Stock Market is all about good valuation, getting out of the market at the right time and sneaking back at a more comfortable level.

“It’s a jungle out there”- goes the punchline for the ad of a famous brand. The same holds good for the world of equities. The jungle is even denser and arcane for novice investors. Equities are synonymous with stocks and stocks as we know are very risky to invest in. Is this just a perception or a hard fact?

“Not really”, says Kaja Ramesh of IL&FS Investsmart. “Everybody should invest a reasonable amount of money into equities which is the means to beat the rising inflation.” One should know what exactly stocks are. Shares are nothing but a part of corporate equity held by investors. Shares come with the risk and reward associated with the ownership of a corporation.

“Shares underline the business of the company itself, which actually is not that risky. So, the perception that holding stocks is risky is due to the behavior of the stock markets over a short period of time. In the long run it is not at all a risky proposition”, says Rajvir Singh Jabbi of Way 2 Wealth Securities. He also adds up saying, “It is a proven fact that equities are the only asset class which can give you maximum return on your investments. It can actually match the growth of the industry.”

Inspite of all the positive signals send by experts, people are still very tentative and always feel the heat of the risk involved with stocks. It is still believed that stock markets are casinos. But the risk can be minimized and everyone should understand this. “The rule of the game is to stay invested for a long period of time- the chances of loss are, thus, minimized”, says Shivaprasad of Sundaram Mutual. But it is seen that the first timers are still very edgy about equities. There is again a big question whether to invest in the primary market or the secondary. Both may sound good options, but it really depends on how well informed the investor is. It often seems easy to invest in the IPOs except that they don’t have a past record to boast. Scrip in the secondary market does have a past record, which one can use.

“We have seen a lot of rush for the IPOs of late. This is because all the IPOs that have been announced in the past year gave good returns as soon as they got listed. But we will soon find that listings will happen at a more reasonable pricing. And when this happens, you will see a lot of people not waiting for the IPO route and taking part in the secondary market.” says Jabbi.

The markets have really been virtual casinos. People have played speculative games to lose as well as gain big time money. But the ones who indulge in day trading are the real gamblers. They may seem like heroes, but experts are for a big no-no for this style.

“Day trading involves no intelligence or efforts”, says Manoranjini Girish of Kumar Jahgirdar Securities.

Long term investors get carried away with the market sentiments. The bulls and bears take their toll on these people. We have seen the markets to be in correction mode for sometime now. Thousands of crores of investors wealth was wiped out, these are the times when a smart investor should stay cool, understanding that the markets always make a correction after a long bull run. The correction is seen when there is a lot of selling when compared to buying in the market.

Conversely, during a big bull-run the investors are again in a fix on whether to continue holding the stocks and wait for the bulls to run really hard or to book profits and liquidate his stocks. Manoranjini advises the investors to determine the returns on their investments in stocks. The moment this return rate is achieved, the stocks should be liquidated. The incubating period could be anything. So the profits booking should not be dependent entirely on the bull run.

One sentiment echoed by everyone is that a lay investor should not overlook the mutual funds. Mutual funds are ideal investment vehicles owing to the fact that they are well diversified, backed by goodwill of the promoters and are managed by experienced fund managers. But a mutual fund management is by no means infallible. Even if a firm performs badly, the manager still takes his cut and grows up the ladder. Hence, ascertaining the professional capacity of the mutual fund manager is very important.

“Generally past performance is the best benchmark to gauge a fund management”, says Shivaprasad. “Moreover there are lots of independent bodies who analyze different funds.” He adds that mutual funds are best for people who cannot control their emotions. He draws an analogy with a doctor operating his own daughter. If his hands shake he better not go ahead. Similarly, it is better to have your investments managed by an asset management company.

The management expense ratio, which is the cost borne by the investor towards fund management, is one thing to keep a tab on. If high, this can lead to a sub-par performance of the fund. This fact is underscored by Ramakrishnan of Bajaj Capital. He says, “Most of the fund houses who have big corpus, should try to keep the management expense ratio on the lower side, the benefit of which should be passed on to the investors. The onus is on the investor to ascertain the management expense ratio is paying.”

Nowadays technology and evolution of the internet has made things very easy for investors. There are a lot of websites where technical analysis, performance evaluation, predictions and tips for investors are available. These websites are easy to understand and have made life easy for investors who no longer have to run to their brokers’ terminals to know what is happening in the market.

Finally it should be accepted that it is a shark-eat-shark scenario when one is into the stock markets. The investor should have a sound knowledge about equities and related instruments. People who are smart are the real players who survive the bulls and bears in the stock jungle.

The writer is an MBA student from Rai Business School

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