This is how some people especially the young ones who were told by, ahem, well “someone” that lots of money can be made in the stock markets very fast think like this.
Read the WhatsApp message I got in my mobile today and enjoy.
Hey kid, to make 50 lakhs from 30,000 in 2 years will need a compound return of 1191% in both the years. 🙂 The best of the best option traders will fail to match even a tenth of that. And Warren Buffett the best stock market investor in history (who never traded options, futures or any other derivative) is currently averaging almost 30% a year, I think, since 1950. Last 15 years return of his company Berkshire Hathaway Inc., is a bit less that 25% compounded annually. Still amazing. Compare this to the aspirations of this young kid. 🙂
Well do you think 30% a year is less? If someone started trading in 1950 (the year Warren Buffett started trading), with just Rs.1000 (one thousand only) and made a modest return of 30% a year, today after 65 years, his investment would be worth Rs. 25,486,951,936.00. (More that Rs.2,500 crores – yes more than Two Thousand Five Hundred Crores). Calculated using this compound calculator.
There was another WhatsApp message by a young trader just out of college who told me that “positional trades are boring”. He did not take my course because it teaches positional strategies only. He was only interested in Intraday strategies. Well really? I can bet that at least 5% of positional traders are making money but 99.99% intraday traders are losing – yet the young ones love intraday trading.
Agreed, intraday trading is more fun. But we get into trading to make money not to have fun isn’t it? That is one reason why you see thousands of tips providers offering tips on Intraday trading. How many of them offer positional trading tips? I think less than 10%. It is easy to sell Intraday tips, and very hard to sell positional stock options and futures tips. Business goes where money is there. It is a different story what happens after you pay them.
Intraday traders hit the reality once they lose 1 or 2 lakhs. Some are stubborn and end up losing more than 2 crores.
Stock market is a business. Just because entry barrier is easy does not mean itâ€™s easy to make money in Stock Markets. On the other hand, those who understand, have the knowledge and discipline to invest, and show patience can grow their wealth over time.
The real reason why people lose money in stock markets is that they have huge expectations, they are greedy and they just do not have patience. They all want to get rich in one trade that gets over by the day markets close. How is that even remotely possible?
Like the story “slow and steady wins the race” – itâ€™s the same in stock markets. Those who invest slowly, trade with discipline and diversify their risk are the ones who will make money.
Those who come with lakhs and risk crores to make crores, lose crores. Stock market is NOT a place for greedy people and people who want to get rich quick. This is one market where rich or poor does not matter. The only thing that matters is the trading strategy.
Manage risk, take calculated risk, know where you need to get out of trade and grow your money slowly. And yes compounding is also very important, else you will end up having some fun for years and end up with nothing to show. If you do not compound, even if you are making Rs.100 a day, you still end up making the same amount years from now.
Once you get to know the strategy that works for you – just start increasing your trading capital on that strategy. Again slowly – like 1 lot increase every month. Remember one lot is not a small amount – it is going to be more than 5 lakhs from November 2015 once the new lot size comes into effect.
Some people think that the margin blocked is the max risk. No its not. When you are taking unlimited risk like trading Futures – you can lose more than the margin blocked. Ask traders who get a margin call. A lot of them got that call when Nifty nosedived by 6% in one day on 24-Aug-2015.
That again is a big reminder how hedging your trades is very important if you are leaving them over-night.
I got a call from a trader the day Nifty fell 6%. He made 3 lakhs selling naked options in 2 months, and that day was sitting at a loss of 13 lakhs. He got a margin call from his broker and he called me. Tell me how can I help? Of course I cannot give him 10 lakhs. 🙂 Though I gave him an idea, but to be frank he did not contact me after that so I do not know what happened to his trade.
The motto of the post is that it is possible to make a lot of money from the stock markets – but you canâ€™t do it by speculating or taking tips from anyone. And also do not expect that you will get rich in a day or even a few months. But you can get rich, very rich, if you are willing to put in efforts and have patience to wait for a few years to make it rich.
So, Stop Dreaming – Start Working!
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Dilip Shaw, Founder
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