Do it yourself

Last weekend, I happened to meet a senior IT professional, aged 48yr. This gentleman has worked with many global IT services companies like IBM, Google, etc. He has his wife and two teenage daughters in his family. Four years ago, he quit his job and took to equity and derivative trading as his full-time occupation. He even developed an algorithm of his own for trading in options. He did very well till March 2024, earning an IRR of over 54% on his capital deployed in the trading business. With a material growth in his earnings, his lifestyle changed dramatically. He bought a bigger house, bought a luxury sedan for himself and a car for his daughters' use. They travelled business class on their Europe and America trips. In April 2024, he grew in confidence and increased his exposure materially, deploying all his savings in the market. In the past 6 months, he has lost 70% of his enhanced capital in option trading; and is close to defaulting on his house EMI. The losses in the market...

The financial market regulators (RBI and SEBI) have repeatedly cautioned investors and intermediaries in the past few months. However, regulators’ cautions mostly went unheeded as both intermediaries and investors continued to ignore fundamentals, moved with the momentum, and exceeded their limits – regulatory and financial. Consequently, the regulators have begun affirmative action. Following some preventive and corrective actions the regulators took, there is palpable panic amongst the market participants. There are a lot of queries, especially from small investors, who are usually gullible and easily get misled by the manipulative tactics used by the devious operators and end up buying junk stocks at high prices. The queries usually include – “should I buy more to average my cost?”; “it’s already down 40% from high, how much more could it fall?”; “The stock is falling daily, should I sell it now and buy lower?” I do not have any specific answers to these queries. However, from my ex...

I shared my investment strategy with readers in December 2020. I expected 2021 to be one of the most difficult years for investors in terms of high volatility, poor expected returns from diversified portfolios and continued low return expectations from cash and debt. After 3months into the year, I am even more confident about my view. I continue to believe that to generate normal return on the financial asset portfolio one would need to maintain a certain degree of flexibility in portfolio. A part of the portfolio may be dedicated to active trading, at least in 1HFY22. I am therefore not changing my investment strategy for next 6months at least. I may share my current investment strategy as follows: Asset allocation I shall continue to maintain high flexibility in my portfolio, by keeping 30% of my portfolio as floating, while maintaining an UW stance of equity and debt. Large floating allocation implies that I shall be trading actively in equity. (a)   The fixed e...

Whereas the investors have enough good opportunities to invest in markets, the traders are facing many challenges. The biggest challenge is that most trading opportunities are available in the cyclical businesses like commodities and automobile. The price movements in these stocks are sharp and quick on both sides. Since most of these stocks (metals, sugar, paper, cement, textile, power, auto etc.) have already gained significantly from their recent lows and are no longer available at cheap valuations, the margin of safety in trading these stocks is obviously low. In past couple of decades, the commodity cycles have been short and deep. If this cycle also turns out to be a usual cycle, against a super cycle as widely assumed, the corrections could be quick and deep. In these circumstances, most of the traders, especially the smaller ones, are forced to trade with small quantities. The holding period is much smaller, mostly less than a week. Profits/losses are booked at much smaller...