Smoking may kill you in 20 years, but trading in stock futures can kill you the next day

By Vijay Kedia

From the days of open outcry trading under a banyan tree to high-speed trading in the iconic PJ Tower, the Indian stock market has surely come a long way.

From being nowhere in 1990 to the world-class infrastructure for securities trading that we have today and Sebi putting up a robust regulatory mechanism, it has been an impressive journey.

What is not impressive is the fact that the advantage of all this modern infrastructure and systems has mainly gone to four intermediaries, the regulators and exchanges themselves besides, of course, the tax department and brokers. The traders at large were poor back then and have still remained poor. Only a handful of them have become successful in this journey, that also in investing, not trading. Success percentage in trading is hardly 1 per cent.

Why? Because, it’s not in our DNA. We learn things three ways: by birth when it comes in our DNA; in our childhood through school curriculum or as a culture at home; and by observing the world, reading books and watching others in our youth.

But, as they say, you cannot run 100 metres in 8 seconds by coaching. That’s why the Kenyan always comes first in marathons.

Our ancestors lost their fortunes in stock market; that is why in many old industrial houses even investment is banned, forget trading. They look down upon the stock market. How do you expect them to teach their children? So we did not have it in our DNA nor were taught at home or school or colleges.

When I was watching the movie Udta Punjab, I was really moved to know how the youth of one of our bravest communities is being ruined. After some time in the movie , I realised this is what exactly is happening even in our stock market in the name of trading.

Trading is the biggest addiction. No less than drug. You will sell your house to buy drugs and trade to recover your losses.

During a speech I delivered at IIM Ahmedabad, a student told me he wanted to use his father’s pension to trade in stock market. I held his hand and asked him to promise me he would not do that. My wife’s English teacher, now in her 60s, is asking me whether she should allow her son to use her savings in the stock market. I was shocked!

It is something like giving a gun in the hand of an innocent person.

Sebi should not allow stock trading, unless one has done a course etc. Hard training is a must before one starts trading. Else, all the intermediaries and their employees will keep on becoming arabpatis and crorepatis and 99 per cent of traders will keep on struggling even for their livelihood.

For a starter, the best way to become a millionaire through trading is to trade with a billion. Trading is a different ball game. It cannot be learnt without experiencing losses. And to sustain till you have learnt it fully, it requires big discipline which again needs to be learnt systematically. It’s a process. It is impossible for a new person to learn it by reading books.

Trading is injurious to your wealth.

You can lose 50 years’ of savings in one trade. Today, majority of broker ads, TV channels and technical analysts are encouraging and luring youth into trading. It is a recipe for disaster. Buy at Rs 65, stop loss Rs 60, target Rs 70. Even god can’t predict that. They are fooling people to generate their business and income in the name of the liquidity.

I remember an old movie where Raj Kapoor runs a scheme and assures to sell houses for Rs 100 each on a future date. When asked how can he give a house at Rs 100, he says I can’t. I am not selling house I am selling dreams. In other words, I am making them fool. I think the name of the movie was also Shri 420.

In the name of seed capital, people indulge in trading. Instead of that, they should use ordinary mobile phones, ordinary unbranded cloths, avoid eating at fancy restaurants and travel by public transport to build that seed capital over a few years. Otherwise, forget capital, you may not be left with the seed money.

Wanting to be crorepati in the shortest time is the biggest reason for failure in the stock market.

People often confuse between investing and trading.

In investing always remember Rome was not built in a day and in trading always remember Hiroshima and Nagasaki were destroyed in a day.

Market rewards you as per your perception. If you treat it as a gambling den, then it will prove a gamble for you, and the best place to go would be Goa, not stock market.

Before punching any trade, remember you have four above-mentioned dependents to feed before you feed yourselves. So, protection of your capital should be top priority and it is the biggest gain of your capital.

In earlier days in Calcutta Stock Market at Lyons Range, people used to say only four Hindi alphabets can make money in trading ie TA, THA, DA, DHA, NA – TA means Taruni (jobber), Tha means thoda small quantity), DA means dalal (broker), DHA means dhanwan (wealthy) and NA means no payment (Who can refuse to pay losses). See if you fall in any of these categories.

Being fully dependent on futures trading will make you inactive in life and cripple your other businesses. Plus, you are most likely to turn a blood pressure patient at an early age. So chose your life carefully. The purpose of our life is to be happy.

(Excerpted from a speech Vijay Kedia delivered at the London Business School last month)