When a client asked me to visit a very successful doctor, I thought he wanted to invest some monies in the equity market. He actually wanted a shoulder to cry about the losses in the F & O market!
A small story might be in place. There is a simple mortal who is praying to Lord Shiva (Hindu God of Destruction of all evil). One of the smaller gods, Lord Indra, felt threatened by this little guy and wants to disturb his penance. So dressed as a simple man, Lord Indra, goes to this little guy and tells him “here is a lovely sword, will you mind looking after it for a while, please?”. The little man says yes.
After some time he touches the sword. Then he ties to see what it does. He cuts some grass, then a plant, then a small animal, then a big animal…then a man! He soon becomes a dacoit….and Indra’s work is done.
This doctor is a very successful guy who specialized in a particular field…and was doing very well, financially speaking.
That is to say till a 17 year old (from a large brokerage company – I am not naming the company) came and said “May I give you a bolt terminal”. When God wants to give you trouble, he takes away your brain. So in such a weak moment, the doctor said “yes”.
Then like a drinking habit…the Futures & Options (FnO) game started, first a small peg, then a large, then a Patiala peg now he is down financially. Every day he is signing cheque for paying a margin call. The doctor is down by a huge amount! His last 4 years income has been wiped out in just a few transactions. The equivalent is like saying, he did not bill any of his clients for the past 4 years. Now the mood is somber. I told him Indra’s sword story. His father understood it. He may or may not have.
The takeaway is simple. Invest in the stock exchange – by the law of averages, you will get an average return. How much is likely to be the average return? It will be dividend yield + inflation + say 3%. However because your 17 year old ‘agent’ at the other end of the phone tells you, you enter the leveraged market, there is a greater chance of losing a serious amount of your capital. This is all a clear case of “hope winning over experience”. There is very, very remote chance of a rookie making money with leverage on a regular basis.
Remember lenders love to lend to people – credit cards urge you to buy your shirt, cds, food stuff on their credit cards – and pay 5% p.m! Similar is the case with the broker who wants to fund you – they will fund you to pay the “margin”, give you Loan against shares, do margin trading for you,……the works. What they want is to earn about 8% of the amounts that you supposedly have in your bank account. It is a clear case of you knowing the game in full.
If you do not wish to spend time, effort and money on financial learning…..find out how expensive can financial ignorance is!
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