Why does Investors have an edge over Traders?

Why do most traders lose money?

1. If you observe most of the large cap stocks produce 15-20% annual returns on average. But the same stocks, on daily basis, move up or down easily to the tune of 1%.

2. There are 5 trading session per week. In an year, there will be 250 sessions approximately. (5 per week x 52 weeks = 260 less 10 general holidays = 250 trading days). If market is unidirectional, those stocks would produce 250% gain or losses. But markets go in both directions or remain sideways. Considering 20% gains a year on an average, which can come in 20 sessions, what the market does in rest of the 230 sessions? It plays ping-pong. Gains will be reversed and falls will also be reversed, resulting in no net gain. Take away is, for 230 sessions, probability of gains or losses is roughly equal.

3. If you are a day trader, going by simple arithmetic of 230 sessions erasing gains and losses of each other, every day you have an equal chance of winning or losing. But consecutive win probability reduces with the time. For example, first day it is 0.5, winning the next day too is 0.5 x 0.5 = 0.25. Probability of consecutive win for 5 days is, 0.5^5 = 3%. So your winning streak or luck does not last long.

4. Psychology impacts decision making skills and staying rational. If someone wins for few days, he becomes overconfident, increases his bets while his chances are winning again are reducing with each day. You know what will happen to him when his luck vanishes. Similarly, when someone loses consistently, he loses the confidence and reduces his stake. He does not know that probability of losing consistently is reducing with each lesson.

5. A trader can train oneself to play a bull or bear. Trying to be both is hard. Changing track is not an easy thing as one can interpret the signals wrongly and increases the losses.


What works for an investor?

All the disadvantages which the traders face are not shared by investor community as they largely ignore the daily volatility. Their focus is on the annual gains and not the short-term volatility. So they need not worry about law of probability of winning everyday. Yet they too can lose money, if they had picked a wrong stock or paid a wrong price.

One of the famous quotes from Warren Buffet is, “Rule 1: Do not lose the money. Rule 2: Don’t forget the Rule 1”

Well, how can an investor not lose money in the stock market? The stock you pick may go down the next moment you bought it. But there are many measures you can employ of setting the game in your favor.

1. Avoiding a wrong pick: You should learn about due diligence. You need to learn about business valuation. You should understand the underlying business, not just the stock. How does that company generates revenue? Who are their customers? What drives those customers to buy the products or services of the business you are evaluating? How long the revenue growth will last? How is their financial model? What are the margin structures of the business? Does that company generate sufficient cash to honor their payments, also invest into the future? Finally, the intention of promoters. Are they willing to share the profits with a common investor? Have they paid dividends in the past? Are they honest enough in their communication? Getting answers to all these questions is a lot of hard work and better you do that else you run risks of losing your hard-earned money. Proper due diligence is the only way out of a wrong pick.

2. Diversification: You do not invest all your eggs into a single basket for a reason. You want to live another day to fight back and not lose out if the only stock you hold runs into an unknown issue. Building a portfolio gives a balance. It reduces risks and also returns. Since our Rule 1 is to avoid losses, building a portfolio and avoiding concentration in just 1-2 stocks makes sense. As you build portfolio of 15-20 stocks, you need to make sure those stocks do not belong to the same industry or sector. Take a look at any mutual fund portfolio and observe how many stocks they hold, what is their Top 5 stocks concentration and also Top 3 sectors concentration. You will get a fair idea of how they structure a portfolio. You also want to have a fair mix of large cap, mid-cap and small cap stocks.

3. Avoiding wrong pricing: Once you have identified the stocks for your portfolio, you do not want to put all the money in one go. You will identify the fair price band for each stock and you will wait patiently for a discount before you invest into it. You do not want to enter at whatever price the stock is trading but buy at only discounts as per your estimate. Since you will put only a fraction of money in the market each time and continue that way over a period of 4-6 quarters to fully invest into a stock, it gives you good time to study that company and assess if your estimates were right or not and take necessary corrective actions.

With this knowledge, you can very well say now “When a trader makes money it is mostly luck at play, while an investor makes money it is mostly patience and hard work”. Many traders struggle to earn a living while many patient investors earn their fortunes in the stock market. Capital follows knowledge. Acquiring knowledge should become the primary aim of investor. Fortune will follow subsequently.

This too shall pass but what is the take away?

Everyone’s life comes to an end. All phases of life are momentary. Look at the picture of Pele on the wheelchair. He was a legendary, one of the greatest footballers of all times. He had to run across the field several times, taking the ball under his control, hit a goal and repeat the process again! What kind of energy his legs had then and now why they are failing him even to walk on his own?


Coming to my events in my personal life, in the last couple of weeks, I had to meet two bed ridden people who were very active physically before uncertainty of life gave them a blow.

First one is my relative in my native town of Maski, who is in her seventies. I had never seen her sick before. She was always active, treating all her guests, keeping a conversation with all the people at home, also moving in and out of kitchen, ensuring that they are all fed properly. She had not only raised six of her kids but also several grandchildren to adulthood. She had never missed any gatherings among the relatives, kept a close watch on all the happenings and developments and many a times she had led the developments herself. Now when I went to meet her, she was sleeping on the bed. I could see her senses were active as before but the body is not able to keep up with her active mind. She could not sit on her own, was on a liquid food diet and someone had to help her answer nature’s calls. Body is aged, not her soul for sure. But her situation is no better as she has become a dependent for simplest chores of the daily routines.

Second one is my neighbor. He was the first one I got introduced to in the neighborhood when we started building our house in the outskirts of Bangalore. He was into marketing, he roamed around Bangalore on his bike, clocking 100 km's everyday easily. He was very quick in making friends, getting to know things early and spread the message around with same ease. A total extrovert person, an easy going person, he had to face lots of uneasy things of life. Call it bad luck or destiny, he had to go through serial physically injuries. First one was an electric shock blowout when an electric transformer exploded during the rainy season. It burnt one of his hands badly. Before he fully recovered from it, he had to go through a surgery and the recent one is a bike accident which broke his leg and now he is forced to take bed rest. And likely he will not able to ride a bike for the rest of his life.

When life is going good, we think it will be so eternally but the normal aging process or a sudden accident can bring a screeching halt to the pace of life. Now I am questioning myself, what should be the priorities of life? What am I doing after getting the wake-up call?

If life is momentary, it shall pass too. When you wake up from a bad dream, you will realize that whatever had happened in dream is not real. Similarly, when death happens to us, it would make us feel that the lives we had lived were momentary like a dream. While it is certain that death happens to everyone, it is uncertain that when that would happen.

The choice we have is to make the life we lived a pleasant one, Execution seems to be more important than mere planning. I am asking myself, what am I doing? Do you have any recommendations? Not the philosophical guidance I am seeking, it is the practical adjustments you have done in your daily lives that will be interesting for me.

ಎಲ್ಲಿಯ ವಸಂತ, ಎಲ್ಲಿಯ ಕೋಗಿಲೆ?

"ಬೀಸೋ ಗಾಳಿಯಲಿ ಹರಿವ ನೀರಾಲೇ

ಹೇಳು ಏನೆಂದಿದೆ ಓ ಗೆಳತಿ?"

ಈ ತರಹದ ಹಾಡುಗಳನ್ನು ಕೇಳುವ ಅಥವಾ ಗುನುಗುವ ವ್ಯವಧಾನ ಯಾರಿಗೆ ಉಂಟು ಈಗ? ಅದರಲ್ಲೂ ಬೆಂಗಳೂರಿಗರಿಗೆ ಕ್ಷಣ ಕ್ಷಣಕ್ಕೂ ಧಾವಂತ. ಸರಿಯಾದ ವೇಳೆಗೆ ಆಫೀಸ್ ತಲುಪುವುದೇ ಒಂದು ಸಾಹಸದ ಕೆಲಸವಾಗಿರುವಾಗ, ಬೀಸುವ ಗಾಳಿ ಏನು ಹೇಳುತ್ತಿದೆ ಯಾರಿಗೆ ಬೇಕು ಸ್ವಾಮಿ? ಹರಿವ ನೀರು? ಅದನ್ನು ನೋಡುವುದು ಯಾವಾಗ? ಈ ಊರಲ್ಲಿ ಯಾವುದೇ ನದಿಗಳಿಲ್ಲ. ತುಂಬಿ ಹರಿಯುವುದು ಕೊಳಚೆ ನೀರು ಮಾತ್ರ. ಅದು ಹೇಳುವುದು ಮೂಗು ಮುಚ್ಚಿಕೊಳ್ಳಿ ಎಂದು.

ಈ ಹಾಡು ಈಗಿನ ಸಂದರ್ಭಕ್ಕೆ ಸರಿ ಹೋಗುವುದಿಲ್ಲ ಎಂದಾಯಿತು. ಆದರೆ ಇದು ಕಳೆದು ಹೋದ ಕಾಲದ ಜೀವನ ಶೈಲಿಗೂ, ಇಂದಿನದಕ್ಕೂ ಇರುವ ವ್ಯತ್ಯಾಸ ಎತ್ತಿ ಹಿಡಿಯುತ್ತದೆ. ಏರ್ ಕಂಡೀಶನ್ ಗಾಳಿ, ಫಿಲ್ಟರ್  ನೀರು ಸೇವಿಸುವ ನಮಗೆ, ಪ್ರಕೃತಿ ನೀಡುವ ಸಂದೇಶಗಳು ಗಮನಕ್ಕೆ ಬಾರದೇ ಹೋಗುತ್ತಿವೆ. ಋತುಗಳ ಬದಲಾವಣೆ, ನಮ್ಮಲ್ಲಿ ಹೊಸತನ ತರದೇ ನಮ್ಮನ್ನು ಅನಾರೋಗ್ಯಕ್ಕೆ ಈಡು ಮಾಡುತ್ತಿವೆ. ಇನ್ನು ಎಲ್ಲಿಯ ವಸಂತ, ಎಲ್ಲಿಯ ಕೋಗಿಲೆ?

ತಲೆ ಎತ್ತಿ ಮೋಡ ನೋಡಿ ಮಳೆ ಬರುವ ಸಾಧ್ಯತೆ ಇದೆಯೋ ಎಂದು ನೋಡುವ ಬದಲು ನಮ್ಮ ಸ್ಮಾರ್ಟ್ ಫೋನ್ ನಲ್ಲಿ ಅಥವಾ ದೂರದರ್ಶನದಲ್ಲಿ ಅದರ ಬಗ್ಗೆ ಏನಿದೆಯೋ ಎಂದು ನೋಡುತ್ತೇವೆ. ಹೀಗಿರುವಾಗ ನಮಗೆ ಕಾಳಿದಾಸನ ಮೇಘ ಸಂದೇಶದ ಕಲ್ಪನೆ ಅದ್ಭುತ ಎನಿಸದೆ ಒಂದು ಮೋಜಿನ ಸಂಗತಿ ಎನಿಸುತ್ತದೆ.

ಹೀಗೆ ಗೊಣಗುವುದು ಬಿಟ್ಟು, ಸುಮ್ಮನೆ ಹಳ್ಳಿಗೆ ಬಂದು ವಾಸ ಮಾಡು ಎಂದು ಹೇಳುವಿರಾ? ಅದಕ್ಕೆ ಅಣ್ಣಾವ್ರ ಹಾಡಿನ ಬದಲಾಗಿ, ಅವರ ಮಗನ ಚಿತ್ರದ ಹಾಡು 'ಸಿಕ್ಕಾ ಪಟ್ಟೆ ಸಾಲ ಇತ್ತು ಲೈಫೀನಲಿ' ಎಂದು ಹಾಡಬೇಕಾಗುತ್ತದೆ. ಇಷ್ಟಕ್ಕೂ ಬದಲಾವಣೆಗೆ ಒಗ್ಗಿಕೊಳ್ಳದೇ, ಸಾಧ್ಯವಾಗದ್ದನ್ನೆ ಬಯಸುವುದೇ ಜೀವನ ಅಲ್ಲವೇ?

Movie Review: Rangasthalam (Telugu)

Whole of the movie is centered on the events that happen in a village named 'Rangasthalam' which is situated on the shores of Godavari backwaters. Like in most of the villages, this village too has a President (played by Jagapathi Babu) who dons the role of a villain, who controls the village using violence and eliminates those who opposes him. One of the dialogues in this movie goes thus "There are many people in this village who don't have food but there is no one who don't have have a loan to repay" which reflects the situation the villagers are into. But they are not aware that their loan books are cooked up. Farming yields are not enough to repay the loans and the frustrated villagers suffer in silence and those who oppose get killed which are masked as suicides.

The protagonist of the movie, Chitti Babu (Ram Charan) is a jolly person. He is partially deaf. Others have to speak to him in a louder voice else he can't hear them. That has made him innocent and quite unaware of happenings in the village. But he has a gift of reading lip movements.

As the incidents turn out, Chitti Babu's elder brother Kumar Babu (Aadhi Pinisetty) finds out the frauds of the credit society. As he tries to make it public, events take a violent turn and Chitti Babu hits hard one of the President's men and goes into Police custody. Taking local MLA's (played by Prakash Rai) help, his brother gets him out on bail and decides to contest the elections against the President of the village. After initial resistance, they succeed in getting the acceptance from people. As the election day nears, Chitti Babu's brother gets killed despite the heroic efforts of the protagonist to rescue him. Chitti Babu's deafness becomes a disadvantage for him as he cannot make out the last words said by his brother.


Who killed his brother? What happens to the village thereafter? Is President the lone villain? Will Chitti Babu succeeds in deciphering the plots? That is for you to watch on the big screen.

Movie begins with a documentary style of story telling and gathers pace as it progresses. Very neat camera work throughout the movie and the way sequences of the movie are pieced together makes this movie interesting though the main plot is centuries old. Though you might have watched hundreds of movies with this kind of story line, this movie becomes unique with its presentation style and role plays.

I do not watch Telugu movies much but this one was impressive and I felt this was the best among the movies I have watched in the recent times. So I could not resist from telling you.

We are coming

Looks like all the back-door negotiations have failed and the trade war has become real and staring at us. It is not just US and China. It would spread to other countries including India. We are very much on the radar.

If you see short term economic benefits, US seems to gain from the duties slapped on the international trade. US is the biggest consumer while China is export based economy. This move should make the US Dollar stronger in the shorter term. But at the same time you should not fail to notice the courage displayed by China in slapping back US with equal amount of trade tariffs. China is not standing on the loose ground. China is making arrangements to pay for its oil imports in its own currency avoiding the usage of US Dollar. Whole world is noticing it. Though US Dollar gained against emerging economies, it is falling against Euro and Japanese Yen at the same time.

Message is clear and loud. If you can look further into the future, China has ambitions to make its currency an international one, at the cost of US Dollar. It would slowly get off the vast US Dollar reserves it holds as and when its own currency finds takers. If we assume that Donald Trump continues to remain same in his approach, US Dollar will see serious damage to its valuation in the years to come. Its supremacy in the global market might end and Trump can make it as soon as possible by increasing the intensity of rivalry against China and other countries.

If we assume that US Dollar is going to lose value, it will have a greater impact on India too. Exporters (from India to US) will see their businesses shrinking and becoming infeasible. Talent drain will reverse at a faster pace. India is a consumption major economy unlike China which is export driven. Though two major industries (IT, Pharma) of India will see an adverse impact, rest of India would see things getting better for them with this structural change in the economy. Our currency getting better against US Dollar will help our economy as trade deficits would become thinner and gradually disappear.

Right now we say we are $2 trillion dollar economy with a national income $1500 to 2000 per person per year. If Rupee is going be stronger by 20-30% against USD, our GDP and per capita figures will also be revised by that gain in Dollar terms (though not much has changed in Rupee terms). This will help close the gap between us and rest of the world (mostly with the developed countries).

On PPP terms, India already has a decent ranking and it looks like it will only get better from here, may be at very fast pace than expected earlier. Except China, we can say confidently to rest of the world "We are coming."