Why the stock market isn't a casino?

THE fear of buying and selling shares arises from the belief that the stock market is a casino. Therefore, a vast majority of investors in India tend to keep away from the stock markets. Because of this belief, they opt for 'safe and assured return' products like bank deposits, Public Provident Fund, National Saving Certificate, post office etc.

For a select few, however, the greed is more powerful than their fear. They therefore, dare to take a plunge in the stock markets though not with very encouraging results. Fear and greed can often cloud our judgment and reasoning. As it is, investing demands one to be rational, disciplined and patient. Therefore, when we act due to our emotions, we only increase the probability of taking wrong decisions. Let's see how one can overcome these fears to profit from the stock markets.

The fear of loss

Because one can lose money in the stock markets, most people don't invest in shares. But the questions we need to ask are:
1. Is investing in stock market same as gambling?
2. Does making money depend on one's 'luck'?
3. What is the probability of making a loss?
Let's think rationally. What does buying a share mean? It means being part of a business and sharing its profits and losses. If businesses make profit, the share prices will rise; if not, the prices will fall. Now, does a business run on luck?

No! It runs on hard work. It runs on efficient management. Therefore, more often than not, a well-managed business will make money and consequently the share price will rise. Hence, if you invest in say 10-15 good businesses, majority of them will make profits and hence your probability of making money from such a portfolio will be much higher. Hence, stock markets are not a casino. Luck has a very little role to play. A portfolio of good companies will give good returns with high probability.

One more important point. Can a business double its' profits in a few days? No. Businesses take time to grow. Therefore, keep your return expectations in line with the business growth. If businesses are growing at 15-20 per cent pa today, don't expect to double you money in six months or one year.

Be patient. Give time for the businesses to grow. Also, look at making money from the portfolio as a whole and not from each and every share.