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Equity is a marathon race, not a 100m dash

Last week I got a shock as I bumped into an old colleague after almost a year. With no job, no car, no house, no savings and a big debt, he naturally looked miserable. Shocking - as till recently he had a great job, a palatial house, two big cars and an enviable bank balance!

Why did he end up like this? Reason - Greed!!

Who wasn’t tempted by the booming markets? And on top of that - easy & cheap finance available? My colleague too fell for what appeared to be a golden opportunity to quickly becoming a multi-millionaire.

So armed with his bank balance and taking a big loan against his house, he plunged into the stock markets with a gusto. But soon thereafter the markets fell precipitously. Not only did he lose money, but also his house & car as he had to pay-off the loan. Having gone into depression, he lost his job too.

If only he had not borrowed money to put into stocks!! He could then possibly have avoided distress selling. As he couldn’t service the loan, he had to perforce sell at a huge loss.

Point to note: Never borrow to invest in equity

Further, the entire money was put in 2-3 market-fancy stocks rather than in 10-15 solid businesses.

We all are aware of what market fancy does to the stocks. It quickly takes them to stratospheric heights and then dumps them equally fast as pariahs never to recover. The tech boom and bust is still fresh in many peoples’ minds.

‘Don’t put all your eggs in one basket’. This may be an oft-repeated cliché, but no one can deny its’ efficacy.

Point to note : Don’t bank on just a few stocks

Besides, he made lump-sum investment.

Given that the equity markets are highly volatile, it is never prudent to commit your entire money in one shot. Another oft repeated clich̩ РSlow and steady wins the race Рis again equally applicable here. However, in his anxiety to make fast money, my colleague had to pay a very heavy price.

Point to note : Avoid lump-sum investment in equity

As Benjamin Graham says “Investing is about making money in the future. And there are two ways to look into the future – Prediction and Protection. Prediction is Impossible. Therefore, the best way to make money in the future is Protection”. The morals in the above story do precisely that – they protect our investments and increase the chances of making money.



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