LUB – DUB
Between the bells
I am writing this on Christmas when bells are very special and auspicious, but those bells which we are going to discuss don’t ring today, anywhere in the whole world. Ring a bell??? Ok enough of the wordplay, I am talking about the 9:15 and 15:30 bells of the Indian Stock market.
Simply put it’s a market like any other market where stocks(shares) of companies are traded, sellers sell and buyers buy. And if you get the right price or right trade you make money. So what is this mystery that everyone wants to know if not solve? Why only 4% of the population is involved when its size is 4 trillion dollars ( btw it’s only 10% of the US stock market).?
It will always be a mystery, no one can fully understand the market, that’s because this multi-billion market doesn’t run on any set rules or logic, the whole show runs on the two most basic emotions GREED and FEAR.
When you are already at 10-12% profit the greed will make you hold it for that extra 2%, that greed of an extra 2% will subsequently make your investment half. And if you are incurring losses, you fear to book them in the hope that your position will bounce back, which will eventually double your losses.
Now many people who are very educated and experienced can say I can control my emotions and “I Know when to get in and When to get out”, these people again fell prey to another basic human emotion i.e. EGO, not that dilli wala ‘JANTA HAI MERA BAAP KON HAI’, its more of “I KNOW THE MARKET AND I CAN BEAT THE MARKET’. And when you lose money it’s not your financial loss that hits, it’s the denial in accepting that you have been beaten, beaten by the market. Which makes you go for another bout with the market. And in 9 out of 10 rounds, the market wins. Nowadays even SEBI has made the display of this fact mandatory every time you log in to your trading account.
I would not compare it with any addiction but if parallels are drawn, if you take a psychedelic drug, your serotonin and dopamine levels go from normal to very high, and your journey in from zero to positive. But if you book a loss in a trade have, to cover the loss(financial compulsion) and make some profit (mental compulsion i.e.EGO) here the journey is from negative to positive through Zero. The urge is double and so is the consequence.
The market is a multi-level Inception kind of maze and no matter you are on which level there will all be one person who will be boasting and blabbering about the next level. If you are not invested in the stock market you will have a guy who will say “Bhai aaja market me, mutual fund hi lele but Raja”, if you are SIPing in a mutual fund you will have a guy who will say “Bhai direct stocks khareed na, mutual fund to unke liye hai jinko market samajh nai aata” if you have some stocks in your D-mat account you will have a guy who will say “Bhai asli paisa to Futures and Options me hi hai” ,if you are trading in derivatives you will have a guy who will say “Bhai Currency me aaja, ye F&O sb bhool jaega” and this goes on and on.
Most Indian man including myself, buys socks with the same logic as our women buy microwaves, “I want it because she is having it” This mix of emotions, ego and FOMO makes it a very deadly combination yet very attractive. Standing at the bottom of the pyramid neither I know how this pyramid was built nor do I know if the pharaoh’s mummy is still inside it.
I would just like to iterate what I have observed from my experience. First of all ‘Be a man and accept your defeat’, this market may spare a timid and emotional person but it will never spare an egoist. Secondly, trade only if you can spare the mental bandwidth along with your job, coz it consumes all of your mental energy, and losing at both the office and market at the same time is not worth it.
If you want to trade after all, have two accounts, one with your fundamentally strong stocks having a horizon of 10-15 yrs, I call this the WIFE account. The other is for your extra curricular activities like intraday, F&O, currency, crude etc., I call this the MISTRESS account. Here you buy those stocks which you have identified for a short team (less than a year). Distribution of your investment capacity must always be 9:1 i,e. 90% to the WIFE and 10% to the MISTRESS. And market value of Mistress should never exceed 15% of Wife’s market value.
Now don’t disturb the wife, never pledge any sock and don’t sell any stock even if you are having unrealised losses (there are ups and downs with the wife). With Mistress, you can have fun, pledge the stocks bought here and do the intraday, F&O, currency, commodity or whatever kind of trading with the margin provided against Mistress stocks, sell the socks if your short team profit target is achieved. Re-invest the principal in the mistress account and average the existing wife stocks with this profit booked from the mistress. Lastly, limit the number of stocks in the wife’s account to 30 and never book the mistress’s loss from wife’s account.The safest way is to never mix the two i.e. never mix greed and fear, never mix money and ego, never mix investing and trading and lastly never mix wife and mistress. The last one is for life too.
If Carl Sagan had been a stock broker his speech would have been ‘2 Bells’ and not ‘Pale Blue Dot’, which would have been something like this “ Did you hear them, that’s it, between them every stock you have ever known, every position you have ever taken, every trade you have ever squared off, its there, tens of stock markets, hundreds of brokers, thousands of stocks, millions of investors, billions of dollars lost and gained, it all there, the Lub-dub of sinking hearts and the lub-dud lub-dud of palpitating hearts through ears, between those two bells, it’s not the sound of ringing bells, its the sound of your beating heart, its the sound that you are alive, its the sound of life.”