I stopped investing in the stock market and you should stop too

I stopped investing in the stock market and you should stop too Follow @merinews

11 February, 2013

I came across a small news item at the bottom left corner of the front page of the Times of India, Sunday 10th February 2013 (Chennai Edition), which said: 'FM has hinted that the budget will contain measures to boost equity culture among retail investors.' The news has sent alarm bells ringing in my mind. As a retail investor who lost half my retirement benefits in the Harshad Mehta Scam of 1992, I consider it my duty to share my experience in investing in the stock market with innocent and gullible retail investors.

I had retired from the Army in September 1991 and had received a few lakh rupees as retirement benefits. I considered myself to be an intelligent and well read person and thought that there was no reason why I could not make money on the stock market.

Harshad Mehta, a stock market broker known as the “Big Bull”, had started what was known as the “Bull Run” by investing money borrowed from banks in shares. Stock prices were rising every day. Everyone around me was investing and thinking he had made money because the value of his stock was going up. Was I going to miss out on the great opportunity? I did not want to. So I invested half the funds at my disposal and watched with great satisfaction as the prices of the shares kept rising. Then on April 28, 1992, the Harshad Mehta securities scam came to light. The BSE index crashed by 570 points or 12.77%. All my investment was almost wiped out. There have been 10 stock market crashes in India between 1992 and 2013. These are:

- May 18, 2006. Market lost 827 points

- April 2, 2007. Market lost 617 points or about 5%

- August 1, 2007 Market lost 615 points

- August 16, 2007. Market lost 643 points

- October 18, 2007. Market lost 717 points

- November 21, 2007. Market lost 678 points

- December 17, 2007. Market lost 769 points

- January 18, 2008. Market lost 683 points

- January 21, 2008. Market lost 1403 points.

I do not claim that I invested wisely. As a retail investor with limited knowledge and experience, I did what I thought was best. There were millions of small and big investors who lost large amounts of money in these crashes. A young working lady had to sell off the car she had bought when the going was good to pay off the broker. A wealthy friend of mine had to sell off his cloth factory.

Markets do not follow any logic. They crash when some big brokering houses are found to have indulged in financial impropriety. They crash due to international events like wars, rises in oil prices, government policies and a host of other things about which a retail investor has no knowledge and influence. The broker always makes money. They take a percentage whether we buy or sell, whether we make money or lose money.

Wealth is of two types, real wealth and virtual wealth. Real wealth has a fixed value which does not change suddenly. Cash, gold, jewellery, properties constitute real wealth. They cannot disappear on their own. They have to be physically removed like being stolen or destroyed in war or in a natural calamity. But virtual wealth, the value of your shares, debentures, financial instruments, mutual fund investments are all subject to market risk can disappear while you sleep.

Why does the finance minister of our country want ordinary people to invest in shares and indulge in unsafe speculative activities? I am scared of all salesmen who are trying to sell investments. Papers are full of stories of cheating of gullible people with promises of doubling investment in one or two years. But there are always greedy people wanting to make a quick bucks. The cheats disappear with the money and the greedy are ruined. I do not think he is an honourable man. I do not know why he wants to put the hard earned money of ordinary people at risk.

Conclusion

I have been bitten and lost heavily on equities. I have stopped investing in equities. I am a poor old man with no money which I can afford to lose. Do not be taken in by sales persons promising unmatched returns and asking you to invest in shares, debentures or mutual funds, whether he is the finance minister or a broker. They do not care whether you make money or lose money. They are only interested in their commission and profits. My advice is that invest your hard earned money in gold, Public Provident Fund, government bonds, fixed deposits in nationalized banks, pension fund of nationalized insurance companies or property.

Finally; it is your money. You have every right to do what you want with your money and live with the consequences. My only request is “look before you leap”. Look up the history of stock markets on the Internet.