Source: The Economic Times
It is not easy to be a new investor. Dealing
with conflicting advice, complex products and confusing choices is tough. There
is one thing in common between my 25 year old niece who has just begun to save,
my 35 year old nephew who has returned from a stint abroad, my 45 year old neighbour
who has finally begun to save, my 55 year old friend who is worried about her
retirement and my 65 year old cousin who refuses to look beyond bank deposits. They
are all apprehensive about going beyond the familiar territory of bank deposits,
government saving schemes, gold and property. They all read what I write, they eagerly
ask questions when we meet, but beyond dipping their toes, if at all, they have
no exposure to equity investments. The problem lies in their beliefs, which, in
turn, directs their behaviour.
First,
wealth is not the money one accumulates, it is the money one has put to work. We are a nation of hoarders. The huge tax evasion that
we see around us reinforces the view that the wealthy are the ones who stash
their money away. The stash invokes fear, greed, suspicion and ownership. Its
primary use is ostensible and vulgar consumption. The billions in black money are not put to work, but lie hidden
and guarded. A tragic waste of capital in a poor
country. The widespread presence of hoarded wealth makes it sadly aspirational.
Even the better informed readers of this column have written to me saying that
they have just bought a third property as an 'investment'. It simply represents
wealth locked in an asset that does no work, and is likely to represent wealth
that won't be used by the investor in their lifetime. If an asset is simply sitting around,
it cannot be a good one, even if it makes you feel blessed.
Second,
saving and investing are two different ideas. Saving is a good habit, but
without investing, it simply sleeps. Being
a saver takes discipline, long term orientation and security about income, but
that is just half the battle. Many are satisfied with being savers, as it
sounds very virtuous. Putting those savings to use by investing it in equity
seems like a gamble. It takes away from the zenlike satisfaction of having
denied oneself the pleasure of consumption. Investing seems like a greedy activity that involves making
money decisions, and many do not associate pride with it—more so when there it involves loss of control. Many
savers who want to become investors imagine that they will have to choose,
analyse, review and rework. They feel ill equipped to meet these challenges. Just as there are cabs and taxis to
ferry those who can't or choose not to drive to work, there are investment
choices that put your money to work. not to drive to work, there are investment
choices that put your money to work. All it takes is the deliberate decision to
find out who can do it for you.
Third, the market for money is not driven by
the government, RBI or some central benevolent authority which will protect
investors and ensure that their money is safe and sound. Monarchy is long dead,
much as we may love our kings. My suspicion is that we are willing to trust
individuals over processes, and this craving for heroes is all too pervasive.
Everything about the government is about Narendra Modi; RBI's actions have to
refer to Raghuram Rajan and carry his picture; the game the team won has to be
attributed to M.S. Dhoni or Virat Kohli; how well a fund does has to be spoken
about using the name of the fund manager as if he were your school buddy. We
have to develop the skill to see the underlying process and appreciate it,
without seeking easy and lazy shortcuts, hoping that someone will take charge
to protect us. There is a market out there, with good, bad and ugly seekers who
need the money that savers have. They make offers and investors have to choose.
Just as there is no formula for working marriages, efficient governments,
peaceful nations and lasting friendships, there is no formula for successful
investing. One learns, adapts and lives to tell the story.
Fourth, equity markets represent a democratic
pathway to long term wealth. Even as you wonder about risks, associate the
markets with gambling and speculation, curse the ill luck of your latest IPO,
or feel lost in the world of names, numbers and opinions, there are businesses
that are being built. Not all of them are frauds. Entrepreneurs who can use
capital to build value are at work, powered by their imagination, trying to
make an idea big. Some of them succeed, and do so spectacularly. To invest in equity is to invest in
businesses that you cannot conceive or run yourself. The list of the richest people
in the world is no longer made up of barons who found oil in their backyard,
but by people who own equity shares in businesses that they built. It makes sense to figure how to invest in equity, rather
than believing that equity is not for simple investors.
Fifth, money choices are personal. Black is
my favourite colour, but that does not make it the best colour in the whole
world. Nor can I walk into a boutique and disapprove of the display of colours.
Knowing what you need, like, prefer and are comfortable with is only part of
the work for investing. The problem for most is that they make this choice
without even looking around and considering what is on offer. My uncle, who has
never stepped out of his village, proudly parrots the virtues of the food his
wife cooks and the glories of humble curd rice. But then, his aspirations are
limited too. He is not making traditional choices while aspiring to send his
child to the best global school, travelling the world in his lifetime, or
settling into an organic farmhouse when he retires. The mismatch in the
investing habits that I see so commonly around me is just this —we want a world
of benefits from our wealth, but we accumulate it with a warped mindset.
Investors should picture themselves in a
marketplace where the savings they hold is sought after and where they have to
make choices. We
have to move away from being mere savers, hoarders, hero worshippers, cynics
and shortcut seekers. We can alter our behaviour only when we have altered our
beliefs.
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