How our addictions changed Finance?

Let's paint a picture. It's March 1991. Our parents are just as old as we are right now. They have worked really hard for their year-end exams, and now they’ve set their eyes on the badminton racket they’ve always wanted. Having saved almost Rs. 200 with the Rs. 5 a day pocket money, they collect all the coins in a bag and walk to the only store near their house. There! Hangs the racket they’ve craved for. Immediately running towards the shopkeeper they point at it and present all the metal they have, the shopkeeper replies with a smile. They pick that racket and look at it for a little too long, dreaming about how this summer and all those which are yet to come are going to be fun! That racket could well have been with them for years...

Fast forward to 2021. We are just as excited about our summer vacations. Oh all the fun stuff we could do. Laying on our backs in an awkward position we strain our spines, searching the internet for a good toy to play with. There are a lot of things to buy. After scrolling for about half an hour, we found something of our liking. 10,000 people have already bought it and rated it a good 4.5 stars. Plus it’s on a discount, why waste this opportunity? Without thinking much about the price we immediately click on pay online and enter the OTP. And quickly the screen turns green. “Thanks for shopping with us”, says the screen. In no time we have it in our hands and in no time it's already forgotten.

Something very similar has developed in the financial markets. It’s called instant gratification. The new technological infrastructure has enabled us to fulfill our desires as soon as we have them, without thinking much about the consequences. Drawing subtle parallels from the situations discussed above, while trading financial instruments we go through the same process. See, quickly made decisions can be reversed much quicker. When we get an urge to buy a stock, we press the button. If it goes up, we sell to cash in the profit. If it goes down, we sell to cover the losses. And in these few moments of adrenaline rush, more often than not, nothing has really changed in the business. So wouldn’t these decisions be classified as unfounded. One takes such decisions only when they have little to lose and this makes the retail investors (people with less than Rs. 2 lakh in capital) a prime target. Although they comprise just 7.2% of the market population*, their behavior is much more visible because of the sheer volume they generate. Lately this group of people have traded almost 45%** of the value of all the shares that have exchanged hands according to NSE, that is, it must be them then who control the prices. So will it be prudent to ask whether our lust for instant gratification has crept up in the global financial markets?

-Jitesh Bohra

*https://www.livemint.com/market/stock-market-news/retail-investors-exposure-in-nse-cos-at-all-time-high-in-q1-11628192627070.html#:~:text=Retail%20investors%20increased%20their%20exposure,company%20are%20considered%20retail%20investors.

**https://www.capitalmind.in/2021/05/omg-the-retail-investor-is-the-biggest-player-in-the-stock-market/