Minting money

  • Publish Date: Jul 15 2019 4:41AM
  • |
  • Updated Date: Jul 15 2019 4:41AM
Minting moneyRepresentational Pic

Earning hefty amount of money, especially by doing something very successfully, is everybody’s dream. It’s in our nature to see the money in our possession multiplying quickly. For this, we take investment and savings route. When we talk of investment, we find equity (share) market as the most preferred destination of common investors to make quick bucks. Even as equity market is a place where return on investment is higher, risk of losing the investment is equally higher than the investment in savings deposit instruments of banks.

Before I deliberate upon the investment in equity market to mint money and the risks associated with it, let me share a few driving lessons which I received from a veteran. The veteran was not an investment guru, but a person who used to carve out his living by driving official car of a top central government official. I understand that these lines of today’s column mentioning automobile matter instead of money matters may be confusing to you. But believe me, I am driving in right direction with some important lessons of money matters.

Before clearing the things, it makes a sense to tell you about two useful driving tips which were passed on to me by the veteran chauffeur. His first lesson: respect traffic regulating signals and never drive through a crossing when the signal of your driving lane is blocked by red signal. He even emphasised that don’t even drive through if no vehicle is passing through the crossing till green light flashes. Then the most important lesson was about the speed. The professional chauffer emphasised that one of the most important skills in driving is judging speed - applying appropriate pressure on accelerator matching appropriate conditions. 

So driving the car through a crossing by ignoring red light and driving it at a high speed on a crowded road is highly risky. These are the conditions which can prove fatal. After you learn the art of driving, you come across other risky conditions like bad weather, bad roads or heavy traffic etc. which you have to negotiate day in a day out. But respecting traffic lights and balancing speed according to the given conditions are primary needs to develop and chisel your driving skills. Pertinently, you actually develop driving skill over time as you build experience driving in different conditions.

So, what to do in any risky condition?  The best bet is to control your speed by adopting slow down strategy. But unfortunately not all follow the above mentioned driving lessons and the net result is that they suffer the consequences.

Now let me practice these driving lessons in the investment arena where the equity (share) market is all the time crowded by investors - young as well as old people. My experience with people in the field is that young investors, whom I call raw investors as most of them lack knowledge about the market, turn blind eye to the regulatory signals. They are unable to maintain appropriate pressure on the accelerator or in other words misjudge their speed while navigating in the market. Ultimately, most of the times they succumb to the risks and lose their hard earned money.

With the advent of technology and growing online networking of workplaces, homes, bed rooms, etc. more and more people are entering into the market arena. The market experts point out the young people for actually turning the market into a crowded place. Signals to help the investors to navigate safely at the cross roads in the market are meaningless to these young investors as they enter into this crowded place at a high speed making risky investment in stocks at random to earn quick bucks. Most of the time, they ignore the red light and expose themselves to high chances of getting hit.

Ours is a place where a long list of these kinds of investors exists, who ignored risks associated with the equity market and even lost their capital. These raw investors diverted their basic business funds into the equity market and even raised bank loans only to suffer losses. They basically ignored regulatory signals and drove through the crowded market at a high speed.  Otherwise, to mitigate the risk of being hit or hurt, the investors should have driven through the crowded market without breaking signals and also maintaining appropriate the speed.

However, as far as the young investors are concerned, they at least are having an advantage to try and square their losses, as the time is on their side. The situation is worst for elder investors. Entering in the later stage of their life into the equity market leaves no scope for them to ignore red lights and misjudging their speed. Time is not on their side.

Elder investors have to be honest with themselves. Over a period of time, age tells upon their vision and reflexes. So, for them a slower speed is most appropriate. They have to understand that they cannot step hard on the accelerator because a loss in the equity market for them is very hard, almost impossible to recover. What they need to do is to back off the accelerator, just as they would when pulling up to a stop sign. In this case, let me reiterate that any violation can cause extensive financial damage that you as an elder investor may not have time to recover from.

At the same time young ones, in terms of age, have to keep their eyelids open and spot appropriate signals at various crossroads in the market people. Judgement of speed should not be overlooked. Age may be on their side, but they are not immortal.

Lastly, for everyone - young or elder ones - the basic thing while entering into the market is to understand that investing in equity market is all about balancing risk and reward. Risk bearing capacity differs from investor to investor. But there are a few rules like the ones mentioned above that generally apply to investors irrespective of their risk bearing capacity. However, it is advisable to take advice from financial consultant before investing in equity market.