All human instincts are guided by the greed to earn more in quickest possible time span and various asset classes such as equity, commodities and real estate are the means to achieve such goals. Equity markets are generally a preferred mode because of possibility of investing in small amounts and easy liquidity.

Equity has its own risks and pitfalls made worse by experts, analysts and tippers guided by their own interests in the market and what a particular management would like them to say. Let us take the most recent case — when the market was at approx. 21,000, no one said that the market was over valued or there were excesses in the market. In fact, there were talks of market touching values of 30,000 and above and recommendations based on these projected values made investors pour in more money into the market. Now, all experts say that the market was grossly overvalued and had to correct. The same holds good for the IPO market. A recent case in point is that of Reliance Power. Before the IPO’s closing date, no expert said it was grossly over-priced. In fact, all along premiums of Rs 500 and above were being talked of. Was it for the good of investor or management or some High Net Worth Individuals? The naked fact is that about 70% of IPOs ultimately sell below their issue price for many, many years.

Let us be clear about one thing. The markets, experts, tippers and brokerages thrive on the Retail Investor for their shear numbers and accompanying investing capacity but work for company managements, HNI’s and organized sector of bulk investments which at best could account for 35-40 % of total market value. In every stock market boom, be it Harshad Mehta’s time, Ketan Parekh’s time or the recent one, more than 75% of the retail investors perish but in a nation of 1000 million, a few million newcomers appear after a gap of 2-3 years.

Does it mean that equity should not be considered as a means of earning money. No not at all. But one has to learn take one’s own decisions after considering both the speculative content and fair value appreciation content of the script under consideration. Dealing in equities with higher speculative considerations is a very risky approach and I am sure you would not like to be the unlucky buyer at peak of a boom for your buys may not be the favoured ones in the next up cycle of the sensex and you may end up with 75% erosion of your wealth.