The New Line to Memorize

Amar Pandit , CFA , CFP

While the Robinhood of the 21st Century (Last Week’s Nano) is doing its job of turning people into traders (while believing they are investing), how could the Banks in the US be left behind. The country’s six largest banks: Bank of America, JPMorgan, Morgan Stanley, Goldman Sachs, Citigroup, and Wells Fargo, all reported their earnings for the third quarter (ending 30th September), this week.

As you might have guessed, the results were stellar. The Top five banks (excluding Wells Fargo from the above) made an additional $51 billion in trading revenue in the last 7 quarters (3 quarters of 2021 and 4 quarters of 2020) as compared to the 7 quarters pre-COVID. That’s not all. Banks are expected to profit again as the Federal Reserve (US Central Bank) starts to withdraw the stimulus because the expectation is that investors are going to trade again and reshuffle portfolios.

Indian operators are not behind either in providing instant access (sorry democratizing finance) to trading stocks or crypto. By the way, a close cousin of theirs dealing in betting on the outcome of matches is not behind either. Khelo, Kamao and Jeeto (Play, Earn and Win) seems to be the mantra of the day. Investing has now become a social game with the convergence of social media, gaming, and trading.

A surprising number to know that India now has the highest number of crypto investors in the world at 10.07 Crore according to a study done by BrokerChooser. The US came in at a distant second with 2.74 Crore investors. While the number of Indian Crypto Investors were around 1.5 Crore in July, it’s shocking but not surprising to see a jump like this. While such reports exaggerate numbers as they make for good WhatsApp messages and attract even more investors, the fact is that the number of crypto investors in India is growing. In comparison, the mutual fund industry in India has around 3 Crore + investors.

All of this points to the fact that making quick money continues to be a lucrative business in good times and in crazy times. The key difference this time (versus previous trading booms) is that trading has transformed itself from a financial services business to an entertainment business thanks to gamification and social media. While it’s amazing for these businesses and entertaining for many people, it still is a recipe of mediocre to poor financial outcomes.

The trend looks to continue for some time as the Indian stock market is on its way to overtake the UK’s stock market and become the 5th largest stock market in terms of market value. Not just this, the Indian stock market is poised to grow to $5 trillion by 2024, according to Goldman Sachs. It is expected that almost $400 billion of market value could simply be added through new IPOs over the next 2-3 years. There is a flurry of activity happening all around. It’s easy to get caught into this frenzy of activity, while forgetting the fundamentals of investing.

All you had to do to capture the crazy gains of the last 18 months was to invest in a disciplined way and simply stay put. It’s truly about saving, investing and letting compounding work for you. It’s never about jumping from one stock to the other or from one crypto to the other, however lucrative this jumping might be or seem to be. Jumping increases taxes, and mistakes of getting your entry/exit timing wrong, not to mention the impact on your stress and mental health (well, this is the topic for yet another day).

I am reminded of this cliché “Let your money work for you” used by financial institutions (I am guilty of using it too). There is nothing wrong with “Let your money work for you” (it’s powerful) but it seems like many have got it wrong. “Let your money work” does not mean activity. I am reminded of Jerry Seinfeld’s lines on this.

In one of the Seinfeld episodes, Jerry says “people tell me you have to get your money working for you. I have decided, I will do the work and I will let my money relax. You know what I mean. You send your money out there, working for you, a lot of times it gets fired.”

Guess this line “getting your money work for you” has been taken too far.

It’s time for a Reset.

Getting your money to relax (couldn’t help adding and letting compounding do all the work) has been the mantra and will remain the mantra for wise investing.

As Stephen Hawking once said, “The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.


P.S What are you investing for the Next 10% or the Next 300%.