If you stay around the markets long enough, you discover something odd: the biggest risks don’t always come from complex instruments or shady companies, they come from the ideas that feel too obvious to question.
There are many such myths in the markets, and we’ll cover more in future editions. But today, let’s talk about two of the most common traps investors fall into, often without realising it.
Myth #1: “I use it, so it must be a great investment.”
This is one of the most comforting traps in investing, and ironically, one of the most dangerous.
It comes from something psychologists call availability bias, mixed with a big dose of familiarity bias. When we repeatedly see or use a product, it starts feeling like a guaranteed winner.
Let’s use Paytm, for example, one of India’s most loved apps. We all use it for payments, right? for metro passes, and for mobile and utility bills too. Post-demonetization, Paytm became a verb in India: “Shall I Paytm you?”
It became a necessity, but has the stock been a long-term compounder? Not necessarily. While the business and stock is showing some positive momentum recently, it’s underperformed for investors since its IPO in November 2021.
India has plenty of examples where household familiarity created investor overconfidence.
- Vodafone Idea: The brand was everywhere, the user base was huge, and for years it felt like the “default” SIM card in India. Yet the business was collapsing under the weight of debt, capex requirements, and brutal price wars.
- Café Coffee Day: A café packed with people creates a sense of comfort, but the company’s numbers told a far tougher story: high debt, inconsistent profitability, and a business model struggling to scale.
But this list doesn’t end here; there are many more.
A great product experience can lead us into believing the underlying company must also be thriving and is a great financial investment. But the reality can be quite different and uncomfortable: Customers interact with the product; shareholders are concerned with the financials. And those two worlds are very distinct from one another.
Myth #2: “The TAM is huge… so the company will surely grow.”
This is the “TAM Trap”, one of the most seductive ideas in modern investing. If the Total Addressable Market is massive, how can the company not grow?
Everyone eats → restaurants should be great investments.
Everyone travels → airlines must be solid bets.
Everyone shops → e-commerce should be unstoppable.
But the size of the market means nothing if the economics of serving that market are broken.
- Restaurant: Few sectors have demand as large or as constant, yet most listed restaurant chains struggle with thin margins, high rentals, unpredictable footfalls, and intense competition. Huge TAM; No Profits.
- Aviation: Demand grows, fleets expand, airports get upgraded and investors still lose money. From Kingfisher to Jet Airways, the industry has repeatedly shown that a big market can coexist with terrible profitability. There has been only one winner till now!
- E-Commerce: TAM presentations are often more fantasy than reality. Indian e-commerce has a massive TAM, but years of cash burn, customer subsidies, and consolidation show just how difficult it is to translate “potential” into durable profits.
- Sugar: Despite unwavering demand, sugar companies are historically poor wealth creators due to fragmented supply and politically controlled pricing. Huge TAM, low pricing power.
- Logistics: Volumes grow fast, but margins remain razor-thin due to fuel costs, infrastructure needs, and cutthroat competition. You can capture 20% of the market and still barely break even.
TAM is an important criterion, but it is nowhere close to sufficient for business success. You don’t earn returns on TAM. You earn returns on profitability, competitive advantage, and pricing power.
And this is where Porter’s Five Forces becomes extremely useful: Competition intensity, threat of substitutes, customer bargaining power, barriers to entry, and supplier power. A sector that ranks poorly on these forces, even with a massive TAM, rarely turns out to be a great long-term investment.
The Bottom Line
While these two myths may occasionally overlap, they stem from different blind spots — one comes from personal comfort, the other from market-size fantasies. Put together, they are some of the most seductive traps in investing.
Both myths come from intuition, from what feels obvious on the surface. That’s why some companies can fall into both traps at the same time. But investing isn’t about intuition; it’s about economics, competition, and capital discipline.
There are plenty more such myths and overly simplified assumptions we carry into our investing journey. Avoiding them sharpens decision-making and improves long-term outcomes.
We will cover other such myths in our upcoming newsletters. For now, remember: In investing, the easiest story is almost never the whole story.
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Also, if you have any topics that you would like us to cover or any other feedback, do write to us at connect@incredmoney.com.
Till the next time,
Vijay
CEO – InCred Money
