The illusion of control: Why so many believe they can beat the market in India

The allure of the stock market is undeniable. The promise of substantial returns has enticed countless investors into believing they possess the ability to outsmart the market. In India, where rapid economic growth, a booming tech sector, and financial inclusion have democratized investing, this belief is particularly prevalent. However, the harsh reality is that consistently beating the market is a rare feat, achieved by only a select few. Yet, the illusion of control, the tendency to overestimate one’s ability to influence outcomes, persists.

Why Do Investors Think They’re Special?

At the heart of the illusion of control lies overconfidence. Many investors, especially those new to the market, believe they can accurately predict market movements. Early successes, often attributed to skill rather than luck, reinforce this belief. However, market fluctuations are influenced by numerous factors beyond individual control, such as macroeconomic shifts and geopolitical events. Behavioral finance provides further insights into why many fall into this trap. Confirmation bias, for instance, leads investors to focus on information that supports their existing beliefs, while ignoring contradictory evidence. Herding behavior, the tendency to follow the crowd, reinforces this illusion, as investors assume that if others are doing it, it must be right.

Another common pitfall is anchoring, where investors cling to specific pieces of information, such as past stock performance, and base decisions on them, even when circumstances have changed. In a rapidly growing market like India’s, optimism can easily cloud judgment, making it difficult for investors to separate luck from skill.

Is the India Story Fueling the Illusion?

India’s growth story has captured global attention. A rising middle class, rapid digital adoption, and government reforms have made the country an attractive investment destination. The proliferation of platforms like Zerodha, Paytm Money, and Groww has empowered millions to participate in the market. With just a few clicks, anyone can buy and sell shares, often driven by the promise of “easy” returns.

This accessibility, however, has also fueled the illusion of control. The simplicity of the process can create a false sense of security, leading investors to believe that they have a greater understanding of the market than they actually do. Additionally, the proliferation of investment advice, both online and offline, can further confuse investors, making it difficult to separate sound advice from misleading information.

The Reality of Market Investing

While the allure of beating the market is strong, the reality is that it’s a challenging endeavor. Even professional investors with access to superior research and tools often struggle to consistently outperform the market. For individual investors, the odds are even more stacked against them.

Rather than chasing outsized returns, investors should focus on building a diversified portfolio that aligns with their risk tolerance and financial goals. This involves investing in a mix of asset classes, such as stocks, bonds, and real estate, to reduce risk and improve long-term returns.

Additionally, investors should adopt a disciplined approach to investing, avoiding impulsive decisions and sticking to a well-thought-out investment plan. By understanding the limitations of their knowledge and recognizing the inherent uncertainty of the market, investors can make more rational decisions and avoid falling victim to the illusion of control.