Wednesday, April 30, 2008

Why Mutual Fund is better then Stock Market ?

One of my friend recently asked me why should I invest in Mutual fund when they are themselves going to invest in stock market. I can directly invest in stock market and make more profits. I said....YES definitely you can.

Its just the co-incidence that many people ask me this question all the time and I say you can If you have the knack of stock picking, If you can know when to buy a share and when to exit a stock, and if you can do the research of the companies you want to invest in. If you can keep track your portfolio consistently.

The answer always is well, I will buy when the stock of company A is down and sell when the share price goes High. but does it work so SIMPLE, theoretically yes but to implement it trust me its very very very difficult. I can tell you from my experience in stock market it really is very difficult to outperform all the time. I have seen lots of people who burned there fingers in penny stocks and so many other stories are there which were all based on tips and so on this includes yours truly as well.

There were times whenever I sold a share immediately the share price of that stock would rise. and vice versa whenever I bought a share its stock price would stumble that was learning curve before it occurred to me that I can be wrong one time , two time but not again and again. Then my eyes opened to big bad world of penny stocks.

There are operators who exactly knows the number of stocks that are out there with public and the number of stocks with the promoters. As soon as the promoters ratio is high the price will normally go up. but as and when you sell the share and the operator buys the share they usually hit upper circuit and nobody has the shares in the market except this operator and hence the price goes up and up and up. and reverse is also true as soon as the operator start selling shares nobody is there to buy it and the price goes down and down and down till it keeps on hitting lower circuits. (We usually blame ourselves for this wrong decisions)

Well give a pat on your back it was not you who made a wrong decision ! There are some bad elements who manipulate retail investors.

1) Always stick to an 'A' group stock.
2) even better is to invest via mutual fund and you don't need to worry about making decision when to sell when to buy; Fund manager is there to have a headache while we can sleep in peace.

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