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Are you interested in investing and want to know what it takes to get started? It’s important to consider the differences between easy access to investing platform vs expertise required to make your investments successful. In this blog post, we’ll explore the advantages and disadvantages of both, so that you can decide which is the best option for you.
It was early afternoon when Satish stepped into the last car of the metro. It wasn’t rush hour and he could easily find a seat. A moment later, a tall young man, probably in his late twenties, sat next to him, immediately pulled out his smartphone and got busy in what Satish assumed was a mobile game.
Thirteen minutes and two stations later, the young man sighed and put his smartphone back in his shirt pocket. Evidently he was done with whatever he was doing. He glanced around, looking at nothing in particular.
Always ready for a quick conversation with strangers, Satish smiled at the young man. They soon got talking. The young man introduced himself as Kundan, a graphic designer.
“Looks like you’re hooked on to some mobile game, the way you buried yourself in the phone as soon as you sat down!” Satish said casually, after the usual exchange of traffic and weather complaints.
It was the young man’s turn to smile. “Oh no, uncle! I was just checking my day’s investment in the stock market. I trade almost daily, and this app InvestorBhaiya (name changed) is amazing.” he paused, “Aap karte ho shares mein invest? (Do you invest in shares?)”
Barely 42, Satish didn’t like being addressed as ‘uncle’, but he rarely showed it. So he nodded, “Yeah, but not much. Don’t get much time, actually.”
Kundan excitedly offered to help. “Arre, kuch nahi hai (It’s nothing!) uncle! It’s quick and easy: download the app, connect it with your bank account, and start buying and selling. That’s it! I spend about 15 minutes investing and another 10-15 checking. Daily. Three weeks back, I knew nothing about the stock market – but I have already invested almost 1.5 lac rupees by now. Technology ka yahi toh maza hai na! (That’s the best part of technology.) See?” He pulled out his smartphone again.
Kundan spent the next ten minutes showing how the InvestorBhaiya app worked. Soon it was time for Kundan to get off the metro, leaving Satish with a question: Is a quick and easy investment app a good idea?
How availability drives behavior
Apps have done some amazing things to our lives. They let you order mouth-watering pizzas, hail cabs, learn yoga, book tickets, schedule meetings, virtually attend exhibitions, read your favorite newspaper, find a vet for your Cocker Spaniel, and do a million other things – all with a touch of a few buttons on your smartphone.
Perhaps the key driver is how easily your apps let you do it. Apps are easy to download and easy to use. This availability has driven changes in people’s behavior like nothing else. Elderly people, often considered the last ones to adopt technology, too have become regular users. About three in ten people in the age group 50-80 use at least one health app (Source). It’s a new world altogether.
Study after study has revealed how easy availability can change the way people behave. For instance, an increase in vegetable stands in neighborhoods have led to people buying and eating more vegetables than ever before. And remember, nothing else was changed, except the availability. The same results were found with gyms and cake shops: improve availability and consumer purchase patterns change.
Investments made ‘easy’
Wait a minute: if increased availability leads to increased consumption, would you eat more medicines simply because there are more pharmacists and medical stores near you? If you had two medical apps on your phone, would you self-prescribe a bypass surgery? Quite unlikely. Unless the doctor specifically prescribes you something, there’s no way you’d pop more antibiotics, right?
It obviously means that while we may buy more of certain stuff if we see it more often, this behavior doesn’t apply everywhere. It doesn’t take much thinking to realize that it all depends upon the expertise required and the risk factors involved.
Now think of the InvestorBhaiya (it’s a fictitious name, remember) app Kundan uses, or whichever app you use for your investments. They certainly make investing super easy – a click here and you buy 100 Andhra Sugar, a click there and you apply for the Emcure Pharma IPO.
All the hassles of issuing cheques, filling up forms, signing slips, … all of them are history. The handshake of investment apps and internet banking removed all the hurdles. Any paperwork that stopped you or slowed you down in buying and selling scrips has practically vanished.
Most people don’t realize it can be a bad idea.
Don’t confuse ease with expertise
Ten years back, you (or Kundan) likely didn’t have such investment apps. So you had to go through a lot of things before you could buy or sell securities. Those things took time and slowed you down. You had to make certain efforts to invest (or divest).
Which also means that unless you were absolutely convinced, you were unlikely to make those efforts. For instance, if you didn’t understand the fundamentals of a scrip, you wouldn’t pump in Rs 15,000 in for 100 Andra Sugar.
So in a sense, the efforts you required to put in to execute an investment decision actually did you some good. These efforts that slowed you down actually stopped you from taking uninformed, rash decisions you would have regretted later.
Today’s investment apps bypass these efforts. Click, and you buy. Click, and the funds are debited. Click, and can get LAS (Loan Against Shares).
With all this ease and comfort of the app, it’s easy to forget that investment is about expertise and deep understanding. It’s about analysis, not about ease. It’s about strategy, not speed. In short, investment is about the investments you make, not the medium you use.
Just because you can easily invest or withdraw funds doesn’t mean you should.
There’s a Kundan in you too
Put yourself in Kundan’s shoes. You are 29, you have had a great education, and now you hold a high-paying job in some IT or pharma company. And during the lunch breaks, you hear your colleagues talk about their ‘smart’ investment decisions. You watch them tap their smartphones to buy or sell, based on some ‘sure-shot tip’.
They seem to have figured out investments and financial planning. You feel silly not investing the way they do.
And with your income levels, there’s no point holding back. Every month you have some 50k or so that you can easily set aside for ‘investments’. So you open an account online, download the app, and start trading. Yay! You are investing for your future, your family’s future – you are an active investor now!
Only that you’re shooting in the dark, mostly.
You are probably fond of eating out – we all are. But you insist on going to a place that follows hygiene standards. Why? Because you don’t want to take chances with your health. A single burger with a patty that’s gone bad could land you in a hospital bed for days.
Sadly, people aren’t as careful with their hard-earned money.
The stock market is unforgiving.
One lapse in judgment can push back your investment goals by a few years. You cannot afford to take things lightly.
What it takes
Like most other activities that are rewarding and profitable, investing is both an art and science – it’s a craft that needs to be practiced. It takes time, dedication, experience, and knowledge. And discipline.
Consider debt investing, for example. While it’s a relatively safe investment, you must realize it can also be a low-returns alternative. If you wish to get reasonably decent returns without risking your money, debt investing may be a good idea.
But for that, you’ll need to understand what is liquidity risk and what is duration risk. You’ll need to match these risks against your risk-taking abilities. What if the investment is safe, but repayment is likely to be delayed by, say, two years? Will you be able to afford the delay?
Or take equity investing, which is obviously more risky but more rewarding than debt investing. You will have to understand the industry of the stock you’re interested in. You’ll need to figure out what investing style suits you best. At 29, it might sound ok to go for high-risk investments, but opting for dangerous stocks you know nothing about is suicidal, not just high-risk.
Equity investing will require you to understand and develop the stamina to combat volatility. A single event can send the Sensex tumbling down for a few months (or shoot it up like crazy). Have you developed the peace of mind to resist temptations to overbuy out of greed? Or sell because of the fear that everything is crashing down?
Concluding thoughts on building wealth through investing
If you are keen on building some serious wealth through investments, there are a few things you want to understand. Firstly, investment takes discipline if you wish to grow. Giving knee-jerk reactions for every trigger in the market won’t do your investments any good.
Secondly, wealth-building takes time. It’s unrealistic to expect that your investments will double, say, every fourteen months. Thirdly, unless you are full-time into equity trading and have an excellent knowledge of the stock market, avoid investing directly in equity. Choose equity mutual funds instead. The expert fund managers are highly trained and they have access to tons of information and models to decide where to invest. Trust them.
Finally, the important part: wealth building is a future event. Which means probability always plays a role, whether you like it or not. Investing in a strong equity mutual fund with a reliable partner like Finvoyage can greatly enhance your chances of achieving significant long-term wealth. And that’s precisely what you should aim for.