"Retail investors always reach when the party is over. Most big players have already taken a position in anticipation of the verdict. In fact, most of them formulated the strategy ages ago,” said a seasoned player in the stock market. “The problem with the retail segment is that they don't have the kind of resources or inside knowledge of the market to act at the right time,” he added. His point: small investors shouldn't invest in stocks directly because they can be outwitted by big players in the market on such big-bang events. But is it really so?
“Most retail investors won't be able to understand the full implication of such events and if they act on half-baked information, they can get caught in the whirlpool of unwinding short positions,” says Devendra Nevgi, founder & principal partner, Delta Global Partners. “Some of the issues could be too complicated for a lay investor to understand and they would start concentrating on the short-term movement of the stock. They tend to forget that the event may not have a dramatic impact on the stock in the long term.”
Mukesh Dedhia, director, Ghalla & Bhansali Securities, also says such big events necessarily don't have a long-term impact on the fortunes of the stock. He offers the eg. of RIL, which most analysts predicted won’t be affected significantly by the verdict — even if it went against the company.
"It could be true that the informed investor might have already taken a decision, but then experts don't always get it right in the market either. So, the basic argument that small investors shouldn’t hold stocks directly doesn’t hold water," he says. "Having said that, if it is for a small sum, it won't be worth it for the investor to spend time on researching or reading balance sheet or following news about the company. The investor would be better-off with a MF where his money would be managed by a professional," he adds.
Experts believe that it would be better for a person to concentrate on earning money and hand over the investment part to a professional to manage it for a fee. "It is simply not possible for an average person to keep track of his investment 24/7. Why not give the money to someone who earns a living by tracking the market every minute," says a senior MF manager.