The “rise of retail investors” is now a well-documented trend that has been hotly discussed and debated by veterans on business TV, traditional media, and social media. Finally, investing has officially emerged as a common conversation topic with friends and family and naturally appeals to retail investors of all skill levels.
The infamous post-Covid bull market in equities, cryptos, and NFTs was a clear catalyst to onboard millions of first-time investors. Global economies were recovering, central banks were accommodative, and the Indian fintech ecosystem made investing accessible to all. However, investors cannot assume that things will always be like this. While India remains well-positioned with many secular tailwinds, the global investing landscape has changed. No one can tell you what to expect, but it’s safe to assume things won’t be so easy going forward.
There is a downside to millions of new investors beginning their investment journey in a bull market. Many new investors have developed bad habits. Markets are notoriously volatile and reward the patient, disciplined long-term investor or the nimbly experienced trader. Shankar Sharma recently mentioned that “WORI Investing,” or “Without Research Investing,” won’t be successful.
Below are a few thoughts on how retail investors can sharpen their skills to improve long-term investment returns.
Craft your OWN investment plan
We all naturally tend to stick with what worked in the past. This holds in investing, particularly after a bull market run when many people achieved strong returns. This implies that many retail investors achieved strong returns despite skipping the research or blindly buying friends’ stock tips. While that may have worked in the past, now is the time for retail investors to take control of their future.
Take a step back, consider your financial objectives, and understand your reasons for investing. Consider your level of knowledge and the amount of time you can devote to learning. The most crucial step is to decide on your preferred techniques and time horizon. Consult with experts and build a portfolio that suits your unique situation.
This could mean your portfolio consists of a mix of mutual funds and blue chips while reserving smaller portfolio allocations for more speculative stocks or active trading portfolios. Regardless, this is a good time for retail investors to build conviction around their portfolio-level strategy in our market cycle.
Keep your learning curve high
The same stocks or trends that worked over the last few years may not outperform again in the next bull market. Market cycles are normal and healthy and require investors to understand macroeconomics and industry trends. Going further, investors who want to actively choose stocks should consider sharpening their knowledge of fundamental analysis, business and industry dynamics, technical analysis, and market psychology. Here are two examples of how various types of analysis fit together: 1) fundamental investors can use technical analysis to decide when to buy their favorite stocks, and 2) fundamental investors can use technical analysis to understand what sectors are outperforming and could result in near-to-medium term outperformance.
Remember, the professional investing industry comprises subject matter experts with deep domain knowledge. Even the most experienced investors rely on others for specific expertise. Retail investors should make conscious efforts to re-evaluate their strengths and weaknesses and continuously improve their depth of knowledge.
Leverage Social Finance
Learning to invest can be intimidating. Many of us would rather watch Netflix or hang out with pals after hectic days at work and social obligations. But fortunately, the recent rise of the “finfluencer,” or content creators who explain investing principles on social media, has been beneficial.
For instance, while some “finfluencers” give investment suggestions based on fundamental or technical analysis, others concentrate on broader market psychology. Retail investors could compile a list of “finfluencers” who explain the most recent market developments, complex financial concepts, and even how they navigate the markets through trial and error. However, “finfluencers” should ONLY be used for education and NOT for investment advice unless they are SEBI registered.
Social communities like Stocktwits will be critical in democratizing investing knowledge for retail investors of all types and skill levels to support retail investors further.
(By Shiv Sharma, VP International & India Head, Stocktwits)