.
Any suggestions ?
Keep up the good work.
Cheers,
M
I think the biggest fear can be Accidents or Act’s of Nature which can materially affect the company’s assets and shareholder returns..
1) Tsunami in japan in 2011 caused severe damage to tokyo electric power company and very high decline in stock price for its shareholders. Otherwise it was supposed to be a less risky investment as Utilities are widely perceived to be stable cash flow generators.
2) One of my investments is still suffering from prolonged shut down due to a fire accident.
Though most of these will be covered by insurance. But simply to recover and put your plant into production will take 2-3 years time. And it maybe a long road to grow your business.
Hi Vishal,
I am a new entrant into stock market and recently came across your website, one of the fears that i have is that the circle of my competence is very minimal, I hardly understand one industry in depth, with all that i have read on your blog, I feel that the management can fool you by giving false promises and cooking books, without knowledge of the industry I fear that i might lose all my capital. I also fear about all the jargons/terminologies that are used, although i have started appreciating some of them, but still its a long way to go. Your suggestion is extremely valued.
I have been investing 2.5 years now. But still below three are my biggest fears.
1. Companies in which I invest go fundamentally wrong and stock price will crash before I could do anything.
2. People will loose confidence in stock market itself causing endless bear market (something like a lost decade of Japan but a longer tenure).
3. When I need to withdraw money from markets, they are crashed as you mentioned postponing my financial freedom for long enough time.
-Abhijit
hi Vishal,
My fears are
1. my lack of knowledge. This can be countered with learning a lot but no learning is complete without experience.
Been in markets via SIP in MF and a small amount in equities. But when we are learning the basics the risk of committing a mistake is high and there is this tendency that you are loosing something if you don’t invest now. That fear sometimes stops me in learning & investing. Luckily my SIPs do the major work so am saved there.
2. Social & Family pressure. Yes I don’t want to buy a house instead invest prudently. I feel an apartment is a depreciating asset and after 15 years of loan payment you are left with an old outdated one along with tensions all the way. BUT family is in no way to listen to it despite me explaining logic.
3. House/Car EMI – don’t have one but the fear of these EMI is there. My points 2 & 3 are connected to my Stock Market fear. I know I may need to buy a home and it needs down payment and this stops me from entering into stocks.