Stock Market is a tool to create wealth !

Stock market is a tool to create wealth. Stock market, forex market,commodities market are all places where buyers and sellers speculate on the price action.Everyone has different strategies, holding capacities and time horizons. Every retail investor is pitted against the rich and knowledgeable professionals and institutions. These big players have the best of insider information, the best of software, hedging strategies and deep pockets. An unprepared retail investor is bound to lose money in their game if he is not trained and prepared. However there are some useful attributes of a retail investor that can help him make money even against these odds.

The first attribute is that the retail investor is invisible to the big players. His trade size is so small that his entry and exit goes unnoticed. His trades have no impact on the price of the stocks. This is his biggest advantage. A retail investor trading in cash market can remain absolutely invisible till he makes a trade. Since he is putting cash upfront and has planned a longer term trade he does not need to enter a 'stop loss' in the system. We all know that market always moves in the direction of maximum stop losses. But our investor need not disclose his stop loss. It can remain in his mind. So operators can not move the stock price towards the stop loss to trigger his exit simply because they do not know it.

The second advantage is that our retail investor can concentrate his holdings in a single stock or sector. He is not bound by any rules to diversify into various sectors and stocks. He can have 100% holding in a single stock if he thinks that would boost his returns. Or he could switch out of a stock even after one day if the trade has gone wrong. He need not answer anyone but his own intellect. An institutional investor has no such luxury.

The third advantage is that he need not redeem his money before his planned event. Time horizon is always on his side as long as he has invested only the long term funds. An institutional investor has to cater for the financial needs and compulsions of millions of other investors.

These three advantages make it a compelling case for more Indian retail investors to enter our equity markets. Do remember that our markets are going up because our economy is doing well. It is always the macro economic factors that determine the market performance. If one is invested in growth stocks of Indian economy then we can safely make about 20% per year in tax free income. I think this point is worthy of serious consideration.

rgds
Vibhas