[Caution – This post may contain sharp satire. Please don’t read it if you can’t handle it]
Investing in Equity markets is very risky. There is too much negativity around for the Indian economy and a big down side risk it poses on the value of your investments. Inflation and interest rates are high which are affecting the common man and the businesses. You might have heard about so many stories around where people would have lost truck loads of money in the stock markets… the list of reasons for not investing into Equity goes on. Retail investors had been intelligent for not participating into the equity market based investments and I would also strongly support their decision and encourage them to continue to stay away from such investment options including Mutual funds which invest into Equity markets.
For die hard fans of equity investments, you might be thinking that the author of this article is going nuts ! Trust me, I am saying this for your and my benefit and I have strong reasons to ask you all for this FAVOUR for staying away from Equities. Let me give a couple of reasons which is driving my selfishness to ward you off from this investment option. All the points mentioned below are ought to happen if you have cash which is sitting in your bank account and has not been invested.
Your love for fixed deposits and earning fixed rates from interest makes me really happy. The banks keep you happy by paying you a fixed interest which is told to you at the time of investment. You can hence forecast with reasonable certainty your investment maturity value. You are happy and so are banks. But I am even happier ! You keep most of your savings in banks for which you are paid pea nuts. Banks would then lend this money at multiple times interest rate and make a killing out of it. Though your money may grow 2-3 times over 10 years, I will be 10-50 times richer by investing in these banks who make money on your money ! You don’t believe me ? Just look at the stock price of ICICI Bank which in last ten years went from 120 to 1200 (plus annual dividends). Similarly HDFC Bank reached from around Rs. 50 to Rs. 700 (13 times). Your FD even if invested at good rates would have at most become 2.5-3 times !! Howzat ?
Buy Flashy Cars
After all it is a matter of your status symbol and comfort. Make sure that you buy the most expensive car your money and credit history can afford. If you don’t have much, borrow from the banks. I am sure you would be happy and make your neighbour jealous. Over 5 years you may trash the car for scrap and buy a new care and even costlier / flashier. But trust me, I would be smiling at your progress as my investment in shares of automobile companies like Tata and Maruti would have grown multiple times supported by your buying decision – Thank you. These companies have grown by 10 times in past 10 years.
Buying a property is every one’s dream – so make sure that you buy one as soon as possible. This is even more possible if you have a lot of uninvested cash lying idle in your bank account. And if luck is with you, buy as many as you can. I am sure they would enhance your wealth (as well as mine). I would be investing into shares of real estate companies as well as industries providing basic raw materials like Steel, Cement, etc. Your property may or may not grow at a rate you want, but I believe that your demand would definitely keep my companies on their toes and deliver year on year record results and healthy dividends.
Repay your Loans
And please make sure that the loans which you take are being serviced regularly and aren’t being defaulted. Because if you do pay on time, you will be able to borrow more in future. This will more possible if you have funds in your bank account which are not invested into Equities. And all this will keep the banks (in which I invest) healthy. So you pay the interest to my banks and I earn it all the way through.
Jewellery & Gold
Why to stop here ? Gold investments are termed as man’s best investment partner. Please do go ahead. I am sure that over a period of long term you would definitely gain above inflation rate of return. In the mean time I would invest in companies selling gold and jewellery to you as your investment demand in their products will fuel their profitability and I would make multiple times of inflation as my return ! Take for example – Titan Industries. The share price has jumped sharply from below Rs. 10 to over Rs. 275 in less than 10 years which is a staggering 27 times return. Gold prices have gone up too over in 1 years, but from Rs. 500 per gram to around Rs. 3,000 per gram (6 times).
Smokers & Drinkers
If you smoke & drink, don’t be taken away. New year resolutions to quit smoking and drinking are made to broken in the first week itself. I must sincerely thank you for taking the risk on your life as it helps investments in ITC and brewery companies like United Spirits in India to grow. So while you may have lost a fortune to blow those cigarrets and gulp expensive liquor, the providers of those products made a killing. ITC has been consistently growing at a staggering rate from a sub Rs. 20 share to over Rs. 300 per share (10 times in 1 years). Similarly, United Spirits rose from a sub Rs. 50 per share climbed to over Rs. 1800 a share (36 times) during the same period.
And if you land unfortunately in a hospital or being sick, perhaps you may be able to get some comfort by visualising some one prospering by investing in stocks of hospitals like Apollo or pharmaceutical companies like Dr. Reddy whose medicines you may be buying.
Apologies if this article was too sarcastic for you to handle. But at times we need a jolt to wake us up. Just because we are sitting amongst family members, friends and colleagues at work who are too afraid and pessimistic about equities and its associated risk, it does not mean that one should shy away from the opportunity of making big mullahs from their money. Remember, money always makes money. If not for you, for some one else. If you invest it in right avenues, you can be assured that in long term your money won’t betray you and would make handsome returns for you. However, if you stick to traditional investment avenues or shy away from investing, then your money would still be making money, but only a minor percentage would be in your pocket. A lion share of the returns would be pocketed by some one who borrowed your idle money and invested it in a right manner. And then… don’t blame the bankers !
This post has been inspired by an article published in Outlook Business (Jan 2013) “Do Not Invest in Indian Equities”
4 Replies to “Please Do Not Invest in Equities”
sarcastical but TRUE……………..
so wats the end to it
MF are subjected to market risk and for withdrawing money people have to wait for Market to rise ………..
question here is do the NAV for Good funds increase in long term
I had invested in IDFC PREMIER EQUITY IN 2011
the NAV TAT TIME WAS 32……..
now itss 36……….
BUT STILL THE RETURNSS ARE NOT GREAT…..
I can appreciate Sushant. However, the markets have not done great either. I am sure if you wait for longer term, the returns will be worth the wait.
Nestle India gains when we buy Maggi or Milkmaid,
Asian Paints gains when we buy a new house or repaint our house,
Page Industries gains when we buy Jockey,
Procter and Gamble gains when we buy Tide/Ariel,
GSK Consumer Healthcare gains when we buy Horlicks,
Godrej Consumer gains when we buy Good Knight or Cinthol and their are many more good companies which have gained and created wealth for shareholders over a long period of time!
Its just that instead of looking for short-term gains in equities, we must have a long-term view and then buy in companies which are generating good free cash flows and have plenty of room to scale up further.
P.S.- None of the above mentioned equities must be taken as a recommendation to buy.