F&O Trading Futures that can drains your future

Friday, January 1, 2010
F&O Trading Futures that can drains your future

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Best Principles to adopt in stock market:

• I never liked F&O or derived product and I strongly advised against Futures trading which takes future out of us, Derivative is a very professional product and it is needs high level of training and understanding to handle, which a normal investor will lack.


• Future is a zero sum game as by the end of the settlement one should lose for other person to gain so here only disciplined players can sustain so only traders normally have a stop loss to reduce the risk and they adopt trailing stop loss to maximize their profit.


• What does a normal investor or trader do? He takes profits faster but when his trade goes into loss he gets into hope and never cuts his loss and latter he will end with huge loss. Mother of all losses is when you fail to take small losses.


What kind of investment philosophy I suggest?


I keep investment very simple; I never take a risk to find a multi-bagger, divide my risk with 10-30 stocks no stock will have more than 9% weightage and sector cap limited to 15% and adjust my cash level as per, market situation and keep my expectation very reasonable 25-30% per annum return I consider very high. Bull or Bear market never worries me; in every market money is made by being invested.


Why against Multi-Bagger?

We always talk about few success stories while 95% of the failures are never talked as seeing success of few stocks are sectors, investor tend to rush to make fast money to lose latter. I recollect the days when Aqua, Mushroom, NBFC, Diamond, Info, Dot.Com (just few examples) if you have the name in your stock these stocks moved up and today only 3-4% of them are listed. So important is not to lose our hard earned money than to risk behind unforeseen gains.


http://economictimes.indiatimes.com/articleshow/5306201.cms SundayET analysis has shown that almost 95% of the total market capitalization of 876 suspended companies for which data is available is public and belongs to individual investors as promoters’ holding is as low as 5%.


Why can’t we invest in 2-3stock aggressively?

There is always never a certainty in stock market many are probable so risk is very high in one of our earlier list (Compact15) we had SATYAM and due to scam the stock eroded 80% but the list was performing better than Index as other 14stocks helped so overall performance saved. If I had 2-3stocks I would be making a loss while Index has given 80% return.


What if we are convinced 100% about the company?


I follow the legendary investor Mr.Warren Buffet but as a small investor we never get full information about the company and doing a company visit will not be feasible and many analysts I have seen get carried away by the reception high talks of the management. And there other risk associated as any bad decision, event, political turmoil or change in policy also will have major impact on our return. Eg. Telecom, Telengana,


Quote: Get inside information from the president and you will probably lose half your money. If you get it from the chairman of the board, you will lose all of your money-Jim Rogers


How to adjust cash level how and when to invest maximum?


This is very difficult to answer being a Techno-Fundamental analyst I have used few method which has suited people following me in 2009 we were fully invested from January till May 2009 till election results after which from June we have been 50-60% investing and rotating stocks and sectors and any 15-20% profit happy to take profit.


From October 2008 till June 2009 you were aggressive in suggesting investment but last 6months you have maintained caution?


When there was uncertainty the risk to reward ratio was favorable for investment as Dividend yield was high downside was limited while reward was more than 4times the risk we were willing to take. From June 4700-5200 years close more than 10% returns while stocks specific Mid-Cap out performed and for which investing 50% of was margin of safety in my view and it depends and differs from person to person.


Buy only in cash and Book regular profit has always been key words from you?


There are many players in stock market Investor, speculator, gambler, intraday, weekly, trend trader, scalper, positional players. So which roles are we playing in stock market is important to decide to whom to follow and what rules to fix and I am an advisor for medium term investor. 1-3years so the rules are fixed as per the goal.




Buy Only in Cash Any investment in stock market can’t have fixed time for return best return in stock happens all of a sudden, so Cash which has other utility for example education, marriage, building house or any purpose should never be invested in stock market. Correction in stock market is normal and healthy as it removes excess from market but many who roll-over using Derivative will lose when market correction happen due to margin pressure. Real money is made by investor who don’t have emergency in investment.


Book Regular Profit Stock and sector rotation is part of stock market and with interest rates @ very low levels we can’t expect very high returns always in 2007 October we were very bullish on Auto and MARUTI one of my favorite stock from 2004 I asked all to book profit around Rs.1300 in July as our buy price was between Rs.450-550 and after that also stock has performed but we can’t sell @ the highest point and buy @ lowest level it is more about controlling the greed and fixing our goals.


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To conclude in last 22years of stock market important lesson which I have learnt is not to lose money if we can understand our risk reward will come automatic. Investor should not have stop loss and should never go for shorting if you find a under performer then you can churn. Many lose money as basic of stock market is never understood and we still like to take TIPS, inside info and have a herd mentality to follow someone……… Whatever, whoever is saying please make your own assessment before investing or trading no one is prefect in stock market and if you don’t grow your own rationale for investing or trading long term sustaining would become difficult as there is no free meal in stock market




Thanking you