Journey of a stock market beginner - Reality check before it unfolds

This article is about my fortune telling abilities. Believe me I am really good at it. And guess what? Sitting here today, I will tell you how your investment journey will look like in next 5 to 10 years. 

 

But first let me answer the obvious question you have at the moment. Why the hell I am reading a fortune telling article in Stock Market 101 series?

 

Don't curse me for this example, but imagine how you will do things differently if you know in advance that your house will burn to ashes after 1 year as compared to knowing suddenly one not so fine day that your house burnt.

 

When you know things in advance, you have the option to course correct. However, you can still act foolish. Need examples?

 

1. Engaging in unhealthy eating habits despite knowing the consequences.
2. Driving under the influence of drugs or alcohol despite being aware of the dangers.
3. Not saving for retirement despite knowing its importance.

And the 4th if I may add:

    4. Having lofty return expectations even though beginners have never earned more than 5% return previously.

 

I will leave you to ponder about the effects 1, 2, 3 have on various aspects of your life. None the less, I surely want to offer you one last chance to avoid being Fool no 4 when there is still time.

 

If you are planning to read further, then this is how your emotions are going to play out for another 10 min. First, you will abuse me, then you will confront me, then you will start trusting me, and finally, by the end of the article, you will hesitatingly agree to be a bit careful in future. But that's not all. Here is what will happen next:

 

 

You can replace ? with any of these - immediate, inevitable or irreparable. 

 

Why I am saying this? Because this is the end state of every good advise you get for free :-).

 

Having said that, I will still try one last time to save you from the otherwise almost certain, emotionally draining and frustrating next 5 to 10 years of your investment journey.

 

But first a glimpse of how your next 5 to 10 years are going to look like:

 

As a beginner in the stock market, you will typically start with limited knowledge and high return expectations. The journey of a beginner to becoming a pro often involves the following stages:

1. First you will experience Beginners Luck: Yes, you will experience a form of "beginner's luck" in the stock market, similar to that in gambling. You will start investing at the top of the bull market. You will surely make money with your initial purchases as bull market is still feasting on last suckers. This lucky, profitable investment will lead you to believe that you have a natural talent for investing. However, this luck will be short-lived as success in the stock market requires a deeper understanding of the underlying factors that drive stock prices. But you give a damn.
2. Then you will get excited and eventually reckless: With initial success, you have tasted blood. Spend time researching stocks, reading articles and watching videos to gain a basic understanding of how the stock market works - these activities are all thrown out of your window. Driven by overconfidence, a lack of understanding of the risks involved, and a false sense of expertise, next thing you will do is to set unrealistic goals (like doubling money every year - i am being modest here). To realize this un-realizable goal, you will shift towards F&O trading. You simply don't know what L stands for in the word Leverage ;-). 

3. Then you will get confused, disappointed and frustrated: Instant karma strikes back. In no time you will loose an amount which will be substantially above your risk appetite. You get confused. You now start going back and forth from delivery to FnO to recoup losses. But nothing will work. The emotional impact of losing money will result in feelings of disappointment, frustration, and anxiety. The whole market will appear rigged. You will start questioning your ability to succeed in the stock market and even consider giving up. But stock market is addictive. You couldn't give up and remain reckless for some more time. Pardon me. I don't know why I am typing this. Surely not to mock you. चौबे गए छब्बे बनने, दूबे बनकर आए. I can see you have started hating me now, but that's ok. Let's move ahead.

4. And finally after enduring so much pain you will awaken: Sanity will prevail at end. You will reflect on why it happened. You will finally start appreciating the fact that success in the stock market requires more than just a basic understanding. You will start to seek out more comprehensive education, either through self learning, books, or mentorship, to gain a deeper understanding of market and other important Behavioral Aspects of investing. These are the things you will learn from the roller coaster journey (of course after losing a lot of money):

   1. Volatility is normal: The stock market is inherently volatile and can experience sudden, sharp swings in both directions. So be prepared for it.

   2. FnO is not for beginners: I repeat - FnO is not for beginners.

   3. Diversification is key: Diversifying your portfolio across different types of investments can help to reduce your overall risk. 

   4. Timing the market is difficult: It's almost impossible to consistently buy low and sell high, so don't try to time the market. Instead, focus on investing for the long term and stick to your investment strategy, even during periods of market volatility.

   5. Do your research: Before investing in any stock, be sure to do your research and understand the company and its financials. This will help you make informed investment decisions and minimize your risk.

   6. Be prepared for losses: No investment is completely risk-free, and you may experience losses along the way. It's important to be prepared for these losses and to have a plan in place for managing them.

    

And finally, after putting in effort in the right direction, you will regain your confidence. Your investment decisions and ability to manage risk will improve. And may be now you will be on the right course to be a pro (i.e. consistently profitable). Reread the previous line. I said may be. Let me clarify why I said may be? Because, there is high probability that you will again fall back to Stage 1 and repeat the cycle. I already said Stock Market is addictive. But do you know what's even more addictive? Hear this:

 

 

*Please note, the above line has been written by an over confidence addict and not drug addict. Come on, have some respect for me ;-).

 

Jokes apart, all in all, this is what I am trying to convey. Sorry, but no Sugar Coating.

 

As a beginner in the stock market, your journey is going to be challenging and full of ups and downs.

The ups and downs of the market can lead to feelings of uncertainty and frustration. It doesn't matter how much you hate it, but this is normal, and most beginners go through it in their first 5 to 10 years of investing.

 

I can see you in confrontation mode now - what the crap is this, 5 to 10 yrs?

 

And if you are in confrontation mode then this is the first telltale sign that you will be the next sucker, sorry I meant beginner ;-) who will embark on this journey.

 

Sorry for sounding so doom and gloom. However, the intention is not to scare you off, but to encourage you to not repeat the most obvious mistakes.

 

Why don't you cut the crap of being a savior and simply tell me what can I do to shorten the time frame of the so called inevitable suffering. Assume I believe every word you said above. Aye Aye, Sir. Here you go.

 

If you are really interested in shortening the painful journey, then this is what you have to do:

 

 

The first target should be to beat savings deposit rate (5%). The second is to beat inflation (8%), the third is to beat the nifty return (12%). And then think of beating Warren Buffett (20%). Sorry, my son just asked - Dad छठी का दूध याद आना का अर्थ क्या है ? Totally confused why he is asking this now. Anyways, let's move ahead.

 

 

a. Kids are taught only to walk. Running comes naturally to them.

b. Kids don't start running before they learn how to walk.

 

Translation of a,b below just in case you did not get it

 

a. Be profitable in cash market. Profitability in FnO will come naturally to you.

b. Don't jump into FnO till you are profitable in cash market.

 

Let me repeat:

 

 

 

 

Do not draw your motivation to act (invest/trade) from others (analysts, social influencers, news etc). Always remember, its a lonely journey. No one else will make money for you. Whatever is said to you will actually be a sales pitch disguised as good advise. Don't trust me too. I am no saint either. I will be selling subscription to you soon. Keep a watch ;-).

 

 

This should actually be at number 1 and not number 4. Why? Because by just thinking long term, you will be saved from 99% of the pain. Thinking long term is beneficial for a stock market beginner for the following reasons:

1. Reduced risk of market fluctuations: By investing for the long term, a beginner can mitigate the risk of short-term market fluctuations and volatility (your level of suffering rhymes with this fluctuation). Over time, the stock market has a historical trend of growth, and investing for a long period allows beginners to ride out any temporary market downturns.

2. Compound growth: Another advantage of long-term investing is the power of compounding, which is the ability of an investment to generate earnings, which are then reinvested to generate their own earnings. This creates a snowball effect that can result in significant growth over time, particularly for beginners who have a longer investment horizon.

Having listed the benefits, let me remind you. Thinking and acting Long Term is the hardest of all. 

 

I think I have lectured enough for today. Leaving the rest to your judgment, I will take your leave now, but not before telling you a bad poem. Thanks for tolerating:

 

I am here to help and be your guide,
In the stock market, I'll help you stride.
With my advice, you'll surely thrive,
And from losses, you'll surely survive.

Be realistic with your returns, you'll see,
No leverage, it's the key.
Think long term, don't be in a rush,
A solid portfolio, that's a must.

So hold on tight and follow my lead,
The stock market, you'll surely succeed.
A successful journey, is what you'll find,
With me by your side, and of course peace of mind.