Friday, August 22, 2008

Investment Perceptions

I have such anecdotes to narrate about the perceptions of most people about the stock markets and about investing that it would probably make you die laughing. People have such outlandish and strange ideas when it comes to investing that one could find it really difficult to believe.

I had a good friend. I still know him. We used to stay nearby and meet everyday. So, one day, about ten years ago, he met me and said, "I have made some money working for a company and I have some extra cash to spare. I would like to discuss investment options with you." I told him, "That's great. But before you begin investing, the first thing we should discuss would be the returns that you would expect on your investments."

Those days, the banks gave a maximum of 10% per annum on term deposits. He had made some money as a freelancer and he wasn't eligible for the Employees Provident Fund, which would have given him a return of 12% tax free. Anyway, he wasn't in the tax bracket but if he were, the maximum tax bracket was 30%, so, the maximum taxable return, he could have got would have been around 17% in a year.

So, when I asked him, what he expected from the stock markets to do for him, pat came his reply. He said, "I would like to double my money in a fortnight but I could wait for a month." I was furious and as he was a good friend, he didn't mind my outburst. I told him, "You jolly well get into a casino!"

Most people have such strange notions about investing money in the stock markets. If the best return that he could have got in the country from safer avenues was 17%, he should have been content with around 25% from the markets. If he set his objectives at 25%, he wouldn't ever lose his money and would invest scientifically and his investments would be strong fundamentally.

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