Why most Pakistanis will lose money in this bull market

The market is at an all-time high, and for the first time in years it feels like everyone around you is making money. The friend who spent last year warning you that the stock market is a casino is now telling you which share to buy. And yet most of the people arriving in this exact rally will still lose money in it.

In a country of 25 crore people, only about three lakh are invested in the stock market at all. That is roughly a tenth of a percent, and it is a big reason our savings-to-GDP ratio sits among the lowest anywhere.

This isn't a warning to stay out. It is about why the same rising market makes a few people wealthy and leaves most of the crowd poorer, and why that difference has almost nothing to do with the market and almost everything to do with when you arrive and whether you understand what you walked into.

Fear is the thing that sells

Walk down any street in Pakistan and ask people whether you should put money in the stock market. Eight or nine out of ten will tell you not to, that your money will drown. Most of them have never invested a rupee, so the warning isn't coming from experience. It is coming from something that was put into them. Open a newspaper, turn on the news, and what you mostly find is fear, because fear is what keeps you watching.

Every time you think about investing, a voice reminds you that someone said the market would collapse, that Pakistan would default, that the whole thing would go to zero. In the very years when everyone is frightened, when the papers are full of default and collapse, a small number of people quietly go and invest, and some of them make crores. So the question worth holding on to is what they see that the frightened majority doesn't.

Nobody cracks the code

The first thing they understand, and it comes before any strategy, is that luck is always involved. Anyone who made money will tell you a clean story. I researched the companies, I studied the valuations, I read the market, I invested at the right time, and I cracked the code. Nobody cracks the code, because the code has luck built into it.

You can see this in the people who invested in 2021 and are influencers today, telling you they always knew the market would climb. But most probably they were also lucky, and the honest ones will say so, that nothing is guaranteed and there is always risk. The people selling you certainty, promising your money will grow no matter what, are the ones to distrust first.

You do all the work precisely because it tilts the odds in your favour, and then you accept that it can never remove the luck. Both of those are true at once, and holding them together is genuinely the first step before you put in a single rupee.

The State Bank holds a remote control for money

So you zoom out. To understand why a market rises or falls, you have to follow the money, and the flow of money in the whole economy is steered by two things, inflation and interest rates. Start with inflation running high. To cool it, the State Bank raises interest rates, and that raise works like a brake on the flow of money.

Two years ago the rate in Pakistan was around 22 or 23 percent. At that level, borrowing one lakh from the bank costs you roughly 23 or 24 thousand rupees in interest a year, on top of what you owe. As the flow shrinks, inflation cools. It drifts from 28 percent down to 24, then 20, then 18. Once they are sure inflation is falling and will keep falling, they start cutting the rate, and they keep cutting.

Cheap borrowing returns, banks take cheap money and lend it out cheap, and money flows back into people's hands. First they buy the things they need, a car, a house, whatever it is. Then, with what is left over, they look for somewhere to put it, and the stock market is usually the first place that money goes.

This is the part most people miss. There are the same number of shares as before, and now there is simply more money chasing them. A rising market is often just a flood of cheap money looking for a home, not a country full of suddenly excellent companies.

Two or three years up, three or four years down

Pakistan is famous for one economic pattern above all others, the boom and bust cycle, and once you can see the flow of money you can see the cycle it drives. A boom begins from stability. Remittances come in strongly, the dollar holds steady, trade is roughly balanced, money flows in and out in an orderly way. Interest rates get cut, that flow reaches people, they buy houses and cars and then invest what is left, and a kind of shared good mood settles in.

Then it tips over. People start buying far more than they need, and it becomes unsustainable. Picture 50 goods in an economy and 50 rupees chasing them, so each thing costs a rupee. Now leave the 50 goods where they are and push the money up to 100 rupees, and the same thing costs two. That is inflation, and to control it the State Bank clamps down on the flow of money again.

That clamp is where the bust begins. Political instability tends to arrive with it, and people start pulling their money out. Inflation climbs, and because we imported heavily during the good years, our dollar reserves fall.

Two, three, sometimes four years of boom, then three or four years of bust, over and over. The last few years were a bust, with political instability, foreign reserves low, money leaving the country, remittances thin. The market has recovered hard, plenty of people have made money, and by every sign we are in a boom again. I can't tell you the month it happens. I can only tell you that it will, because this is simply how our cycle has always worked.

A company worth 100 that trades at 500

Now to the single most important idea in all of this, the one every serious investor is really watching, which is valuation. Take a solid company whose real worth, its profits and its assets added up, comes to about 100 rupees. But when the market gets flooded with cheap money, that same company can end up trading at 500. There are the same shares as before, and more money is chasing them, so the price runs far ahead of the real worth. The gap between what a company is actually worth and what it trades at can be worlds apart.

Smart money reads this gap through a simple ratio, price to earning. If a company earns one rupee and you are willing to pay five rupees to own it, its price-to-earning multiple is five. A company worth 100 trading at 800 is being paid eight times over, because people believe it has the potential to be worth that much.

When the market is in a bust, when fear is everywhere and everyone expects to lose, the strongest, most fundamentally solid companies get marked down hard. A company whose true multiple should be around ten might be sitting at three or four, which means it is genuinely cheap. That is exactly when smart money buys, while the ordinary retail investor won't go near it, certain his money will be destroyed.

Then the boom arrives. Retail floods in, and the company smart money bought at four or five is now trading at ten or eleven, and around eleven or twelve is usually where the peak sits. That is when smart money quietly sells, right into the crowd that is finally buying.

The clearest way I know to explain this is with fruit, because I am from Sargodha and there is always an orchard nearby. Picture a malta orchard that produced almost nothing this year, because the rains never came. The man selling it has to let it go cheap, at a low valuation, because right now it looks like a failure. But an investor looks at that same orchard and thinks, next year, or the year after, this land will fruit again, and I will get back everything I paid and more.

This forward-looking logic has a limit, though, and when it detaches completely from reality, you get a bubble. In 2001 the dot-com bubble ran on internet companies whose prices climbed to many times their profit, whether or not they were profitable at all. The same shape is visible right now in what people are calling the AI and crypto bubble. Take the biggest example, Nvidia, trading at around 53 times its profit. Higher valuations simply mean higher risk, because when a company you are that certain about stumbles even a little, a lot of money sinks, and that is where bubbles burst and recessions begin.

This isn't only an American problem. Every country feels it, including ours. As for Pakistan, our own market's price-to-earning ratio is sitting around nine right now, with room, looking at past data, to move toward ten, eleven, or twelve. So there may still be some way up left, and there is also a cycle underneath it that always eventually turns.

Which one are you, the investor or the free loader?

So in a rising market you will always find two kinds of buyers, and the difference between them decides who keeps their money. The first is the real investor, watching the valuations, studying the business, reading the momentum, choosing carefully. The second is the momentum buyer, who sees the market climbing and jumps in with whatever cash he has, hoping to ride it higher.

The momentum buyer almost always arrives at the high valuations, right where smart money is heading for the exit, and he ends up hurting not just himself but the market around him. The name I use for this second person is the free loader, and the whole thing comes down to which of the two you decide to be.

Morgan Housel puts it well in his book. To become wealthy, to become a genuinely good investor, you have to pay a price, and that price is not only money. The price is enduring volatility, fear, and uncertainty without flinching. The free loader's entire aim is to avoid paying it. He wants the profit without the fear, so his plan is to get in fast, book a quick gain, and get out.

That plan has a hidden weakness. Because he never agreed to sit with fear, his emotional resilience is almost nothing. The moment the market dips, the moment a single bad headline lands, he sells, either to lock in his profit or to escape a loss. And he is never the only one. One free loader sells, which nudges the next, and a trickle becomes a flood of selling, and the whole market drops in a hard, sudden wave.

You saw this play out recently. In roughly a week and a half, the market lost somewhere around ten or eleven thousand points, five or six thousand of them in a single week. There were a few real reasons, some political news, some global news, but a major part of it was simply this, momentum buyers and free loaders who came to make money without paying the price, all rushing for the door at the same time on the first sign of trouble.

And here the whole thing quietly closes a loop. Look at what fear does across this entire story. At one end, fear is sold to the 99 percent to keep them out of the market completely, so they never invest at all. At the other end, the refusal to sit with fear is exactly what turns the few who do come in into free loaders, who sell at the first tremor.

Both groups are making the same mistake from opposite directions. Neither one is willing to hold fear. And the investor who actually wins is defined by that single thing, a different relationship with fear. He buys when others are frightened and the valuations are low, and he stays put when the fear comes back. What the market quietly pays you for, in the end, is your willingness to hold the very fear that everyone else is busy selling or running from.

Know your why, then almost forget the market

So if you have decided to be the investor and not the free loader, there are a few things I keep coming back to. None of them is a stock tip. All of them are about how you hold yourself while the market does what it does.

It starts with knowing your why. Before you invest a rupee, get clear on the goal and the time horizon. If you are investing for fifteen or twenty years, the short-term swings should not move you at all, because those swings are driven by the momentum buyers, not by anything in your actual plan. If your why is not settled, fear and uncertainty will trouble you constantly, and you will end up acting on them.

Then, buy businesses, not just tickers. Don't chase whichever share is highest on the gainers list. Understand what the company actually does, how its whole sector works, what pushes it up and what pulls it down, what dividend it pays, what its management and future plans look like. You would inspect a plot before buying it, the roads, the sewerage, the gas, the water. A company deserves the same questions, and the good thing about the stock market is that all of it is public. Open the research report and the data is right there.

Then, pay the price. You have to fix it in your head that the market will not always go up, that it will test you and challenge you, and that volatility, fear, and uncertainty are the fee for being there. Pay that fee and you can be a successful investor. Refuse to pay it, and you are back to being a free loader.

And last, automate and relax. Decide what share of your income goes in every month, 30, 35, 40 percent, whatever it is, set it to happen automatically, and then step back. Where exactly to put it, low risk or high risk, is a separate conversation, not this one. The point is that your mind, your single most valuable asset, should not be running on the market all day.

Because this is the part I care about most. Your brain, 80 or even 90 percent of its capacity, should be going toward how you earn more, build more skills, learn more, because that is where your money actually comes from. If you are emotionally glued to the market, every other part of your life suffers, and your earning power drops with it. Investing alone will not make you rich. Your ability to earn more, and to keep getting better at what you do, is what builds real wealth. The investing sits on top of that, it doesn't replace it.

Nobody can call the top, so stop trying

Notice what I have not done anywhere in this. I have not told you the market will crash on such-and-such date, or that this bubble bursts next month. Nobody can do that honestly. Not the biggest financial advisor, not the influencers with the largest followings. They will give you confident guesses, this will happen and then that will happen, but they are guesses dressed up as knowledge. We are not playing that game.

The game we are playing is different. You build your whole strategy so that whenever trouble comes, and it always eventually comes, you are positioned to lose as little as possible and to still be standing when the cycle turns back up. That is the entire aim. Not predicting the crash, just never being wiped out by it.

So the all-time high everyone is celebrating is not the opportunity it looks like. The real opportunity was months or years ago, sitting quietly inside the fear that nobody wanted to touch. If you missed it, the honest move is not to chase this top. It is to understand the whole picture now, so that the next time everyone is frightened and the market looks finished, you already know exactly what you are looking at.