Bouncer from Sehwag’s staff member

Virendra Sehwag’s tweet on Thursday, later deleted by him, created some anxiety among the investor fraternity. Sehwag wrote that one of his staff got around ₹1 crore after selling ancestral land and invested ₹80 lakh in stocks such as Canara Bank, Bank of Baroda and Union Bank on June 20. Sehwag said that this was a day after Prime Minister Narendra Modi tweeted on June 19 that PSU Banks hit “unbelievable highs”, citing a report by MyGovIndia on the comeback of PSU banks.

“After 3 months, even as the benchmark Nifty is up almost 10 per cent and at all-time highs, the investment in PSU banks was down more than 20 per cent,” tweeted the ex-cricketer and fiery batsman.

Here are a few lessons for investors who wish to dabble in markets. The most important lesson is that investments should not be made when one is emotional.

Behavioural finance, a discipline within behavioural economics, says that psychological influences and biases affect the financial behaviour of investors and explain market anomalies, especially sharp stock price moves.

From the tweet, it appear as if the investor was carried away by the Prime Minister’s tweet and blindly invested his funds.

Homework is must

The second important trait is the ability to do basic analysis about a company and its historical share price movement. Investors will be in deep trouble, if they do not study past and present trends about the company, industry and market, before investing based on tips, even if they come from the Prime Minister or the President. There is no point in blaming others without doing our own homework.

This incident also exposes the pitfalls of cost averaging. If one starts accumulating shares of companies that are battered for one reason or another, they will get stuck as the perceived trend reversal may be elusive and test their patience.

The best way to start investment is through a mutual fund. For instance, in the last three months, funds focussed on PSU banks have delivered at least 2 per cent return, against nearly 20 per cent fall of those three PSU bank stocks. So, better to trust a fund manager, who is well equipped to handle market swings.

Last but not the least, investments in equity market should be made with long-term goals. Investing in stocks and watching their daily price movements will give only anxious moments. If one believes in a stock or a sector, they should hold it for a longer term, say at least 7-10 years. Each and every stock will go through up and down in the short-term but will recover in the longer-term, if the underlying business is sound.