India’s digital transformation has democratized investing, allowing millions of retail investors to tap into the stock market. But with this access has overconfidence. From influencers who make overnight deals to retail platforms that simplify stock selection, many believe that beating the market is just a matter of effort and time. But is it?
First, why do investors think they are special?
At the heart of the illusion of control is overconfidence. Many investors, especially beginners, underestimate their ability to predict market movements. When his initial investment yielded positive results, he mistakenly attributed this success to his own skills rather than luck.
But the reality is more complicated. Market movements are driven by factors beyond individual control, such as macroeconomic changes and geopolitical tensions. Behavioral finance further explains why so many fall into this trap. Confirmation bias, for example, leads investors to focus on information that supports existing beliefs, while ignoring signs that contradict them. Herding behavior encourages investors to follow the crowd, assuming that if others are doing it, it must be right.
A very common pitfall is anchoring, where investors cling to certain information, such as past stock performance, and base their decisions on it—even when conditions have changed. In a fast-growing market like India, optimism can easily cloud judgment, making it difficult for investors to separate luck from skill. Second, the story of India fueling the Illusion? The story of India’s growth has taken global attention. A rising middle class, rapid digital adoption, and government reforms make India an attractive investment destination. The emergence of platforms like Zerodha, Paytm Money, and Groww have empowered millions of people to participate in the marketplace. With just a few clicks, anyone can buy and sell stocks, often driven by the promise of “easy” returns.
This accessibility, however, also creates the illusion of control. India’s growth narrative makes investors think that whoever invests in the “right” stocks will always win. But this optimism often ignores the reality of market volatility, sector-specific downturns, and global economic challenges.
Third, perfect market timing and stock picking is a myth
One of the most dangerous manifestations of the illusion of control is the belief in market timing – the idea that one can predict highs and lows and trade accordingly. Many retail investors in India think they can “beat the pros” by timing their trades. He also believes that picking individual stocks gives him control over the success of his portfolio.
But the data tells a different story. Time and again, studies show that professional fund managers, with access to superior research and tools, struggle to consistently outperform the market. So where does that leave the average retail investor, often driven by social media buzz or limited information?
Fourth, the professionals are also struggling
Even seasoned professionals with years of experience and sophisticated analytical tools struggle to beat the market. Take actively managed mutual funds as an example. Over time, only a few have consistently outperformed benchmarks. In India, mutual funds focused on blue-chip stocks are often outperformed by index funds that only track the broader market. This unprofessional performance should be a warning to retail investors: if the experts can’t do it, what makes you think you can?
Market movements are influenced by a number of unpredictable factors, from inflation data to global supply chain issues. In India, sectors like IT and banking may have done well over the years, but may experience a sudden downturn due to global events. Predicting these changes consistently is nearly impossible, and even top fund managers know that a disciplined and diversified approach is more reliable than trying to time the market.
Finally, India’s growth story is not as simple as it seems
India’s economic potential is undeniable. Sectors like banking, consumer goods, and manufacturing have shown impressive growth. India is increasingly seen as an alternative to China for global investors. However, if India’s growth directly translates into market outperformance it is risky.
Many investors believe that they can ride this wave of growth by choosing stocks from the “right” sectors. But the market does not move in a straight line. Despite India’s long-term potential, individual companies and sectors will experience volatility, and short-term market movements will be difficult to predict.
Conclusion: Let’s control to get
In the end, the illusion of control in investment is just that – an illusion. No one, not even the most skilled investor, can consistently predict or control the market. But what we can control is behavior, strategy, and discipline. By focusing on long-term, evidence-based investing, we can avoid the pitfalls of overconfidence and give ourselves the best chance for success. In a market as dynamic as India, it is easy to get swept up in the idea that anyone can win big. But remember: the market is not something to be conquered, only navigated.
(The author is Arun Chulani, Co-Founder, First Water Capital. Display itself)
