Comfort Zone For An Investor.

We are always urged that we must not live too much in the comfort zone.

What is comfort zone for an Investor?

For me, excess liquidity is a comfort zone. I have lived most of my life carrying big debts, taken for borrowing big ticket asset acquisition – that always created the excitement, the Mojo in my life. In some way, that also created the zeal to keep working in the profession instead of taking voluntary retirement at 40!

So as Investors, our goal should be to always have some debt that has been taken for buying some asset. As an Investor, you always have to leverage your future savings today. That is living out of comfort zone for an Investor.

So, excess liquidity creates comfort, which leads to discomfort. This discomfort has to be tempered with patience & preparation. Otherwise one takes hasty decisions which lead to regret & losses.

Investment is not just a financial science. Human Psychology plays a very big role in your financial success. Hence I urge you to read more about Human Psychology & Behavioral Economics if you want to be a successful Investor.

Giving – an art form!

There is a talk of money billionaires giving away large chunks of their wealth, either during their life time or after they pass away.

One needs to understand how a person who has spent his life in the race to top the list of wealthiest persons, then suddenly decides to give it up.

Religious scriptures have all prescribed the curative effects of charity on the soul. May be there is a great burden of carrying the load of wealth for a long time and hence finally one realizes the futility of it all and wants to reduce his burden. Yet, we have highly spiritual people like Steve Jobs, who openly said, “I do not believe in charity.” May be Steve, the maverick that he was, never felt the burden of wealth at any time!

A trust called “Dharma Bharti Mission” has a very interesting take on this. They advocate- “Begin with self, Begin small, Begin Today” and “Give till it hurts” – Very apt philosophy.

Experience of a Stock Trader

Recently I met a friend after 30 years. He is a brilliant guy- C.A, C.M.A, IIM(A). With such fantastic qualifications, the first thought that came to my mind was can a person derive job satisfaction from stock trading? His satisfaction came from the fact that he has been able to earn a post-tax return of over 17% over a period of 25 years. There were peaks and valleys; however a compounded return of 17% post tax over a period of 25 years is definitely great going.

Here are a few pearls of wisdom that he shared with me-

1. Stock trading is Ai. He has a fixed deposit that is kept as Margin Money with stock exchange that provides him the Pi.
2. The past is not going to repeat itself. The growth achieved in the past during liberalisation era was once in a lifetime event.
3. In this market, the “need to be right” will always ruin you. You have to respect and accept the market price and go with the trend without getting attached to your opinion.
4. The charts tell you the story. Your instincts do not matter. In fact they create “bias,” that can be harmful.
5. The trick is to improve the odds of being right. You can never be 100% right in the market. If you are right 70% of the time, you will make money.
6. You have to learn to control your mind. Fear and greed are the factors that drive the market.

I hope we learn from these pearls of wisdom.

Moral of the Story

Trading on the stock exchange is supposed to be one of the most riskiest activities. A trader’s job is very difficult from that of an investor. A trader enters into multiple trades in a day to make profit due to movement in stock prices based on a science called “technical analysis”.

A very dear friend has given up this field after more than 2 decades. He feels that the transaction tax has made this business nonviable. Recently I met a long lost friend after 30 years. He too is a full time trader in stocks and he is making good money.

So what is the moral of the story? Is it the business which is bad? Can’t say that as one of them is making good money. Maybe their techniques are different or is it plain old luck/destiny? Or is it that exceptions prove the rule?

I remember reading a book “The Black Swan” by Nassim Nicholas Taleb in 2008, which changed my views about the stock market. I used to caution a client who believed that he had cracked the code and had started day trading business. He too learnt his lesson after incurring huge losses. He then read this book to analyse the reason for this losses.