Isn't the title of this article, the most common statement that we as a trader/investor hear. And the advice giver could be anyone - your friends, influencers, and now even politicians. While SEBI has enforced stringent regulations to protect investors from misleading statements, frankly speaking, no one can protect you better than YOURSELF.
But HOW???
We will be coming to that but first let's look at the series of events that happened during the last one month.
General elections in the world's largest democracy commenced in April and were scheduled to be conducted in seven phases. As the elections progressed, the stock market started showing signs of correction. Am saying 'signs of correction' because technically a correction happens when the stock market falls in the range of 10-20%. But thanks to media and finfluencers, even when there's a 2-5% fall, they start calling it a correction and even a market crash.
During these days, a journalist, in a TV interview, asked our HM about the reasons for falling stock market, specifically relating it with the rumours that it indicates a poor performance by the BJP. To this, the minister replied:
"Stock market corrections should not be linked with elections BUT even if such a rumour has been spread, I SUGGEST you to buy before June 4th, it will shoot up".
He further said that stock market performs better when there is a stable government and his basis of suggesting to buy was the BELIEF that BJP will cross 400 mark.
Later, our PM as well as FM commented on the stock market which obviously should have been avoided. But this gave the influencers the perfect masala to cook their stories. Many videos that started with a short clip of PM, HM or FM went viral. The latter part of these videos had influencers own recommendations - some suggesting PSU stocks, others focusing on specific sector or corporate house. I didn't come across many videos showing the correlation between elections and the stock market and its long term impact. And none of the influencers said that "BUY call is based on the assumptions that BJP is going to achieve 400+ seats".
Who cares?
People love masala content and influencers feed them with that. Everyone wants to have cooked food rather than taking effort to prepare it. Those influencers got followers, likes and comments (and of course money 🤑).
What retail investors did? They invested their hard earned money in stocks recommended by these influencers.
Now comes the Third of June. Exit polls indicated a huge win for the BJP - a sign of strong and stable government. Nifty and sensex surged more than 3%. At the back of their mind, retail investors had that video clip - "buy kar lo, badh jayega!!!"
So, when the market was rising retail investors avoided booking profits and rather many entered into fresh trades assuming that the market will rise further. Whereas, the seasoned traders/operators booked profit at higher levels.
On June 4th, things didn't went as predicted in the exit polls thus leading to a fall in stock prices. While the seasoned traders/operators had already booked profits, the retail investors got trapped. Now, with the falling market, the former started taking fresh positions whereas retail investors were sceptical - they both moved in an opposite direction. And, during these times, the so called influencers were away.
There's a lot to learn from this series of events and that's the only way you can protect your money. What's that:
1. Do not blindly believe an influencer, any video clip or a piece of article (including mine 😛). You may be presented with a video saying "idhar se aaloo dalo, udhar se sona niklega" but use your brain that even a dumb person wouldn't say so. If you are taking a decision based on it, go deep into it, watch the full video to know why something is being said and if there's any underlying assumption.
2. Always remember that fluctuations in the stock market is a reflection of sentiment. The companies which are performing good, are fundamentally strong will continue to perform (there are less chances of any government going against a large corporate entity). It may happen but corporates are smart enough (and have heavy pockets) to influence decisions.
It's the sentiment around the election results that impacted the stock market. Fundamentals were intact. And sentiments do not last long.
3. Do not make decisions basis one sided assumptions. What if things went the other way round. There's a thin line between confidence and over confidence, be cognizant about it.
4. Media/Social Media has justifications for everything. Learn to differentiate between logical and illogical correlations. Let me give you a few examples:
When markets are down, you will see headlines as:
Sensex, nifty down due to a particular event (say monetary policy related meeting, results of bypolls) in the country.
If there's no such event within the country and the global markets are also down then the title will read - Sensex, nifty down due to global cues.
And if all other global markets are performing well but NASDAQ isn't, then it will be - "X data released for United States, Indian markets under pressure".
If all the global markets are down and Indian markets are up then the headlines would be - "Strong fiscal and monetary measures have insulated India from being affected by global events".
To summarise, there is always a 'created' justification for everything. What you need to do is to focus less on the temporary fluctuations and look for stocks that are fundamentally strong and would be a safer bet in the long run.
