The May Mayhem

The May Mayhem

I started writing this document sometime in March 2006. However due to some personal reasons and my own lethargy, I did not complete it. Two months later in May, Something very catastrophic happened to the Indian equity market.

Unable to catch a falling knife:

This month was one of the worst months in the history of Indian stock markets. Due to a combination of factors, market came down heavily and market analysts called it with terms like ‘free fall’. As a beginner and a small retailer online, I had to make the free fall with it and naturally I was shocked. All the gains since January (that’s when I started online trading) were quickly wiped out and the capital got wounded too.

As you can see from the above example, stock market is a place where you can see rise and fall. Only if you are prepared and know what you are doing, think of entering it. In the same manner, since early 2003, markets were on an almost incessant uptrend conquering record after record.

In the markets, patience is key, and learn not to panic:

Hence, not because anyone; any friend, relative, or expert told you and not because you know someone who made a fortune through the markets, consider entering it. In a way it is a wonderful place where money can be made. However it takes patience, knowledge and smart, timely moves, and most importantly long-term investment to achieve the distinction of becoming a millionaire from the market.

As I mentioned, though I got hit badly in the market, the exhilaration that comes from investing in the market, is often overwhelming. It is a meaningful vehicle to making money. However you have to put the act together, have confidence, do your home work and think like an investor than a trader. The difference between a trader and investor is that a trader goes daily to the market buying and selling and makes money from it. An investor studies the underlying business, sector, its chances more carefully and then invests for a much longer term, two - three years to twenty - twenty five years for example.

Confident in the face of mounting loss:

It is easy to advise but difficult to practice. However those who have become millionaires from the market were definitely confident of its long-term prospects. Without that kind of confidence and nerve of steel, they are sure to have left it all and runaway at some point.

Although I incurred huge loss on my small investment in May - June 2006 due to huge market crash, my confidence in the market has not wavered. Especially because I can see all around growth happening in my country and because I believe that the market in the long-term has to reflect this growth in Indian economy. Market analysts call this prospects of the country by the term 'India story'.

Early loss has been a reminder:

Also, the learning process I have been going through is of tremendous value to me. As you want to be successful in the market, you would try to understand all you can about the dynamics of the market such as Indian and world economy, market trends, sectors, various businesses profiles etc.

In fact an early loss has reminded me of the chances of major setbacks from the market. It has been overall a great learning experience except that the money is involved