Place of stock in personal portfolio

Most people debate whether they want to be a passive investor or active investor, but I have a more fundamental question: is stock market just a hobby or an economically viable investment avenue for the common man?

Indian stock market is clearly not a passive investment tool. The quantum of money that can be made by timing the market right (even blue chip or Sensex/Nifty) exceeds the returns made by a 1-3 year buy & hold strategy/monthly SIP in a diversified portfolio (not speculative penny stocks). Hence it is not surprising that most investors and part-time traders spend at least 5 hours a week in reading financial news, analyzing the results/analyst reports or even exchanging tips. Even the mutual funds (passive investors) are profitable when the individual is able to time the market and pick the right sector/type of fund.

So let me rephrase the original question and add 2 dimensions to it:

Firstly, most (sane) humans work 40-50 hours a week. Sacrificing an additional 5 hours a leisure time for stock market will be economical only if I can derive 10% of my salary from stock market (in addition to the cost of capital).

Let me elucidate:

Assume your salary is 10Lakhs and you have 15Lakhs invested in the stock market. This portfolio will be economically viable ONLY IF you are able to generate: 2.5Lakhs annually as stock market profit (1 Lakh for the 5 hours/week, and 1.5Lakhs for the lost interest rate & risk premium (CAPM)).

To be really professional, you should also apportion cost of your TV, internet & newspaper subscription.

The second dimension is on the size of the stock market portfolio:

If the asset allocation <10% then my base is too low to improve my financial situation. (i.e. even if I achieve a fabulous 100% return in the stock market, my net-worth would only marginally improve by 10%)

How many seasoned investors have you met, whose stock market exposure is more than their exposure in real-estate or gold or business (as sleeping partner)? Esp. if you consider that this Diwali stock market reached its all-time high. “If I believe that money attracts money” then most people would have not only ploughed back their profits into their portfolio, but also allocated a major chunk of the savings.

For me a hobby is an economically non-profitable pursuit undertaken as part of the leisure time available. And somehow, I have not met many *part-time* stock market investors/speculators/traders who earn economic profits.  If stock market is unable to compensate me for the time devoted or is the transformational lever that will enable me to retire rich… then it’s just a hobby.

PS: Please read this humorous dialogue elaborating that not many common men made money.

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