Investing in stock markets

In this post, we will share our experiences from investing in stock markets. 

How it started

We started stock market investments in July 2017, primarily due to the below reasons:

• Our equity mutual funds were performing significantly well(15+% returns). 
• We had surplus savings to invest and wanted to explore beyond FDs and MFs.
• We felt motivated listening to friends and colleagues, who were realizing handsome profits by investing in stock markets. 

Our first trading & demat account was with HDFC securities. As our salary account was already in HDFC bank, there was no additional step to transfer or withdraw money to or from the trading account. 

Initial strategy

We had no idea about how to choose stocks for investment. Although there was a plethora of information on the internet, print media, tv channels etc.,  we weren’t sure if any potential decision would be right or wrong.

We checked the stock holdings of our best performing mutual funds and then reviewed the performance of those stocks to identify investment opportunities. Additionally, we selected some stocks from the recommendations on financial websites and tv channels.

2017-18: Profits, dividends, trading & understanding high brokerage charges 

In a couple of months after investing with HDFC Sec, we realized their high brokerage charges when compared to other discount brokers in the industry. Thus, we opened another account with Zerodha for fresh investments. Unlike HDFC Sec, we had to add funds to the Zerodha account and a raise requests for withdrawal. 

Fortunately, the markets were good in 2017-18 and we made profits with delivery trading. We also tried our luck with intraday trading which didn’t go well but unfortunately didn’t teach us any lesson(more on this later in the blog).

During FY 2017-18, our net realized profits with HDFC Sec was around Rs. 35,000 with charges of around Rs. 5,000. With Zerodha, the net realized profit was around Rs. 12000 with charges of around Rs. 1,000. It’s important to highlight that charges have various components which are levied either by the brokerage firm or by the government.  

We also had our first experience with dividends and received around Rs. 1,000 from different companies whose stocks we owned.

2018-19: Failures, blunders, small and mid-cap crashes

At the beginning of FY 2018-19, we already had significant investments in various stocks.  However, the majority of our investments were in small and mid-cap stocks, which were running into losses due to sharp corrections. In addition to this, a couple of our stocks from IPO allocation were also running into losses. 

Thus, our focus shifted from maximizing profits to minimizing losses. We started buying stocks which were already in huge losses to average out the buying price. Unfortunately, many of the stocks plummeted further, extending our losses. We did make a few decisions which resulted in profits but these were not significant in amount.  

Once again, we tried our luck with intraday trading to make quick profits. However, this proved to be a blunder as all the trades backfired and we ended up losing around Rs. 42,000 in just 2 days. This time we learned our lesson and vowed to not pursue intraday ever again. 

In Sept 2018, the small and mid-caps cracked further and within a span of 2-3 weeks, many of our investments went from unrealized profits to losses. There was a slight recovery in March 2019 but its still a long way.  

One upside in 2018-19 was dividend payouts of around Rs. 7,500. 

Realization of risk-averse profile

Eventually, we realized that investment in stock markets is not our forte. Like the majority of the population, we are risk-averse and not inclined towards high risk-high returns investments. We are happy with the returns of 7-9% in debt instruments and it’s aligned with building our retirement corpus.  We plan to gradually withdraw our investments over the long term(1-2 years) as our current unrealized losses are around Rs. 2 lakhs.

Lessons learned by us

1. To be successful at stock markets, one needs to dedicate time and efforts for understanding how businesses operate(balance sheets, financial results,  performance forecasts, corporate governance, etc.)
2. One also needs to be aware of factors like change in government policies, geopolitical situations, trade conflicts etc., and their effect on stock prices. 
3. We’ve felt that there are some background factors(not visible to normal public) which strongly influence how stocks prices move. These factors cause huge complications for a normal investor. 
4. Equity investments are suitable for high-risk profile investors. Further, it takes knowledge, courage, and patience to be successful.
5. While discount brokers are cost-effective, they don’t provide services like stock research, advise, IPO investments, etc. which are available with full-service brokers.  One should choose as per his/her investment needs. 
6. Past performance of stocks doesn’t guarantee future performance. 
7. Small and mid-cap stocks have higher volatility than large-cap stocks.  
8. Timely withdrawal from stocks is as important as investing to maximize profits as well as minimizing losses.

Reference

• Brokerage charges details – https://zerodha.com/charges
• Our F.I.R.E target – https://finfreefamily.blogspot.com/p/our-fire-target.html

Disclaimer 

Details shared in this post are for general information and should not be taken as investment advice. Also, we don’t endorse or recommend any brokerage firms. The sole purpose of this blog is to share our experiences and lessons learned about investing in stock markets.