How are Sheep related to Stock Markets?
Welcome to Poor Sheep, a blog wherein I try to shed light on the vast field that is Finance. This is my first curation on Medium and I’ll be talking about why I’ve started this blog and what it means to me. You may also get an insight on the strange, yet interesting, title if you stick around till the end.
Let me start off by introducing myself. Hi, I am Mohak Mathur. I’m a 12th grade student from India and am currently juggling between the academics of 12th grade and my time-consuming interest in the field of Finance. I also take special interest in writing pieces like stories, blogs and articles. Combining my love for the two, I decided to start a blog related to Finance!
My main aim with this blog is for the readers to gain an insight into the intimidating world of Finance so that it isn’t intimidating anymore. Since I consider myself a complete beginner, I plan on learning more and more about this field, along with the readers, as time goes on. Initially, I will be putting out blogs on a weekly basis and will be covering topics such as Assets vs Liabilities, The Purpose of Stock Markets and the Principle behind their functioning. We might dabble into Crypto (and the infamous Dogecoin) somewhere along the way as well.
Readers should note that this is a blog meant for amateurs (someone who engages in an activity solely on the basis of their love for it) and complete beginners. Therefore, the terminology used will be towards the easier side, initially, to ensure maximum comprehension. So make sure to hit the follow button if you want regular updates.
Now, coming to the strange and weird-sounding title of the blog; Poor Sheep - words you never thought you’d hear together, but here we are. If you’re even a tad bit familiar with stock markets, you might have heard terms such as Bulls and Bears. If not, well that is why you’re here. A Bullish market is when stock prices are going up. A Bearish market is when stock prices are going down. To that end, Bulls are those people who want stock prices to go up whereas Bears are the ones who want prices to go down (Why would anyone want stock prices to go down? Isn’t that what you call insanity? No it is not insane and we’ll talk about ‘shorting’ in a later post). However, Bulls and Bears are not the only animal-terms used in Stock Markets.
Pigs, Stags, Sheep, Tortoises, Whales, surprisingly, are all terms you might hear when it comes to Stock Markets. All these animals represent a certain group of investors sharing common characteristics. For example, Whales are the ones who have a huge impact on market sentiment as well as the price of a share, and they are usually financial institutions like commercial banks or hedge funds. Tortoises are the ones who are in it for the long term, and they barely change their portfolio on a regular basis. They are the ones usually linked with ‘Value Based Investing’.
Covering all the animal-terms in stock markets would require a separate post in itself and I will be doing that in due course. For now, let’s take a look at what characteristics Sheep are associated with. Herd mentality is a term we’re all familiar with, and it is also well-known that it stems from the behavior of a flock of sheep. If one goes, the others follow. In some situations, that might be a good thing, but it is not the case in stock markets. Sheep is used to refer to investors who simply follow the herd. Without carrying out any research of their own, they put their money wherever the others are putting it, and that, in my opinion, is not the best way to go about investing. This scenario is more prevalent amongst the Indian population, compared to other countries with mature capital markets, like the US and China.
Only 3.7% (Source: Business Standard) of the Indian population trade in stock markets and a majority of this 3.7% operate solely on the basis of “tips”. “Tips” are nothing but financial advice from friends, family or co-workers. They may sound confident and the advice might be in good faith, but if you choose to blindly follow it without proper knowledge of what you’re getting yourself into, you are bound to lose at some point. This is mainly because, (a) they are not qualified to give financial advice, (b) they are not aware of your long-term or short- term financial goals, and (c ) they do not know your risk taking capabilities.
Based on history, investors who behave like Sheep are bound to make losses in the long-run. This might not be true in all cases, but it is in most. That was a quick insight into why I chose to name my blog ‘Poor Sheep’ and the significance it holds in the topics we will be discussing. Hopefully, along this journey, we can together learn how to not be sheep in financial markets and use all resources available to reduce risk and maximize returns.
Congratulations, you have now reached the end. Thank you for sticking around and hit the follow button if you want more of Poor Sheep.