Surely you have heard them many times over... P V Subramanyam tells you why they are dangerous
1. High risk leads to high returns
When I talk about ANYBODYs portfolio in a class, at least one student will say this: 'high risk, high returns'. In most of the portfolios that I have reviewed there has been RISK ELIMINATION, not risk embracing. Most of the people would have removed some money from the market when the market was booming. Or when they needed to buy a house, or an office. Or simply to put it into a debt instrument.
So most of the wealth created has been by REDUCING RISK not by increasing risk.
Think about this: If high risk lead to high returns always, where is the risk?
Extending it a little further, does it mean highest risk gives highest returns? What happened last time when you took high risk? Did it lead to highest returns? You know the answer!
2. The easy money has been made
For those who have made money, people say, 'they were lucky to have been in the market in the 1990s and buy all those great bluechips at low prices'.
WRONG. WRONG. WRONG.
Many of my shares which have made money for me would have made money for you even if you had bought them as late as 2008.
Like Cholamandalam. HDFC Bank. Kotak Mahindra Bank.
Even shares like Kajaria Ceramics, Essel Propack.
These were available at very low prices. Procter & Gamble was available for Rs 1000 in December 2013.
The whole game is about buying good shares. In fact I think the genius in me is not the time when I bought these shares, but my ability to hold such fantastic shares like HDFC Ltd, HDFC Bank, Nestle, Colgate, GSK, P&G, etc, during such a fantastic joy ride.
Yes of course I can be accused of buying Tata Steel and Tata Power and holding on to them for too long. However I can live with that allegation.
At this point in time I like Tata Steel, Tata Power and Bharti Airtel. All these companies have made me a lot of money in trading. So I am happy to hold an investment/trading position DESPITE knowing that none of them is an immediate multibagger. Some of these companies mentioned are STILL capable of delivering market defying results, though.
3. I have seen BULL MARKETS before, they end badly
People who have stayed a long time in the market make this statement. I think it is like saying 'do not live, one day you will die'. I have seen my grandparents, uncles, aunts, cousins, friends... die. This sounds so comic does it not? After all only when things get bad do they END. So you cannot sit and worry about death; you need to go and get a life.
Every stock you buy is not going to make profits for you. At least, not always. THIS NEVER HAPPENS IN THE STOCK MARKETS.
One day FMCG will run out of steam and you may find some other market leader, say, infrastructure/auto/banks, etc. Markets do not end. A few companies do. Sure. Some very well run companies have no clue about what will happen to them. Some industries close. Some games go out of fashion. Some businesses lose out on profitability.
So do not get carried away.
Yes one day you will end. Right now, keep investing.
Illustration: Uttam Ghosh/Rediff.com