For young investors who care little about the Budget save for their Section 80C tax deduction, Budget 2022 did make them pay attention. And attention had to be paid when the globe’s most favorite destination to invest - ‘crypto’ - was proposed to be taxed by India. Budget 2022 has proposed a 30% tax on any income from the transfer of ‘virtual digital asset’. That primarily meant crypto assets in today’s parlance.
But what was more interesting than the proposal itself was the extreme reactions it elicited from the crypto-investing world. From sections of crypto exchanges and some investors celebrating the seeming ‘legalisation’ of crypto trading to another section of stakeholders, especially our simple IT employees, worried that their identities would now be revealed through tax deduction at source, the reactions varied. All 5 emotions – anger sadness, love, fear joy were at play!
FOMO investing
The past calendar year has been an object demonstration of FOMO (fear of missing out) investing. There was too much money chasing too few investible assets that people were either inventing reasons to invest in mediocre ideas or outright creating new assets to deploy money in. From meme stocks to crypto currencies to NFTs and other ‘tokens’ the world was awash with fancy new financial instruments that made people say, ‘Shut up and take my money’. All in the hopes of finding a greater fool to sell the investment to at a higher price.
Even in India, millions of investors have followed the footsteps of their foreign brethren and taken to such supposed ‘investment opportunities’. And not just the millennials and Gen-Z folks either - in a recent conversation a friend revealed to me that many of his senior citizen relatives have jumped into the crypto pool with both feet. Apparently, it was the hot topic of conversation in their pilgrimage train journey!
As we are seeing now, many of these stories either did not end well or on their way to petering out. Popular meme stocks are trading barely above their pre-meme prices, crypto assets (at the time of this writing) are down more than 50%, and more money is going into NFT scams than into real trading.
To rub salt on the wound is the seemingly punitive crypto tax introduced by the government.
As we look around today, it is the lot of common investors - always late to the party - who are left holding the bag. To paraphrase an old aphorism, if you don’t know who the greater fool is, it is likely that you are it.
Of course, it is probably too soon to tell if this story has played itself out or if it’s still going on. Regardless, it is time that we learned some lessons and educate ourselves as to how to identify if an investment is nothing more than a hot potato. Try to ask yourselves the following questions to know if you are indeed ‘investing’ or merely obsessed with an ‘thrill tool’ that is in fancy now.
Identifying serious investing
First, ask yourself how happy you are (or would be) holding the investment in your portfolio. Not buying or selling, but holding. For example, if you are holding shares of Infosys or HUL - solid companies backed by revenues and steady growth - you would be glad that it is in your set of holdings. Can you say the same thing about an NFT or a meme stock?
Second, consider how anxious you are about the daily price movement of your ‘asset’. For many of these investments, the price movements are without logic or rationale. And it is likely that you know that too. So, if the price slides, you would not know why it did and what could cause it to go back up - you can’t predict which way the crowd will turn tomorrow. So, if you are having one eye on the price and another on the exit door constantly, you can be sure that you are holding something hot and odorous and not an ‘investment’.
Third, and probably the most important, ask yourself how you got into the investment - did you do a reasonable amount of research to understand what you are getting into? Are you sure you are not jumping in because you want to be on the ‘inside’ of the party? Did you take your time to make the decision to buy? If your answer is in the negative for at least two out of these three questions, then you are likely taking a joy ride when a party is on. If and when the party ends, you may well be stuck knee-deep in the marsh!
Fourth – if you are worried about the onerous tax on Crypto and were in it because of its zero tax., zero disclosure, full opacity earlier, then you likely were in it for the ‘thrill’ – which is very typical of gambling. And as you well know, gambling never amounts to investing.
(The author is co-founder, Primeinvestor.in)
