Make investing in stock markets a boring activity!

Yes - You read it right!

For a rewarding (and exciting!) financial future, the act of investing in stock markets should be made as boring, mundane as possible, without the ‘excitement’ associated with the markets going up and down on a daily basis. Let us see why.

Daily news analysis may simply be ‘noise’

What do we read in almost all the daily financial press??They are some analysis and views expressed about why a certain stock, a certain sector or the stock markets as a whole have performed or not performed well over the previous day; or why the writers feel they might or might not perform well in the coming days.???

However, these are really the views of the writers – the individuals who, may have their personal biases or at times even hidden agendas.?For example, a stock-broker may want there to be more trades on a daily basis, so that in the process he can earn more brokerage.?Hence, voicing opinions that would drive such a behaviour amongst investors would help the stock-broker.

There may also be friendly advice by, often ill-informed, other investors about why you should invest in a certain stock or sector, considering that it is expected to perform well in the future, delivering high returns etc.?Worse, at times, the friendly advice also refers to ‘expert tips’ related to certain stocks – not even knowing who the ‘expert’ is – and you fall for such expert tips.

Many also cite how they made quick money by trading on a certain stock over the past, conveniently omitting details about the losses they incurred on the same stock over previous periods, and / or over some other stocks.

Bottomline - such daily news analysis, friendly tips etc. may all be just ‘noise’.?

Stay away from the fear of missing out (FOMO) syndrome

All such noise results in a lot of anxiety / excitement in the mind of a layman investor. ?He starts feeling that unless he also follows through the friendly / ‘expert’ advice or the opinions in the daily news analysis, he will miss out on the high investment return expected to be generated by investing in these stocks – the fear of missing out (FOMO) syndrome.

The result? A vast majority of individual investors who trade on the stock markets on a daily basis, end up incurring trading costs, taxation costs and even losses – all resulting in a sub-optimal investment return over the longer term.?

The investors often forget the two most important rules of investing –

1. Investing should be for the long-term - Hence, the short-term market movements should simply be ignored as ‘noise’.?One should be disciplined enough not to react to such daily movements and learn to ignore the ‘friendly’ advice!
2. Investing should be for a specific objective – Hence, unless the objective (e.g. investing for retirement, child’s future education etc.) is achieved, one shouldn’t consider selling a good stock / portfolio.??

Given the complexities of the stock markets and the thousands of factors that influence the daily price movements, it is impossible that anyone can predict the likely stock price movements over the short term with any degree of certainty.?What’s true for a given stock is also true for a sector or for a managed mutual fund.

Make investing in stock markets a boring activity

Hence, instead of pretending to be an expert and deciding on the stock / mutual fund selection, the timing of stock trading etc. – and in the process, running a very high risk of getting this very wrong – one may simply invest in low-cost index funds for the long-term and thereafter, quite literally forget about it until the investment objectives are met!?

Surely, this will take away the excitement, glamour from investing in stock markets and make it a mundane, boring activity.?But it will help millions of individual investors who might otherwise make very expensive mistakes through the ‘exciting’ path of investing and trading in stock markets!