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Sunday, July 8, 2012

Are you a small investor or a stock collector?

To answer that question, one must understand what a stock collector is.

During British rule in India, states were divided into several districts for ease of administration. For each district, an administrative head called a Collector (or a District Collector) was appointed. He was entrusted with collecting taxes from the residents of the district and maintain law and order with the help of the Superintendent of Police. So, the District Collector was essentially a tax collector. Nowadays, the system of administration has changed and a district is headed by a District Magistrate, but the old designation of Collector is still in use.

There are art collectors, who are wealthy individuals who have enough spare cash to splurge on works of art. Paintings and sculptures created by well-known artists cost several Lakhs to several Crores, which are usually displayed in prominent locations of residences and/or offices of the rich and famous. Think Ambanis, Birlas, Goenkas when you think of art collectors.

Then there are (or were) stamp collectors – mostly school children who save on their pocket money to buy stamps from a local vendor; or become pen-pals with school children located in various parts of the world to exchange stamps from different countries to increase the size and variety of their respective collections. Stamp collectors are increasingly becoming a rare breed, thanks to the advent of the Internet, video games, iPads and iPods.

A stock collector can’t really be compared with any of the above categories. However, if you can temporarily suspend your disbelief, then a stock collector can be thought of as a cross breed of an art collector and a stamp collector.

In other words, she spends a lot of money in buying stocks for her collection – but not as much money as an Ambani will pay for a painting by S. H. Raza or a Goenka will pay for a sculpture by Ramkinkar Baij. She may have a large collection of stocks – may be 50 or even 100 - but nowhere near the variety and number of stamps in the collection of a school boy.

Now that the role of a stock collector has been defined, here is the honest answer to the question: Both. That may sound harsh, but it is the truth. Most small investors start out by listening to the advice of others. A friend suggests a stock. A relative who is considered an expert suggests two more. Then your friendly broker gets into the act and suggests some ‘sure shot multibaggers’.

By this time, you have collected more than 20 stocks and decide to do it on your own. Except, you don’t know how. Thank the Lord for the Internet. You can log on to zillions of web sites, blogs and online groups that provide daily Nifty tips, or jackpot packages that promise to turn a Lakh into fifty in 60 seconds. Soon your collection of stocks bloats to triple digits. You end up with 50 stocks each of a few good companies, 100 stocks each of some not-so-good companies and 500 or 1000 stocks of several complete duds.

You have well and truly become a stock collector. How do I know all this? Because I’ve been there and done that (except the Internet part – there was no Internet when I first started buying stocks nearly 30 years ago).

How will you cure the ‘stock collection disease’? By first realising that it is almost as bad as a cancer in any part of your body. The only cure is surgery. What will such a surgery entail? The good news is that you don’t have to visit a hospital or a doctor. The bad news is that you will have to do the surgery (under guidance) and it will be painful – both for your ego and your wallet.

How much will the operation cost? It will be a small fraction of what you have already paid to collect your stocks. But it is FREE for those who become subscribers of my Monthly Investment Newsletter.

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