Book Review, Management

Indian stock market shock | A Helping guide for Retail Investors

The great lockdown, as termed by the IMF, has put an end to the longest bull market ever in the history. The Indian stock market benchmark index nifty 50 lost nearly 30% from its recent high. Between April 2015 and April 2020 the annualized return from Nifty 50 was 0.90% (i.e) even for the most risk aversive low-cost index fund investor the returns were below any fixed-income securities.

Most Common Questions about Stock Market in the minds of Retail Investors.

Whether you invest directly into stocks or through mutual funds this is not a good sign. Except for a few most of the retail investors would be devastated to see what happened in the last one month. We cannot predict when will normalcy return.

The impact of COVID-19 on Indian businesses is still unclear.

So what should the retail investor do? Should we just turn back from stock markets and never look back again? Or built back conviction on the wealth-generating capacity of equities and sharpen our strategy even more by believing this too shall pass? These are very common questions on the minds of retail investors.

A journey of a common man towards financial independence in the Indian stock markets

The one thing that could bring back the lost conviction towards stock market investing can be reading books. And that too by a person himself being a common investor, like us, who found a way for his financial freedom from the Indian stock markets will be great enough. This book is about one such person titled The autobiography of a stock” by Manoj Arora. The author shares his learnings in the stock market as a series of conversations between Govind (Protagonist) and Mr. Stock (imaginative character representing the asset class). Govind, in his mid 20’s, who burns his fingers on the stock market without listening to his guide decides never to look back on stock markets as an investment engine thereafter. The same person nearly after a decade reaches out to Mr. Stock to learn more about him but with more caution this time. The series of conversations developing thereon between the two covers a wide range of topics such as Industry analysis, importance of earnings, valuation, liquidity, asset allocation, diversification, rupee cost averaging, stock homecoming, portfolio evaluation, entry and exit criteria, etc.

The book also stresses the importance of behavioral traits that are necessary for making decisions in stock markets.

 

Drawbacks

The book may not inclusive of every necessary aspect of investing. The book entirely concentrates on investing directly in the stock markets and equities. Most retail investors let their savings flow through SIP’s in the Indian stock markets whose perspective the book hardly looks.

The book concentrates entirely on equities and leaves out other investment alternatives and criteria to evaluate those.

One may not be comfortable with methods and decisions taken upon such as valuing a business based upon Price to earnings ratio and stock selection such as Yes bank but when one keeps aside his/her bias and looks closer will appreciate the rationality which led Govind towards a return of 50% within a year and a half in the same investment and exit conditions which helped him to move away from the falling knife as soon as possible.

 

Conclusion

The book, on the whole, does serve its purpose of helping individuals realize the fact that equity is a better wealth-generating engine than any other asset class in the long run and with steps that help them do that with practical examples and data from the past of Indian stock market.

Apart from that it also helps in making decisions for us on our own backed by data, logic, and not on emotional lines.

 

To learn more, visit https://learndiversified.com/

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