Stock trading is something which gives us a lot of adrenaline rush. Especially with films and web series with awesome background score, trading becomes the number 1 hobby for all age groups and all professionals – doesn’t matter if you are auto rickshaw-wala or a retired business owner.
But to give you your answer, i believe that any individual who earns a salary and has dependants or EMIs to pay and can barely save up to 5k to 7k a month shouldn’t get into stock trading. Fundamentally, buying and selling shares isn’t for the middle class. Please note that i am highlighting the fact that a middle class person shouldn’t do trading. I have nothing against a person who buys individual stocks to hold them and not track target price and sell them.
Here are few reasons why i think trading is not required to be done by me who is a middle class investor.
- lack of time
- Lack of technical knowledge
- it isnt the long term game and is against compounding
- Greed
- Scams
Can you give time for trading?
Lets say Raju is an employee of an IT company whose working hours is 9:30 to 7 from Monday to Friday. Raju while commuting everyday in local train/metro over hears many conversation on this and that stock doubling money in just 40 days. Raju decided to invest in stock XYZ with a target price of Rs 450. Currently the price of the stock in 400. So, with 50 rupees as the foreseeable profit Raju puts in Rs 5000 to buy 12 stocks (including brokerage). He keeps a track of the price everyday, the stock reached 425 and started to topple down towards its stop loss which was set at 380. Raju, having no clue what was happening sold of his stock with a loss.
What do we learn from here? Buying a companies share involves not just putting some money looking a the target price. It involves background research of the company, studying balance sheet, listening to AGMs, having faith in the management and its decisions. Only if it checks all your requirements, then you buy that stock. Buying a stock means you are having ownership of that company. Doesn’t matter if its 0.0000000001%, still you have an ownership of that company. Would you like to own a company just by looking at its target price? Therefore, we need time to know amount the company and keep a track of the news coming up and this requires time. A 9-7 employee or a small scale business owner cannot give that much of time to trade in the stock market.
Lack of Technical Knowledge
I have seen many people in trains and buses discuss about stocks and bragging baout their profits. I ahve also seen people starring at a candle stick chart on phone while commuting to office. I dont want to undermine anyone but what do you think you are doing? Forget about owning the company, any trader requires in depth technical knowledge in the financial field. Technical knowledge doesnt just mean reading charts , it also involves knowing taxation, international relations, equity view, P/E of a stock and its implications, etc. Would a random middle class person have such in depth knowledge?
It isn’t the Long Term Game and is against Compounding
We know at what rate my portfolio is compounding when i know the IRR of my portfolio. India today still brags about their wealth growing in absolute terms. This is the reason why we fail to understand that trading might look very fancy buy booking some profits here and there, but for how long. Will you be able to continue with this for 10-15 years everyday without fail? For a trader, there is no compounding. For an investor, compounding is everything.
Greed
Yesterday i saw an Instagram post. It showed a man wearing expensive suit coming down of a chartered flight with a wine glass in his hand. the quote said “have a millionaire mindset”. The whole game is greed. When you think of trading you think of making quick money. Lets be realistic – it is how it is. Greed takes over you and there is no stock which is bad if it reaches its target price. Greed clouds our judgements and makes us think if there is way to be rich it is by gambling in the stock market.
Scams
Thanks to the security forces now, they have taken up financial scam very seriously in India. There are so many scams happening these days which are targeted towards traders like you and me. Why? Because, trading is offered to be the most lucrative and get rich quick path for all middle class. Thus scammers use this as an opportunity to attract them by giving them target price and false strategies ,etc. We fall into this trap because there is no way we can figure out the difference between a genuine brokerage house and a scam.
These are some of the very common reasons why trading is not the cup of tea for the middle class janta. Do let me know in the comments what you think about the same.
