MYTH: Whenever the stock market goes up, there is excitement all around. You meet at least one new person everyday who has profited from the current run in the market. Almost everyone around, including your friendly paanwala, starts talking about investments.

Markets are driven by sentiments and market participants are high on optimism, with permanent buys on their minds. All you need to start making money in the stock market is to follow what others are doing and bet your money accordingly.

The signs are too tempting to be ignored and you don’t like the feeling of being left out because everyone around you has some money riding on the market. The newspapers scream of longterm bull run, the TV debate is about all-time highs and the lunch sessions at work are about someone knowing someone who is an expert stock picker and has been raking in the moolah.

Calls, messages and mails start pouring in on how a particular stock pick gained 30 times in two months and how you can easily double your money in weeks. It’s difficult to resist the temptation of easy money. You dump the pessimist in you and jump in. You call one of the brokers who has been relentlessly pursuing you to start trading and get into the act. The reason: Everyone around is gaining from the market, so it is definitely the right time.

Reality: Hindsight is the most powerful weapon when it comes to making money in the stock market. It is easy to rattle off a date to invest when the market was at its lowest and exit on the day when the market is on a high.

As Warren Buffett famously quipped: “Only when the tide goes out do you discover who’s been swimming naked.” The reality is, however, very different. There are little over 23 million demat accounts in India. So, where are the crorepatis who made their money from the stock market? When we hear about others making money in the markets we tend to forget how different we are from them. We do not realise our own anxieties with investing, the risks involved, the knowledge needed to start investing and, the time it takes before one actually starts making any money.

Making money in the stock market is not easy. It takes a lot of time for money to grow even in the markets. For instance, if you had invested in the Sensex on 1 January 1999, your money would have grown almost 10 times today. But, if you see the same by the way of annual returns, it would have earned around 15 per cent each year.

The essence of understanding returns lies in how you evaluate your gains. While 15 per cent annualised returns is good, there is more drama when one brags about money growing 10 times. Instead of blindly investing, go for small sums and instruments that you are comfortable putting your money in.

olmdesk@outlookindia.com