While the title of the Blog may seem to be philosophical, rest be assured, we are still here to learn about Equity investments. It is a well known fact that at the end of the day, anyone who comes to the Stock market is there to make money. This however is an over-simplistic and primitive way of looking at things. To succeed in life we always need to dwell deep into the layers of thoughts and reasons to come to the root cause of things. Some people like to call it ‘Second order thinking’. Equity Investing is no different from this. It is very important for an investor to know the actual reason why he has chosen to enter the world of Stock market investment. For some, the answer may be a quick way to earn money. For some, it may be to create an additional source of income that supplements the primary job. For some it may be a primary source of earning. For some it may be a source of retirement planning. For some it may be a way to preserve capital to beat inflation. For some it may just be a thrill to invest in markets. For some it may be true passion to invest in markets. There could be many reasons to be in the market. There is no right or wrong reason to be in the market as others may traditionally say as long as you know the exact reason why you are in markets.

A popular saying is ‘If you don’t know who you are then Stock market is a very expensive place to find it out’. Read over these lines again as this single quote summarises the entire crux of this blog. Now let’s dwell a bit deeper and try to understand how each of these reasons to be in the market tells us exactly what to expect from the market in return. For those who want to make quick money from stock markets, Mr Market in return would always treat you as the person who has come to market to reward other people for not thinking like you. Mr Market does this by distributing your wealth to all others not thinking like you. In that sense, the market is a very brutal place for you and hence you would be well-off not to enter markets and rather try for other ventures to make that quick money. I am not a well qualified and know-all person to tell you that there is no quick money anywhere but stock market’s sure aren’t meant for it on a consistent basis.

For those who are in the stock market just to get the thrill or just because you want to find out what the entire buzz that everyone around you seems to be talking about is, it’s very important that you always remember this reason and always treat the stock market accordingly. To get a thrill or to check out the buzz, you would never spend your life’s savings or for that matter even a considerable part of your earnings. Thrill from an adventure would always be limited by the budget you draw up to buy its tickets and for you stock market participation should also be limited in that way. The only problem with stock market thrill and buzz is that it never stops like other places where one ticket gives you just one ride and you are out. The thrill and buzz of the stock market is on-going everywhere and all the time. Hence you are better off to always know what you are for in the market and never ever confuse beginner’s luck with thinking you are an investor. This will end up very badly for you.

For those who want to earn an income out of the stock market, primary or supplementary, you should be clear in understanding that Stock market investing is your business and not your job. It is very important to understand this distinction. A job is where you are guaranteed a fixed earning in return for your services whereas a business is where you may or may not get a profit in return for your goods or services. For you, Investing is a business because your emphasis would be to earn as much profit as possible and in a short period of time so as to fulfill your daily needs in life from that profit. Daily needs of life are quite frequent and non-negotiable. Hence your transactional frequency with the market would be very high and driven by a combination of need and goal together, more so with need than goal. Just like a normal business, you would make profit sometimes and make a loss sometimes. But the intent is that the overall profit made by you should be much higher than your loss and that difference will end up becoming your income. Hence, just like a business trader who trades his goods and services to earn a profit, you would be a stock market trader who trades equities to make a profit. Hence you never should confuse yourself with the loosely used term ‘Investor’.

For those who are in the stock market to plan retirement, create wealth, beat inflation or create savings for a particular goal, it’s very important to look into yourself and see if you have behavioural traits of an investor. As an investor you should not be looking to make any income out of markets. You should be driven by goal realisation and not small duration returns. You should be fairly comfortable with the idea of volatility and able to leave in peace with it. It doesn’t matter if you are able to classify yourself as a long term investor or short term investor or both of these or none of these as long as you exhibit these common traits of investors.

Too much of debate has been focused on boxing or labelling a person as either trader or long term investor or short term investor and trying to show how one is better than others. In reality, there is nothing better than or worse than the other. You could be anyone of this and still be very successful, you also be two of these at very same time and still be successful. It’s your interest, situation and personality that determines what is best for you and what is not. Most important is to : Know yourself first