You’d have come across plenty of conversations and articles where retail investors are often refereed to as ‘dumb money’. The insinuation being, they always do the wrong things at the wrong time. It can be buying high, selling low or sticking with companies with deteriorating fundamentals.
Although you cannot label all retail money as dumb, this remains true to an extent. In the recent past we’ve stocks such as Vakrangee, PC Jeweller etc fall up to 90% in a matter of weeks on the back of corporate governance issues. We’ve also seen companies like Suzlon, JP group companies and Anil Amabani’s Reliance companies going to the dogs because of excessive debt
I was checking the public shareholding pattern, which includes individual shareholders of these companies and most often than not increased. As the companies get worse, the shareholding continues to rise. Here is the shareholding pattern of a few of these wealth destroyers
Charts from Tijori Finance
Time and again this plays out. The worst part a significant chunk of these investors continue to average their investors downward in the hopes of capturing the upside, which almost never happens.
I was wondering, should retail investors really get into stock picking? I’ve seen investors time again lured by greed spread by by 1000s of so called advisors and hidden gems blogs out there pumping these junk stocks.
What should investors do?
In my view the best thing for retail investors to do would be to invest in index mutual funds or through an instrument like smallcase, which offers fund mentally weighted ETFish investments.
An investor today can get started with mutual funds by investing in a combination of Nifty 50 and Nifty Next 50 index funds. Together the 100 stocks in these two indices account for 75% of the free-float market capitalization. It’s as good as buying the entire market.
What’s more, both index funds and smallcases are low cost instruments which means more returns on the table for the end investor.
