Rise of the retail investors is one of the major spin-off stories coming from the pandemic. Millions of Indians have entered the stock market for the first time, looking for an additional source of income or an extra activity for distraction while working from home.
Consider this data to back up this claim
In India, 1.42 crore new Demat accounts were opened in 2020, a new high. And trading turnover on Indian stock markets has risen by around 300% since March 2020!
With this torrent of new investors, CDSL has become the first depository in the country to have three crore active Demat accounts. The ferocity of growth can be ascertained from the fact that it took five years for CDSL to reach two crore active Demat accounts from 1 crore. But, the next 1 crore came within a year.
The stock broking industry is naturally at the forefront to make handsome gains from this trend. India’s largest stock brokerage firm Zerodha reported that’s profit more than doubled in the last financial year (FY21) to Rs 1,000 crore. The same was the case with other leading stock brokers of India. ICICI Securities, for instance, also doubled its FY21 net profit to 1067.70 crore from 542.0 crore in the previous financial year.
An Epitome of Dreams
A surge in the number of retail investors during the pandemic is no doubt exceptional. But, attraction towards the stock market is not something new! The market has always managed to capture the imagination of millions of aspirants who see it as a one-stop solution to achieve financial freedom and fulfil their dreams.
Every year, many new entrants come to the market to test their luck. These new entrants quickly develop a liking for day trading and start seeing it as a shortcut to quick wealth. But, if day trading was such a successful practice, why are there only a handful of success stories coming out of the stock market?
Clearly, the new entrants need to have a relook at their priorities. And they could begin well by stopping to see the stock market as an instrument to make a few quick bucks. The real fact is, no day trader has ever made money over a long period. Most of these players are lured by the market in good times. However, their enthusiasm dies down when the going gets tough.
What’s Fueling the Idea of Day Trading?
Naturally, the experience of day trading quickly turns into a nightmare. And yet, the idea continues to catch up among new entrants. The record-breaking numbers of new account opening and growing trading volumes are proof of that.
These new entrants are entering the market having wrong conceptions about its working mechanism. And, their fantasies are further fueled by the rise of cheap trading apps.
Financial literacy is still at a very basic level in India. And so is the penetration of the equity market. As per an estimate, only about 4% of Indians invest in stocks. In contrast, the number stands at 12.7% in China and 55% in the US. Naturally, there is a huge unpenetrated market to cater to. And these apps have conveniently filled that spot.
Under the influence of social media, our traditional sources of anonymous tips have also changed their clamour. The WhatsApp groups, YouTube videos, and an enormous number of blogs and articles are now the new influencers, replacing the group of close friends, relatives, or colleagues as a source of tips.
The ‘Right’ Approach
Honestly, there are multiple ways with which investors approach the market. Being a day trader or a long-term investor is one’s own choice which they adopt based on their understanding, needs, and temperament.
However, history has been on the side of long-term investors. It is less exciting and boring at times. But it has historically been effective nonetheless.
Short-term trading, while very exciting, does cause a lot of anxiety, and the journey often ends abruptly and with disastrous results for some.
Stock Market or Casino?
A day trader needs to make an increasingly high number of decisions. This also increases the chance of making mistakes. Instead, new investors would do good for themselves by shutting out the noise, learn to research their ideas, and stay put over the long term.
The market has been increasingly seen as a casino.
You might have come across the stories of people who made millions overnight in a casino. But, investors should understand that these are exceptions, not the norm! Because in casinos, 99 times out of 100, it’s the house that wins.
Low-Brokerage Trading and Calls
Upcoming trading apps claim to provide a simple experience with hand-holding for new investors. Since their services are available at cheap rates, they need more trading volumes to sustain their business model. Only F&O and intraday traders can deliver these volumes consistently for them. So, increasing the volumes of day trading is vital for their survival.
The Golden Rules of Investing
Always remember, Rome was not built in a day! Same is the case with wealth creation! The stock market mechanism is not built to deliver a regular income. It is a platform that allows you to own a share in a business and grow over time.
Day trading needs you to be in a ‘thinking on the feet’ kind of situation every day. The chances of making wrong decisions are very high, and most traders don’t have the heart or the temperament to withstand this high-pressure environment.
Long-term investing needs you to sit down quietly and patiently. Take a deep breath. Identify a handful of high-quality companies with long growth potential. Watch them grow over a period of time. Which situation is better for you? Take your call accordingly.
Teji Mandi helps investors build a strong portfolio that combines shorter-term tactical bets and long-term investing. This is combined with periodic disciplined rebalancing – to help weed out losers and double down on winners as well ensure a balanced outlook.
The strategy helps investors build wealth over the long-term. It is specially designed to manage risks and withstand the ups and downs of the stock market. We also explain every buy or sell in an easy to understand language helping investors understand what is happening with their trades. Invest with Teji Mandi today!
