FOMO in markets? - A close encounter

In hindsight, I had received multiple signals since October last year that the stock market may have topped out. You may wonder how?

Well, it was from my own family, friends, and relatives.

My wife, Roopa, has put her savings only in FDs and stayed away from stocks her entire life. One day, when I was watching a business news channel, she came to me and said, ‘The stock market is just going up, right?’

‘Yes, but how do you know?’ I asked her cautiously.

‘My friend Gayatri told me. Her sister-in-law has been investing in the stock market over the past year and it seems she has made a good profit. ’

‘Good for her.’

‘That’s not all. Gayatri’s husband has given her 5 lakh Rs and encouraged her to invest too. So she has started putting money in stocks too.’

‘I hope she knows what she is doing.’

‘Her sister-in-law is guiding her. Gayatri trades in the stock market after dropping her kids to school and before picking them up. It seems she has also made a small profit.’

‘Well then, good for her too.’

‘You know, Gayatri has said that if I also want to invest in the stock market, we can do it together.’

‘But do you know anything about the stock market?’

‘You are here to teach me right? You talk and write about stocks and mutual funds every day. Even I know what the Nifty is now after hearing you talk about it. And I’ve heard about IPOs too.’

‘Oh, is it?’

‘And Gayatri said that her sister-in-law will guide us. She said I just need to open a demat account and start with a few lakh rupees to invest.’

‘You really don’t need to think of making money in the stock market. We don’t need that. And it’s not advisable to trade in stocks just based on tips and without proper knowledge and research. You can end up facing losses. I am not sure why you are even thinking along these lines.’

‘It’s not just about making money. Even I’d like to learn about investing in stocks and mutual funds now. I’ve heard you talk about how to analyze the impact of various events on stock markets. I want to learn that too.’

‘I understand. And it’s good you want to learn. But it’s not that straight-forward in our case. Since I work at a Mutual Fund company, there are regulatory restrictions.’

‘What do you mean?’

‘I need to disclose all demat accounts of immediate family. And I need to take permission from our Compliance team before trading any stock as well as our company’s mutual funds. And we have to disclose these trades and are not allowed to sell any stock we buy before six months. That’s not all. We are not even allowed to trade stocks which are part of my firm’s investment universe.’

‘Hmm.’

‘So, it’s not going to be that you can just listen to Gayatri and invest in any stock you like. It just won’t be worth it. If you want to, why don’t you just start by investing in Mutual Funds and stay away from stocks. You know I do that myself.’

Roopa was not happy with what I said and felt let down. Gayatri’s husband was encouraging her whereas in her case, I was holding her back. She left the room with a disappointed look on her face.

But it worked out for the best.

We didn’t discuss this topic again for a few months. Roopa seemed to have forgotten about it after my not-so-encouraging response. Or she may have just not wanted to talk to me about it.

‘How’s Gayatri doing with her adventure in the stock market?’ I asked Roopa a few days back.

‘I don’t know. We haven’t really spoken for some time. What happened?’

‘Well, we have seen a correction in the stock market over the past few months. I hope she’s doing fine.’

‘Is it really bad?’

‘Well, the Nifty is down only around 15% from its peak. But some stocks are down almost 70%. Especially the recently listed IPOs’

‘I’ll speak to Gayatri and find out.’

A couple of days later when we were having dinner, Roopa said, ‘I had called Gayatri today. She was a bit down. She said all her stocks are showing a loss and everything is red.’

‘And her sister-in-law?’

‘She is in a loss too. It seems she had put money in some of the IPOs and lost big there.’

‘Hmm. This happens in every cycle. There’s a saying, ‘A bull market is when you get a stock tip from your barber. And a bear market is when you get a haircut from your broker.’ Broadly it means that individual investors come into the stock market at the top and end up with losses.’

‘Do they?’

‘Yes. Instead of buying low and selling high, they end up doing the opposite.’

‘OK. I guess things worked out for the best then. But I’d like to start investing at least in Mutual Funds,' Roopa said. 'By the way, is it a good time to open a demat account now?’ she added with a smile as I shook my head.

As part of my job, I monitor a number of data points on the economy and markets. But it was a good learning experience for me to keep a watch out for such real-life signals around me which can also provide valuable signals.

PS: I did a quick poll on social media asking whether folks had opened a brokerage account in the past two years to trade/invest in stocks or crypto. The result, with around 50 respondents, was split 43%(Yes):57%(No). Although the sample may not be representative of the general population, I was pleasantly surprised.

Do you have any such experience to share? It would be a good learning for others.

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