Author: Prashanth Krish

With there being more than 2500 listed stocks that trade every day, picking the right stock is tough for professionals, let alone Individuals. If you are an Investor wanting to build a stock portfolio, how do you go about it?

The answer is basically two fold,

1. You do your own research and buy stocks that you believe in.
2. You outsource the decision making to a third party and take the trades advised by them.

Friends who know me know how anti advisor I am. This has been borne out of personal experience with stock advising. For those who don’t know, I long back had started an advisory, was part of another advisory firm started with a few friends and then worked (though my role was different) in a firm that had stock advisory as one of its offerings.

What was uniform across the three was that performance (as I measured) was below par given the commitments that were required to be put in by the Individual who took such a advice. Advisory, especially of the Stock variety is asymmetric in nature. You not only pay the advisor beforehand, you have no recourse in case they fail to meet the expectations (on which the product has been sold to you).

Worse, many a firm locks you into the plans with no exit in case you want to get out. Prorated refunds are essentially something you barely find among most of the firms. Remember, the cost of advising 10 or 100 more or less remains the same and yet, they want to make sure that you cannot exit.

But then again, this is an Industry that seems to be growing by leaps and bounds going by the number of people who are registering and offering service to Investors. The one common factor is the returns they seem to have generated in the past. Most beat the best mutual fund out there handily. Of course, given that there is no Audit or third party tracking, it’s a guess as to what the real returns to the investor could have been (after accounting for slippage / taxes).

While collating the list, I left out advisors who also provided advice to traders (Intraday / Derivatives). I believe that most advisors who offer intra-day service / positional derivative trading ideas know that most clients will get burnt and yet the attraction of easy fees attracts most of them to offer such a service.

So, without further ado, here is the list (which shall be constantly updated over time) of Stock Advisors. Do note that for it to make sense, you need to commit enough capital to make the cost less than 3% of your portfolio. Else, the returns no matter how good they are will be meaningless from your net worth point of view.

Link to google spreadsheet. 

One of the constant queries I receive from readers is how do they go about becoming a Trader. Where and How should they start, what books to read, do I take classes on Technical Analysis are among the top questions asked. Rather than keep copy / pasting similar replies, I felt that it was time to expand on the same and post it as a blog, so here I go.

What attracts men (very few women) to trading is a question I think has a question that hasn’t been fully addressed despite enormous amount of research on the same. Trading attracts literally everyone, from some one who found it tough to pass his degree exams to some one who may have topped in his Masters. Education in a way is no Bar.

Trading is tough, but if you are able to call it right, the financial rewards are huge. If you analyze business / companies, you shall find that not many provide / generate Return on Equity as large as that could be gained without the need to employ thousands of staff.

 The chart alongside for example depicts the returns generated by some one I know purely via trading in 2016. While the returns are volatile, the returns are enormous (especially since the capital employed is pretty large). You can find very few businesses that can generate such returns on capital.

While money attracts, the key attraction I have found for many to try their hand at trading is the challenge it seems to provide and one that is missing in their own work places.

Trading for a living is too romanticized. Unfortunately truth is that more traders fall by the wayside than in any other business. While friends have disagreed with my numbers, the fact is that success in markets is by a very small minority.

Where success is tough, you see ancillary industries prop up that promise you success for a small fee. In the trading business, you have Fee based Advisors who promise to alert you with the best trades, the educators who promise to educate you to ensure that you can find your success and the broker who showcases / talks about great traders and how you too can maybe become like one of them.

I tried to search for Top Technical Analysts in India (since Technical Analysis is often linked with trading) and the names that came out weren’t surprising. After all these names are well known to anyone who watches business channels such as CNBC. But do you know what else is constant among them all? Well, you just need to check their websites to see that they all offer (for a fee) tips both of the Intra-day variety as well as Positional.

If you are a top lawyer, your income is still dependent on how many clients you can attract, If you are a top Surgeon, your Income is directly related to how many operations you make and same is the case with literally all other business / service sectors. But in trading, if you are good, market rewards you. Its as simple as that. You really don’t need to put up a website, have a call center to answer client queries, spend time to advertise on Television among others.

If you succeed in trading, there is nothing equivalent to describe and compare it with in the real world. You are the real Master of the Universe and every dream is out there to make it a reality. But then again, as a saying goes “if it was easy everybody would do it”.

Assuming that you still want to go ahead, how and where should you start?

Well, for starters start with a Billion. Am joking, but you really need some serious capital if you really want to make a career out of trading. Then again, as many a bloke has found out, no amount of capital is enough if you have a crappy strategy – its just a matter of time before you blow it all away. (Related Reading: Post by Nooresh Merani on the same)

Trading is not like any other job and that means that you don’t have a regular income as well. So, make sure that your life is not entirely dependent on how much you can make it in that month. If you do, its a sure fire way to failure.

While much of trading is seen as the hectic / intra-day variety especially in the derivatives segment, if you want to survive and thrive, avoid at least at for the first few years anything close to intra-day or trading in futures and options. As enticing it may seem, its a fast path to disaster for most.

Education is important to succeed in any field and trading is no different. While trading is supposed to be about reading charts, its important that you know anything and everything there is to know about. That said, I am skeptical about the quality of advise provided by Individuals who for a fee promise to help you learn the ropes. On the other hand, I would suggest you attempt to pass the CFA / CMT exams. While they are self study based, the exams aren’t easy and require you to have a deep understanding of the intricacies of the market.

Trading in my opinion is not for everyone, the few who succeed aren’t the ones you would have thought would succeed when they first started. Having lost money in every way you can think of, all I can say to conclude is that Trading ain’t Easy and if you are enticed by the easy money, beware for the bottom may give away faster than you imagine.

Belief is defined as “an acceptance that something exists or is true, especially one without proof.” Focus specifically on the underlined portion for that conveys all that is wrong with belief’s in the first place.  Investing is a belief that what you are doing is the right thing and the only thing that should matter.

Speaking on CNBC, Irfan Razack, Chairman and Managing Director, Prestige Estates says the time is in fact right to buy property because the fall in property prices is unlikely. Then again, he is in the business of Selling Real Estate and its highly unlikely that he would speak otherwise.

Ambit the other day came out with a bearish view on Indian GDP, but even after that, they managed to provide a positive target for the Sensex (by extending the time frame further). Any surprises given that they are Sell side advisory firm?

On 2nd November, with Nifty 50 trading at around 8500 levels, Porinju Veliyath who runs a portfolio management service tweeted that he foresaw Nifty 50 trading at 9120 levels if Donald Trump got elected within 6 weeks. With markets down 600 points from that point, he tweeted today that this fall was similar to the bottoms we had seen in earlier times.  Then again, being a long only fund manager, he cannot tweet about a oncoming bear rally, can he?

Today I came across a tweet by a Value Investor who claimed that he is bullish on India since he is 100% invested in Equity.

International experience has shown that you have a much higher probability of great returns in Equity vs Bonds but even there the result is not 100% since there have been times when the bond returns was way higher than what markets provided (unless you were invested in a time when there was no way to invest in the way we do now – Index ETF’s).

While its important to be optimistic, its doubly important that we are realistic in our assumptions for faulty assumptions can and shall lead to a outcome that we least desired when we started out on the journey.

The other day I tweeted out the following;

Draw-down in Nifty & Nomenclature 🙂
Bloody: 10%
Rare: 20%
Medium well: 30%
Burnt: 50%

If you know your beef, you know where I borrowed the expressions from.

10% falls are common. After the great crash of 2008 and the amazing recovery we saw in 2009, markets fell by a bit over 10% 4 times in between June 2009 to November 2010. While Nifty was trading at 4500 at the time of its first   10% reaction, it was at 6300 before the reaction took a more serious turn.

In between 2003 (July) to 2008 (Jan), we saw 7 falls of 10% of which only 2 times did it turn more serious with the falls finally getting contained at around the 30% barrier (all percentages calculated from previous peak or 52 week high).

Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, is credited with saying that “The time to buy is when there’s blood in the streets.”

When markets are flying we think we shall buy when there is a correction / reaction. But do we really buy when markets are falling. For example, right now markets are falling and yet rather than buying I see people anticipating lower (Am guilty of posting one such chart today) levels where Nifty 50 could come.

But will it go down to those levels? What if markets jumped back from current levels back to new high – is your exposure to equity good enough to overcome the regret bias. On the other hand, if you are over invested, would you be able to psychologically sustain yourself even as markets continue to drift lower and showing better opportunities if only you had waited.

Given that investing is a belief, ensure that the beliefs  you hold dear to your heart are supported by evidence. Skepticism is the highest duty and blind faith the one unpardonable sin.” — Thomas Henry Huxley

In 1972, the Indira Gandhi led government initiated a series of reforms aimed at ensuing that rich feudal land system was done away with. While in states like Kerala and West Bengal, it took off to the fullest extent, its application was widely varied across India.

One of the stories that has been passed on to me by my parents / grandparents was about how at one point of time (time of my Great Grand Father), we had agricultural land. Since my grandfather moved to town, this land was supposedly let out to be cultivated by a local farmer who sent once in a while a part of what he produced.

1972 reforms marked a end to that long distance farming and our family lost the land we supposedly owned. While I have no clue about how deep the impact was (both in terms of loss of Income as well as loss of what we supposedly owned), the future generation (including me) has done well for themselves. But the story I doubt will ever die.

The demonetization of the currency note by the Modi government is one such grand move that people will talk about for generations to come. While the target for the move was purely to eliminate black money / fake currency, the impact is on a much more broader level hitting commoners as much as the big guys.

If you have recently transacted in real estate, you know that there is no such thing as full payment by way of Cheque / Demand Draft. Depending on how far away the government rates are, it could easily be anywhere between 40% of the amount in Cash to eve 70% of the amount being paid in cash. The payment done in cheque is often showed as the transacted price.

The reason for both the parties being willing to undertake such transaction is to avoid the high incidence of tax. For the buyer, he saves on paying stamp duty while the seller saves on the long term (or short term) gains he needs to disclose and pay tax upon.

Now real estate is not the playing field of only the rich. Everyone seeks out the comfort of having his own house / land which provides him both a way to park his savings as well as a emotional attachment of having achieved something in life.

Sellers on the other hand have their own reasons to sell. For some, its to invest in another upcoming project, or for paying off expenses / debt incurred (in rural areas, marriage is one key reason for sales) or any one of the other myriad reasons. Very few sell and stuff the money in Bank lockers so as to speak.

Theoretical distribution would suggest that a large part of the money that goes through such transactions go back into the economy. In other words, when people talk about how maybe 33% of the big denomination notes will never come back to the system and hence get extinguished, majority of it would not be notes that were kept in lockers but something that used to go around.

I would not like to talk about the morality and if the guys deserve their fate, but lets focus our energies on the impact it could cause on the economy. Since the demonetization move, there has no lesser than a few thousand articles detailing either the positive part of the negative.

When cash is low, the first causality is spending. We try to limit our spending to things we really require rather than going out to buy things that can wait for a while. As I write this, I am also following the tweets of https://twitter.com/acorn as he goes around Bangalore trying to judge its impact on the lives of common man / small businesses.

My view is that there will be some kind of cascading impact due to the demonetization. With outflow being seen in emerging markets as a whole (after the Trump Win), this is creating a kind of a spiral in the domestic stock markets which has gone down a bit but its interesting to see that the fall is also being seen in supposedly defensive counters and one where its not too pricey.

Going into the US Elections, Indian markets were not cheap. While this fall has made a few sectors seem cheap, we shall really know whether it was really cheap or not only after the next quarter results are out.

Bear rallies end in two ways. One, we keep weakening for a while, make some sort of bottoming formation and then rise for there. Recent rise from Feb lows was a textbook example of this. A second and more ferocious way is when markets go and hit the lower circuit. Big moves generally portent end of a bear rally unless the market sees them happening at way too higher level (like in 2008 when the first freeze happened at the start of the bear run).

Despite the fall, I have not seen any change in my allocation matrix which leads me to believe that a larger fall maybe on the horizon unless earnings suddenly start catching up (or interest rates take a dive). Nibbling in falls is good as long you have enough to nibble if markets really take a crack. Else, stick with what you have and wait for the dark clouds before risking more of your money in the hope of a bounce back to reality (our assumed reality that is).

Do remember, India growth story was more of internal demand than we replicating China and exporting to the world. If local demand dies, what would be the impact is the million dollar question.