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Risk Management And Small Returns Can Make You Rich Over Long Term


Yesterday Nifty closed almost 1% up totally ignoring what market pundits were saying on Raghuram Rajan retirement. Not only it did not close in the red but close almost 1% up. This clearly proves do not listen to what others say on the markets just concentrate on your job and trade. One day of trading will not make you rich anyway so why bother? And mind it you can also lose money – and since on these days you trade heavily if you are wrong the losses are also big.

Hope those who shorted Nifty yesterday or sold calls learned a lesson to avoid speculating. Speculations never make money in the long term – its only knowledge, discipline trading, patience, greed control and proper risk management that makes money over the long term not what’s happening in the world.

Even the best stock investor in the world Warren Buffet did not invest all the money he had in one stock – based on his research findings he used to allocate a percentage of his net worth in that stock. If the research was very positive he invested more, if it was somewhat balanced he invested less. This brilliant money management skills and control over greed made him richest stock investor in the world. Please also note that a lot of hard work was required to this. He used to visit factories and personally see manufacturing process and marketing techniques of the companies he wanted to invest in. He also used to talk to the owner of the company and the management. Unlike most of us, he just did not see profit and loss statements or took tips and invested in a stock.

His minimum time frame was also at least 10 years to stay invested in that stock once he decided to invest. In an interview he said that the best time to sell a stock is NEVER. Basically he meant was do not sell the stock until you need the money.

Please also note that to become the richest man in the world it took him some 25 years to get that crown. Also he had other businesses – most of the money was coming from an investment business that was generating millions. Therefore he had that privilege to invest a lot of money in the stock markets without worrying much about quick returns.

Also note that the average return of his whole portfolio since the last 25 years is only some 2%+ a month. When the best stock investor of our times was able to make only 2%+ a month – you need to have more knowledge than him to get better returns than him for the next 25 years.

One month return of 10% and next month return of -15% will not make you rich in fact will make you poor.

Do not fall for something that’s just not possible. Be happy with small returns but consistent returns and compounding your money – those small returns over the years will definitely make you rich. So plan and execute your trades well and be patient.

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About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

{ 4 comments… add one }
  • marina s rao

    Dilip ji,

    Namasthe.

    Learning points from this post :

    Do not listen to what others say on the markets just concentrate on your job and trade.

    Do not sell the stock until you need the money.

    Do not fall for something that’s just not possible.

    Plz correct the following line :

    In 3rd para from the start :

    ‘ This is brilliant money management skills and control over greed that made him richest stock investor in the world. ‘

    as

    ‘ This brilliant money management skills and control over greed made him richest stock investor in the world. ‘

    ThanQ.

    M S Rao

  • Gaurav

    श्रीमान जी! सादर स्नेह What about a person if he wants to depend on intraday trading at stock market to earn his bread and butter or to fulfill his daily needs. Do you support such trading policies or long term only? I wish to know your valuable opinion regarding such daily basis trading strategies. As you know many people are offering paid services providing calls to reach targets and obviously they do. Please do guide. Thank you. शुभेच्छा

    • Gaurav, I do not support intraday trading as it has a lot of stress. Moreover it is very hard to compound. Long term strategies can be compounded and are stress free. On top if that positional strategies can be hedged, but intraday strategies needs constant monitoring. If profits can be made stress-free than why trade intraday?

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