We need to De-Jargonize and Simplify stock investing for the average investor like you and me!
Buffett reportedly responded to a question about how an average investor should manage their funds by saying “Just buy an S&P index fund and sit for the next 50 years”.
The popular investing advice for self-help for investing isn’t very helpful:
1. Avoid the herd mentality: “Be fearful when others are greedy, and be greedy when others are fearful!”
The average retail investor’s decision is heavily influenced by the actions of his friends, neighbors or relatives.
2. Take informed decision:
Proper research is rarely done before investing in stocks, the average investor goes by the name of a company or the industry they belong to.
3. Invest in business you understand: stay within your circle of competence
Never invest in a stock. Invest in a business you understand. (the investors don’t have privileged access to management, lack awareness or the time to go through management interviews, strategy decks, webinars etc)
4. Don’t try to time the market: catching the tops and bottoms is a myth
A majority of investors, try to time the market and thus lose their hard-earned money in the process.
5. Follow a disciplined investment approach
Difficult to follow a disciplined investment approach, driven by what they are hearing, watching and reading on social media etc.
6. Do not let emotions cloud your judgement
This is easier said than done when the portfolio is down 25% or up 50%.
7. Create a broad portfolio: diversify across asset classes & instruments
Level of diversification depends on each investor’s risk-taking capacity. Not easy to implement by an average investor.
8. Have realistic expectations
Lot of investors have seen higher return during COVID, these have created unrealistic expectations, especially for retail investor investing for the first time.
9. Invest only your surplus funds that you can potentially afford to lose
The average investor has more confidence and optimism in their own luck, don’t follow this maxim
10. Monitor regularly
Any important event happening in any part of the world has an impact on our financial markets. Daily monitoring and understanding impact is easier said than done due to time constraint and lack of knowledge.
The above not so helpful advice maybe one of the reasons, the retail investors invest using shortcuts:
1. Hot stock tips in their friends/family group
2. Advice on popular You tube channels from self-proclaimed market gurus
3. Expert advice based on investing websites or news channels
4. Portfolio managers or whats app groups formed by the stock market experts, who advise on which stocks to buy, sell or hold with target price and stop loss.
The heuristics used in their investing behavior may be explained by the following:
1. Social proof (friends/popular opinions)
2. Following the Authority figures (self-proclaimed Market Gurus)
3. Jealously and FOMO (Behavior)
It is time to take out the jargon from investing and make it simpler for the average investor to invest in stocks, similar to the investing revolution driven by the zero brokerage and robin hood accounts.