Deep dive into the world of stock market
Transcriber: Alhassan Hamoud
Reviewer: Bruce Sung
I’m sure all of you collected
coins in your piggy bank.
And when finally the day came to break it,
we were all really excited.
We all felt really rich that day.
But imagine what if your piggy bank
also had a superpower
wherein for every 10 rupees
you inserted in that piggy bank
the piggy bank increased it by 10 percent?
So if you inserted a hundred rupee note,
it would give you one hundred and ten
rupees when you actually broke it.
What would you do in that scenario if
your piggy bank had that power?
I’m sure all of us would put in more
and more money in that piggy bank
because it’s compounding,
it’s growing our money.
Sadly, piggy bank does not
have that superpower,
but stock market has that superpower.
I know, I know,
that might sound a bit surprising,
but honestly, stock market
is a lot like your temperament.
It reflects your temperament.
So if someone is seeking gambling,
stock market is a casino.
If someone is seeking entertainment,
stock market is a movie hall.
And if someone is actually seeking it as
a medium to create wealth, to get rich,
it’s a great place to compound your wealth
and you can actually become rich.
I know it sounds a little unbelievable
because of all the things that we have
heard about stock market over the years.
So let me explain you the true character,
the true nature of stock market.
And for that, let’s talk
about entrepreneurship.
I’m sure most of you either
dream of starting your own startup
or at least have tried your hands
in starting your business.
Now, at times,
what are we restricted by?
Why even if we want to start a startup,
we are not able to do it successfully?
It happens because first
we might be lacking in capital.
We don’t have enough money
and no one is ready to fund us.
Second, we might not have a great team.
We don’t have people
who can execute our idea.
Third, we lack expertise.
We don’t know how to execute it.
All these problems restrict us.
They stop us from achieving
success in businesses.
But this is the magic of stock market.
You know, stock market allows you to
fulfill your entrepreneurial bug
without actually
starting your own business.
Think about it. Think about any business
that you would want to do.
You know, there are more than 5000 listed
companies in the stock market.
So no matter what your business idea is,
there is already a company
available in the stock market
that does something similar.
So think about it. If you want to
start an electric vehicle company
because you think electric
vehicle is the future,
then you can invest in Tata Motors
or Maruti Suzuki or various other
electric vehicle part manufacturers.
And what’s great?
You don’t need to worry about
how much funding you have
because you can invest whatever
amount you have,
so you can become a partner
by investing 5,000 rupees,
by investing 10,000 rupees
or 20,000 rupees.
And think about it,
and this is the best part –
if you would have managed your business
on your own, you lack experience.
But when you’re
investing in, say, Jio,
your money is being managed
by Mr. Mukesh Ambani,
one of the best business
brains in the country.
So when you invest in the stock market,
your money is managed by
the best of the best,
and they take responsibility of your money
and they are managing
your money on your behalf.
How great is that?
How brilliant is that?
Think about it: we often
lend money to our relatives,
to our friends in the hope that
we will get our money back.
But most of the times we don’t
get any money back.
Why not give this money to
the best brains in India?
After all, who would take better care of
our money than great business managers
like Ratan Tata on Mr Adi Goodridge?
So why am I talking all good things
about the stock market?
Am I trying to seduce you into
investing into the market?
Oh no, I’m just trying to
present two facts here
and help you make an informed decision.
The fact is, most people
who invest in this market
lose money in the stock market.
But if stock market is such a great place,
why do most investors lose money?
Why do most investors fail?
To understand this, we need to analyse
why most relationships fail.
I’m sure most people who are hearing this
today have been in a relationship.
So let’s understand why most
relationships fail.
While I claim not to be an
expert in this matter,
but a cursory observation tells me
that most relationships fail
because expectations are expectations out
of our partner goes out of bounds.
We start expecting too much, you know.
The same is the case with
the stock market,
whenever we enter the stock market,
we start expecting too much.
We want to double our money in a few
months or a few weeks at times.
So, you know, because of these
burden of expectations,
we start committing mistakes.
We tend to get very short-sighted
when mentally we know
that we are investing in stocks.
And therefore, you know,
this name “stocks”
it could be a bit misleading.
The better name is “business market.”
Stock market is basically a business
shopping mall, wherein
there are five thousand businesses
on offer to you,
and you can purchase a stake in any
of those five thousand businesses.
So instead of thinking that
we are buying stocks,
we should think that we
are buying businesses.
And you know, there’s another
clever mental model
that will help you stay invested
for the long run.
Whenever we are committed to our own
business, whenever we are self-employed,
we work 12 hours a day, we don’t
get peaceful sleep at night,
we are troubled about
managing employees, taxes,
authorities and everything,
everything that could go wrong
we are directly responsible for that
and we lose our peaceful sleep.
But if you just give your money to
the best businesses in India,
managed by the best business brains,
they do all the hard work for you.
They lose their sleep while your money
compounds, your money grows.
So this is a way of doing businesses
while avoiding all
the hassles of running your
business on your own.
So it’s the best of both worlds.
But, you know, even with all of this, be
100 percent sure that losses will happen.
But think about it.
Just because an airplane crashed recently
does not mean that
you will never board a flight.
You know, we have to accept certain risks.
Similarly, if you invest
in the stock market,
be 100 percent sure that at times
you will incur losses.
But I have a couple of ways to
minimize those instances.
You know, what’s one of the best
things About investing in the stock market
is that you have invested
a hundred rupees a particular stock,
the maximum amount that you can lose
is a hundred rupees.
But what’s the maximum amount that
you can gain? It’s infinity.
The hundred rupees stock
could grow many folds.
Just to give you an Example,
1,000 rupees invested in Wipro 40
years ago is worth 70 crore rupees today.
So a stock can grow multifold,
but the maximum you can lose
is 100 percent.
And thereby, even if, say,
you have invested in 10 stocks
and a couple of them go really bad,
the eight others will take care of it.
And therefore,
you know, as beginners,
we are very obsessed about
one stock or two stocks.
But we should focus on building a great
portfolio of 10 stocks and then
a few of your mistakes
will automatically be forgotten.
But how do we pick 10 great stocks?
That’s the question, and the answer
to it is very simple.
Investing in what you know.
And by that, I mean,
investing in companies
either you work for, your peers,
the competitors of your company
or companies whose products
or services you use as consumers.
Because once we are any kind of
stakeholders in those companies say,
employee, say, consumer,
we know about that company,
how the customer service is,
what the product quality is
and many important parameters.
So, you know,
if we simply stick to this discipline
that I’ll only invest in companies
whose products or services I like,
my families like, or my friends like.
If I just maintain this simple
discipline, in most cases,
you would avoid investing in
companies that are incurring losses
because if a product
is loved by its consumers,
most likely that company would do well.
So I hope this was simple enough.
I hope and I would consider
that my job is done
if I’m able to convince you
that stock market is not a casino.
It’s not a place
that you should be afraid of.
And stock market
is something that can genuinely
create wealth for you
and grow your money.
So I hope you would start investing
because the best time
to start investing is now.
It’s as soon as you start,
because compounding takes time.
Happy investing. Bye-bye.