The Rising Involvement of Nepalese Youths in the Share Market: Understanding the Pros and Cons
The allure of the share market has captivated the minds of Nepalese youths in recent years. As technology continues to democratize financial markets, more and more young individuals are enticed by the potential profits and investment opportunities that this realm promises. The participation of youths in the share market comes with its own set of advantages and pitfalls. In this comprehensive article, we will delve into the pros and cons of youths engaging in the share market of Nepal, explore the concept of herd mentality, and emphasize the importance of patience as a key virtue in the world of investing.
Causes of Youth Involvement:
a. Aspiration for Wealth Creation: Young investors see the share market as an avenue to accumulate wealth and achieve financial independence at an early age.
b. Low-Interest Rates: Historically low-interest rates on traditional savings accounts have diminished the appeal of keeping money in banks, prompting youths to seek higher returns through investments in the share market.
c. Influence of Social Media: The power of social media cannot be underestimated. Online forums, blogs, and investment-related content on platforms like Facebook, YouTube, and Twitter have motivated young investors to participate in the share market.
d. Peer Influence: Peer influence plays a significant role in shaping the behavior of young individuals. Positive experiences shared by friends or family members who have invested in the share market can encourage others to follow suit.
e. Exposure to Success Stories: Success stories of young investors who have made substantial gains in the share market can serve as inspirations for others to enter the market.
Pros of Youth Involvement in the Share Market:
1. Financial Literacy and Empowerment: The share market provides an invaluable platform for youths to gain financial literacy and empowerment. By understanding how investments work, they become more financially aware and capable of making informed decisions about their money. This newfound knowledge can extend beyond the share market, enabling them to manage personal finances effectively and make sound financial choices in various aspects of life.
2. Long-Term Wealth Creation: Youths have the advantage of time on their side, making them ideal candidates for long-term investments. Patiently holding onto quality stocks over an extended period allows compounding to work its magic, potentially leading to substantial wealth creation. This long-term perspective also mitigates the impact of short-term market fluctuations, giving young investors the ability to ride out market turbulence and focus on the big picture.
3. Capital Allocation for Economic Growth: When youths invest in the share market, they contribute to the capital formation necessary for businesses to grow and expand. This influx of capital fosters economic development, job creation, and overall prosperity in Nepal. By supporting businesses through share ownership, young investors become key players in the growth and development of the nation's economy.
Cons of Youth Involvement in the Share Market:
1. Lack of Experience and Knowledge: One of the most significant drawbacks for young investors is their relative lack of experience and knowledge in navigating the complexities of the share market. Without a solid understanding of fundamental analysis, risk management, and market dynamics, they may be susceptible to making hasty and ill-informed decisions. This lack of experience can expose them to unnecessary risks and potential losses.
2. Emotional Decision-Making and Volatility: Youths often tend to act emotionally, especially during periods of market volatility. Fear and greed can lead them to make impulsive choices, resulting in missed opportunities or unnecessary losses. Emotional decision-making can cloud their judgment and hinder them from adopting a rational, disciplined approach to investing.
Understanding 'herd mentality,' a major factor that influences youths' decision-making:
Herd mentality, also known as "groupthink," refers to the tendency of individuals to follow the crowd rather than making independent judgments. In the context of the share market, this behavior is evident when investors mimic the actions of others, especially during periods of extreme optimism or fear. Herd mentality can create market bubbles or crashes, as collective decisions are driven more by emotions than rational analysis.
The Dangers of Herd Mentality:
1. Amplification of Market Volatility: Herd behavior can amplify market volatility, leading to sudden and drastic price movements. When a large group of investors follows the same trend or rushes to buy or sell particular stocks, it can cause significant price fluctuations. This can cause undue stress and financial losses for young investors who follow the crowd without conducting proper research and analysis.
2. Missed Opportunities and Overvaluation: Following the herd may lead to missed investment opportunities as popular stocks become overvalued. Additionally, when the herd exits a position, it can result in a sharp decline in stock prices, leaving investors with significant losses. Succumbing to herd mentality can prevent young investors from capitalizing on potentially lucrative investment prospects.
To avoid falling prey to herd mentality, young investors should prioritize independent thinking and maintain a rational approach to investing. Conducting thorough research, analyzing financial data, and understanding the fundamentals of the companies they invest in can help mitigate the influence of herd behavior. Additionally, seeking advice from experienced investors and financial advisors can provide valuable insights and guidance in navigating the share market with prudence and confidence.
The increasing participation of Nepalese youths in the share market presents a promising prospect for financial literacy, wealth creation, and economic growth. However, young investors must be cautious of the pitfalls associated with inexperience, herd mentality, and impatience. By dedicating time to educate themselves, avoiding the lure of following the crowd, and embracing the virtue of patience, young investors can lay the groundwork for a successful and rewarding journey in the world of investing. Remember, investing is a marathon, not a sprint.
In the pursuit of financial independence and prosperity, youths in Nepal must strike a delicate balance between risk-taking and prudence. The share market offers immense potential for long-term wealth creation, and by arming themselves with knowledge, discipline, and patience, young investors can navigate the complexities of the market and make informed decisions that align with their financial goals. As they embark on this journey, they must remember that successful investing is not solely about immediate gains but rather about building a solid foundation for a secure and prosperous financial future.
(Authored by Arun Gupta. Gupta is a freelance financial advisor/analyst.)
