In this blog I try to explain why and how I moved from a hard core fundamental investor to a full time trader. This is a long and tough journey especially since I took this transition in 2019 which was one of the toughest year in the history of Indian stock market after 2008. Some say 2019 was tougher than 2008 and I would agree but it all depends on individual perspective, positioning and experience. Now before I start explaining the whole journey let me note down the crux of the matter in short and also please note that this is in the context of Indian market only and should not be applied as a general investment vs trading theory.
The whirlwind of 2019
2019 was a shocking year to say the least. It was not just about slowdown, politics and policies but a series of large scams and defaults that broke out in Indian market. Now one may say .. market .. scams what's new? In 2019 the new thing was the extent and the kind of names coming out in these scams. These were not penny, B-Z category, poorly managed and operator manipulated companies. These were some of the bluest of blue chip names in corporate India. DHFL, Yes Bank, Zee Ent, Jet Airways were the kind of names that went down with entire groups of companies IL&FS, ADAG, Sintex, Talwalkars, Sterlite, Manpasand, Vakrangee, PC Jewellers, and countless other names. Scams after scams kept breaking the back of Indian market as investors looked on with complete bewilderment about the state of affairs. The biggest names and stalwarts of Indian market got caught with investments that went from blue chip to junk in a matter of few days be it Porinju (LEEL), Rakesh Jhunjhunwala (DHFL), Ramdeo Agrawal (Manpasand), Monish Pabrai (Rain Ind), Vijay Kedia (Heritage Foods) .. no one was spared. So you can imagine that small retail investors had no chance in this market. The best of the fund managers whose books are widely read across the world like Basant Maheshwari started switching investment themes overnight trying to grapple with shifting dynamics in the stock market. At one time Basant Maheshwari appeared on every news channel and asked people to buy a basket of housing finance companies blindly. What a terrible call it turned out to be (with no fault of his own) Situations changed dramatically. The contagion effect of all these coupled with slowdown lead by auto sector and a govt emboldened by it's thunder victory in the 2019 elections for it's pro-poor policy created a cocktail of events in the market that triggered a bottomless fall irrespective of fundamentals and technicals and a massive FII exit from Indian market.
Investment vs Trading
This was my dilemma in Indian market. What was investable had very low return potential and others could wipe out your capital with a scam any time. Neither looked acceptable ways of making a living. Hence I decided to turn into a trader from an investor. Which meant I would trade in these 10-15 "safe for sure" names but make money out of the up/down movement in their stock prices instead of relying on the annual returns from these stocks. That was the only way I could think of to guarantee both capital safety as well as reasonable return on investment. It sounds too good to be true a strategy. So what was the catch? Catch is that this is so good that almost every smart player in the stock market is trying to do exactly this and you have to compete with them to get your share of returns. Here you will be fighting with the top 1% in the market for your share. So it was a good plan but not an easy one. How I handled that will be a part of a series of blogs to follow next.
The whirlwind of 2019
2019 was a shocking year to say the least. It was not just about slowdown, politics and policies but a series of large scams and defaults that broke out in Indian market. Now one may say .. market .. scams what's new? In 2019 the new thing was the extent and the kind of names coming out in these scams. These were not penny, B-Z category, poorly managed and operator manipulated companies. These were some of the bluest of blue chip names in corporate India. DHFL, Yes Bank, Zee Ent, Jet Airways were the kind of names that went down with entire groups of companies IL&FS, ADAG, Sintex, Talwalkars, Sterlite, Manpasand, Vakrangee, PC Jewellers, and countless other names. Scams after scams kept breaking the back of Indian market as investors looked on with complete bewilderment about the state of affairs. The biggest names and stalwarts of Indian market got caught with investments that went from blue chip to junk in a matter of few days be it Porinju (LEEL), Rakesh Jhunjhunwala (DHFL), Ramdeo Agrawal (Manpasand), Monish Pabrai (Rain Ind), Vijay Kedia (Heritage Foods) .. no one was spared. So you can imagine that small retail investors had no chance in this market. The best of the fund managers whose books are widely read across the world like Basant Maheshwari started switching investment themes overnight trying to grapple with shifting dynamics in the stock market. At one time Basant Maheshwari appeared on every news channel and asked people to buy a basket of housing finance companies blindly. What a terrible call it turned out to be (with no fault of his own) Situations changed dramatically. The contagion effect of all these coupled with slowdown lead by auto sector and a govt emboldened by it's thunder victory in the 2019 elections for it's pro-poor policy created a cocktail of events in the market that triggered a bottomless fall irrespective of fundamentals and technicals and a massive FII exit from Indian market.
Investment vs Trading
The point to note here is that in 2019 Indian market lost trust of investors more than it lost money. Almost every company listed in Indian market could be a potential scam just waiting to break out. That left 10-15 names out that could be "safe for sure" for you to invest your money like HDFC Bank, L&T, Infosys, etc. But these companies were already mature businesses. They were already priced way above fundamentals due to safety premium in a market infected with scams. At best you could expect somewhat better returns from these companies than fixed deposit and that to if the market stabilised at some point of time which was in itself doubtful. Then why take all that risk to earn 2-3% above fixed deposit ?
This was my dilemma in Indian market. What was investable had very low return potential and others could wipe out your capital with a scam any time. Neither looked acceptable ways of making a living. Hence I decided to turn into a trader from an investor. Which meant I would trade in these 10-15 "safe for sure" names but make money out of the up/down movement in their stock prices instead of relying on the annual returns from these stocks. That was the only way I could think of to guarantee both capital safety as well as reasonable return on investment. It sounds too good to be true a strategy. So what was the catch? Catch is that this is so good that almost every smart player in the stock market is trying to do exactly this and you have to compete with them to get your share of returns. Here you will be fighting with the top 1% in the market for your share. So it was a good plan but not an easy one. How I handled that will be a part of a series of blogs to follow next.
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