It is a world of information overload. You could read so much about any topic that matters to your life. This column has persistently urged you to make learning your weapon while planning your financial future. However, merely urging you to learn may not be enough. You also need to know the context of every bit of information thrown at you. On editorial pages of newspapers, we cannot make recommendations. However, you can know more about connecting the dots with the help of information around you.
Many of you are glued to the social media and learning from others. The lateral approach to learning creates a volume of information that overwhelms you. The traditional media continues to put out information online, on television and in print publications. Many of you search for ‘how to’ and ‘what is’ about financial markets, investing and money. The online and social media content answers your questions; you keep looking for answers.
Social media is full of activity around investing and trading thanks to the impact of finfluencers. A study cited in the latest monthly bulletin of the National Stock Exchange shows that social media coverage of an issue predicts increased return volatility and trading activity. On most occasions, the news media activity happens before the social media coverage. That shows that social media merely amplifies the impact of a news event. The study calls social as an echo chamber where repetitive information leads to biased investor reactions.
Another study cited in the same publication dwells on the impact of investor behaviour after a phase of ambiguity. Stock market traders and investors hate any phase of uncertainty. The study finds it hard for most investors, even in mutual funds, to return after liquidating funds in challenging situations. While these studies were done in other markets, they are relevant from the standpoint of behavioural science. Any threat of loss puts you off from investing in the stock market. Although over nine crore investor accounts have opened recently, many remain dormant.
While mutual funds are doing their job in expanding the scope of systematic investment plans, a lot of work needs to be done for you to stay invested. As a mutual fund investor, you are not holding them for long. Most investors exit within five years from equity mutual funds that are supposed to provide long-term capital gains.
Brands that sell mutual funds, stockbroking services, insurance or banking services put out a lot of product information. They also publish something that helps you learn. Over the past few years, websites like Zerodha Varsity have triggered a lot of other entities to produce similar resource material for you to consume. You are given a nudge to manage your investments and financial assets.
There is a lot of discussion about the so-called financial influencers or ‘finfluencers’. These are people influencing your investments through financial advice. Regulators have come down hard on such content. They now must be registered with a regulator to offer financial advice. Financial services companies are also not allowed to shirk responsibility for the advice given by finfluencers on their communication channels. They must only work with registered finfluencers.
Your ability to withstand risks is a function of your ability to hold on to your investments. That comes from the certainty of your income and your ability to learn. If you are confident about your future income, your risk appetite is higher than that of those who are unsure. Knowledge gives you the edge to learn that financial markets move in cycles. You must choose credible resources to build that knowledge bank.
Stock market returns over 10 to 20 years surpass fixed-income instruments or most other asset classes. If you read financial literature regularly, you must focus on understanding your capacity to take risks and learning about events that influence future prices.
There is a lot of information in the public domain, from government budget documents and economic surveys to monthly bulletins published by the Reserve Bank of India or the National Stock Exchange. The only thing it requires you to do is show willingness to learn.
Rajas Kelkar
(The author is editor-in-chief at www.moneyminute.in)