The basic problem behind investors losing money in equity markets is that, unlike in case of physical assets, they don't follow the investment basics for financial assets.
Most of the people in India are conventionally physical asset investors and are gradually moving towards financial assets. However, what is unfortunate is that investors here treat the two types of assets differently. For example, when a person is focused on investing in gold, he/she would buy gold when it is cheap and would do the same is case of real estate. But in case of investing in any financial asset, a typical physical asset investor would act oppositely and invest in equity when the market is already up and existing investors are about to book profit.
So, the basic problem behind investors losing money in equity markets is that, unlike in case of physical assets, they don’t follow the investment basics for financial assets. While in case of gold and real estate, they invest when the prices are low and hold on till prices go up to make profit by selling the assets, in case of equities, they invest when the valuations are high and in the phase of correction, they don’t wait till the markets recover, and thus end up booking losses by selling the shares or units of equity mutual funds (MFs) at a lower rate.
If studied closely, you would find that investment basics remain same for physical assets and financial assets. Gold prices go up and down periodically and are cyclical in nature and so are stock prices. The only difference is that gold prices go up when equities struggle and go down when equities perform. This is because the yellow metal is considered as safe heaven and people rush to invest in gold to take refuge when economy and markets start giving signs of forthcoming struggle.
However, when the economy and markets are already in the midst of struggle, equities become very cheap and gold becomes very expensive, and shifting from equity to gold at that time would only ensure losses.
Currently, the situation is similar, as most of the stocks, especially small- and mid-cap stocks have fallen substantially and the yellow metal is at all-time high. So, it’s better not to link both and shift from equity to gold at present scenario, but treat them separately and see which one is cheap and which one is expensive to make prudent investment decision.
If you follow the investment basics, you will be able to take prudent decision and invest in the assert – be it financial or physical – which is cheap, i.e. equity and refrain from investing in the asset, which is expensive, i.e. gold.
However, it’s better not to invest large amount of money in equity in lump sum, but make periodical investments in a diversified way or start a systematic investment plan (SIP) in a diversified equity fund, as it may take some more time for the struggling market to recover owing to no visible sign yet of the economy hitting the growth phase soon.