The Power of Stock Market Investment | Anupam Singhi | TEDxPCCOE

[Music] he's Mohammed Amazon word from Amman the village used to work on a farm alongside his poor sibling and his father due to the untimely demise of his father the land got distributed amongst the children taking 10,000 rupees out of his 20,000 rupees inheritance he then bought shares it with pro the hundred shares which he bought in withdrawing 1980s have now grown into 96 last year's worth over 500 crores these are unimaginable numbers for most of us but people who invest in them stock market people who know how to play in the math game this isn't a shocker why Muhammad took over 20 years to build this well it took 20 years for rocket engine wallah to find item which made billions for him these are some other great investors who made fortunes in the market why we have these great stories these legendary investors who make tremendous amount of wealth in the stock market the reality is most of the people are scared to invest in the stock market if you look at India only 2 percent of people actually invest directly in the stock market reason for that is 90 percent of people who enter the stock market end up losing money why do people lose money when stock markets have done exceptionally well over the long period of time answer lies in our human biases while humans are the smartest species on this planet we have we are capable to design the most complicated systems which are reflected in all the inventions we have done over the years including the stock market but reality but in certain situation and in certain circumstances we can act only rationally for example most of us know junk food is not good for health but we need it all the time similarly if you are in a traffic jam you will love this people keep honking knowing very well that honking will not ease the traffic I don't know about the boo name but in Bangalore if you're stuck in a traffic you will notice people driving on the wrong side sometime on the sidewalk creating deadlocks and everybody ends up spending more time on the roads why do we behave or misbehave in such manner knowing very well that this is not helping anybody let me do a quick experiment to see how good we are as a group in terms of making financial decisions let me give you two options option it gives you chart 10,000 rupees or should be you have a 50% chance of getting 20,000 rupees or 50% chance of getting nothing how many of you will choose option name looks like most of us will choose option a 10,000 risk free 10,000 rupees is far better than riskier 20,000 rupees let me give you the same example but twist the equation of it this time optionally you will lose 10,000 rupees and option B you have a 50% chance of losing 20,000 rupees or 50% chance of losing nothing how many of you will choose option 8 this time looks like you take yours per option in most of us want to choose option B if you look at both the scenarios the options were kind of same one was your son payoff other was big volatile but when he was sitting in profit we were happier to take a risk free option but when we saw a loss we were happy to gamble this is called loss aversion bias this was first identified by a most diverse E and then you can basically humans don't like losing whenever you encountered with the loss you want to find a way to avoid that loss and in the process you're ready to take bigger risk this is one of the biggest reason why people lose money in the stock market there are many more biases like this in the stock market another one which pays out in speculative market is an extrapolation bias insipid term it means you overestimate the recent events over the past events over the future agrees basically if stock market is going up people start believing this will happen forever more and more people enter at the beat and then market starts correctly people still believe that it will go out and by the time they realize trend has changed loss aversion kicks in and you end up losing money another one which plays out during this euphoric times is social proof people think if everybody is doing it and they are making money it must be the right thing to do so you will notice when stock markets at the free you will hear fine washing soy or boy everybody's talking about the stock market professionals believe that is the time to go out of the markets good news is you can overcome these biases like any bad habits if you need to overcome them first thing is to acknowledge them that you have some problems once you have acknowledged it half the battle battle is won then only thing you need to do is find a disciplined approach a methodical approach a rule-based approach so that you don't fall in trap of these biases this is exactly what William O'Neal did one of the legendary investor in the stock market like many inexperienced investor when he started his career he lost money he tried various approaches from simple tricks to complicated techniques but result was the same he was losing money instead of giving up on investing he paused and introspective and tried to answer the big whys of investing and stock why do certain stocks outperform others why do other stocks an overall market plays an important role in individual stocks performance why do human emotion plays such an important role in Matthews inquest to answer this question he ended up doing the one of the most comprehensive study on the stock market he invented a new favor by canceling it is a completely route based system to Hawaii emotions from in wha investing he looked at more than hundred years of US stock market data and tried to understand why do certain stocks outperform his focus was on the all the leading stocks which made exceptional returns and he tried to understand what were the common characteristics in all of them before they made the big move the most fascinating thing about this study it was slightly different than many other methods at that time financial parameters like price to earnings ratio dividend yield Book value he categorically rejected all of them and he didn't find any predicted value in those financial parameters in his study price earning ratio is a still very popular measure you will hear people talking about all the time in the financial market basically it tells you how expensive a particular stock is what we'll notice in a study most of these big winners were expensive even before they made the big run the dimensional approach is to avoid stocks which are expensive but what we'll found out contouring to that quality comes at a price for example if I have to ask you you need to select an IPL team will you avoid players like without body and mind the signal me just because they are expensive and replace them with cheaper options most popping on quality comes at a price to win consistently you need to find clearer but proven track-record skill said and not being attention to what their boss similarly in the stock market if you want to win in the long term you need to pay attention to the excellence the quality price is a secondary so what would be seven characteristics which he found out in these winners as I said he named the study canceling it's electronic each letter is a factor which influences these big winners C stands for turned on it basically what you're looking at is the company which you are looking at you are expecting at least twenty five percent or more in their recent quarters every company needs to report their financial statement every three months so what you would like to see in the latest financial statement they have grown 25% in terms of profit over the same quarter last year a stands for annual earnings most of these companies have robust business model these guys these companies are not doing well only your recent water basis but even on the longer-term basis so what you're looking for is at least three to four years of good road trip back the god twenty five percent and above growth in the screeners in their profitability you would also like to see a sales growth along with that profitability because if company's growing only its profits without the sales that means they are considering which might not be sustainable n stands for something new bill found out most of these breadwinners had something innovative or something new about them it can be a view management you see your new product new regulation in the industry for example I shall voters used to be many producers then they consolidated and focus on royal enfield the miss size by producer since then stock has gone 100 similarly Apple was about to be bankrupt and then Steve Jobs came back in Apple and then they launched the new product iPod since then since then it has not phenomenally well next is supply and demand s tank for supplying tomorrow price is the function of the market supply price of anything prices will not go up till demand is higher than the supply William O'Neal suggested to use price model charts to understand the demand supply for any stock the price is going up over a period and if demand for the stock which is reflected in its volume amount of here straight econ databases it's going up that's a good sign you would like to pay attention to that next is L L stands for leaders and laggards you want to invest in leaders and avoid large leaders are the ones which are growing faster than their peers they have leading markets here their products are in Devon they are from the industry which are growing faster than other industries if you go back few years back IBM farm I used to grow faster than other industries so you want to fight these industries and within those industries try to find the leading stocks within those industries next is i i stands for institutional ownership in india as i said only two percent of people directly invest in the stock market so most of the market is actually owned by the institutions these are your mutual funds insurance companies foreign institutional investors they own most of the market so what you are looking for some level of ownership from these institutions these guys have lot of resources they do lot of due diligence on the companies which they are invested in they are talking to management so it kind of is yours that there is a power chop done on the company they also provide you the liquidity so you can get and out of the stock easily last but not least is M M stands for market direction bill said you can be right on the first six but if you are wrong with market direction you will still lose money three hundred four stops follow the market direction so if market is going up every Tom Dick and Harry will go up but if market is going down even brightness of stock will go down this developer totally algorithmic objective approach to understand the market direction he advise people to look at market averages in India things like Sensex and nifty which are the month market averages you need to pay attention to price volume chart of these indexes to gauge the market direction when you see all these seven factors coming together you might have a winner at your hand it also said investing is a lifelong journey and light from skill but nobody can ever take it away from you this is exactly what eleven year old boy did 75 years ago he bought three shares for $38 and sold it at $40 and later realizing the same stock shot up to $200 he learned early in his life there is no instant gratification in the stock market he's none other than mr. Warren Buffett the third wealthiest person in the world now it's far easier to learn to invest in the market with smart phones internet most of the information is easily accessible through Internet while there are many virtual system available where you can paint without money my recommendation is you invest with some money it doesn't take too much money to start learning to invest in the market but unless you do it with real money you will not be able to understand your emotional biases the emotional herbs and flow which happens with your investment going up and down so my recommendation is trying to do it with real money you will also learning about yourself yes you will sell this lower and understand your own emotional issues but you can rectify if you start young you might lose money in this process but that solution three you're paying for the four learning a skill set a life skill then also said if you want to become rich you need to study get a job learn to invent learn to save and then invest first we are in your hand as far as lost is concerned I hope you have made a big meeting thank you

Channel: TEDx Talks

Views: 133,325

Keywords: TEDxTalks, English, Business, Economics, Finance, Investment, Marketing, Money

Id: ieBrHYAcFIU

Length: 16min 3sec (963 seconds)

Published: Wed Jan 29 2020