This is not the first time that I am doing a post saying ‘why people lose money in equities’ – nor will it be the last!
Of course there are many reasons, here is an attempt to find some of them:
1. Over-Confidence: It is quite shocking to see how people over estimate their ability to pick up stocks. This in face of their portfolio staring at them from one of the websites!
2. Over-Confidence: People who have heard ‘In the long run, equity shares out perform other asset classes’ without understanding average returns, CAGR, standard deviation, or other statistical measures. Many of them have not seen the data to understand what this means, so they will continue to ‘build’ their portfolios by picking up shares of by ‘knowing’ which fund scheme to pick.
3. Paying too much for growth: A company with hardly any profits but part of the ‘India growth story’ is a great buy! But dull dividend paying companies like Colgate, Gillette, Procter and Gamble look ‘too expensive’. To me it seems to be they look ‘dull and boring’ or another great ‘knowledge’ that everything is in the price. Growth is over rated and terribly expensively priced.
4. Not diversified enough: Not understanding what it is to diversify they pick up a bunch of mutual funds – overall there is hardly any diversification. Thank God for some compulsory provident fund – or that money would have gone into ‘building’ more diversified equity assets.
5. Over and Hyper activity: needs no explanation. Too many brokers, too many advisers, media – all encouraging to trade take their toll. So here is a big group of voluntary donors to the brokers welfare fund. Look at brokerage balance sheets – you will know what I mean!
6. Paying too much for advice without knowing that they are paying too much!
Source:Subramoney.com