Well, I do not know anybody who knows anybody who has made money by doing market timing.

so said Sir John Templeton. He not only created good amount of wealth, but also looked after his health, and lived till the age of 95…

Now there is a big army of ‘Investor Education Experts’ who are advertising :

– they will teach you to identify the points at which the market will go up or down

– they will teach you market movements (charts) and share price movements (no fundamentals obviously)

– how to find patterns based on data analysis

– they will give you tools which you can buy or down load

– how to build a trading plan (for everything currency, forex, commodities, and shares)

– how they can build a RETIREMENT plan by doing DAY TRADING.

If I were the regulator, I would come down on this like a TON OF BRICKS. Of course it does not matter to the world what I say. My readers think I am too skeptical, the regulator thinks I do not matter, and these people who advertise do not care about me.

So what will happen?

They will say we will teach you all this for a fee. How much is the fee? well I do not know but it should be in the region of US $ 5-7500. This is not bad and allows them to give you an amount of Rs. 100,000 so that you can trade – so that if you lose that Rs. 100,000 – that cost is included.

Obviously about 100,000 people will enroll. Half of them will start trading.

about 80% of them will lose money in the respective market. Some will lose a lot of money leading to divorce, suicides, fights, etc.

By that time the ‘Investor Education’ camp would have reached many cities, villages and towns.

The ‘trainers’ would have made a lot of money.

They would have sold a lot of software, predicting software, and many such tools which these people would have bought.

WHO WILL TELL THE RETAIL INVESTOR THERE IS NO FREE LUNCH?

IS he looking for free dinner?

What will the regulator do?

Well Sucheta Dalal, Debashis Basu, etc. seem to have common sense to see these schemes but the regulator will NOT DO ANYTHING.

Reminds me of a story:

A beautiful woman goes to a lonely pond – a man made pond. She feels like taking a plunge in the water – and anyway there is nobody around. She looks around and finds nobody.

So she takes off all her clothes…and she is about to take a plunge. ….

Suddenly an officious looking guard comes running to her and he is panting…and he says ‘maam you cannot take bath here’.

She says ‘You saw me taking off the clothes…why did you not tell me earlier?’

He says: Maam there is no Rule here saying you cannot take off the clothes.

Regulators!!!

 

  1. Subra,

    Why should the regulator act upon this ? This is not illegal (as far as Iknow).If people are dumb enough to believe that they can get rich quick through day trading without going through the excruciating , boring hard work of analysing a companys business and its fundamentals, its up to them .As long as people are stupid and look to invest their money to get quick returns , there will always be persons willing to provide a way for that.Be it money chain, day trading ,lottery,gold scheme or whatever , greed and avarice will find a way.As long as its not illegal, regulator shouldnt do anything. Let the bulls make money, let the bears make money and let these donkeys get slaughtered.

  2. regulator need not act on ANYTHING going by this logic. Let the market regulate itself, right? Well Market does not solve all problems. Personally I have nothing against such schemes – I will not lose money – in fact I WILL GAIN money if people click on such ads. So in a way I have a vested interest in such schemes, vicariously perhaps?

  3. Well I feel there is NSE institute and the whole of internet to learn things. Why do people go to such places?
    I agree with you.. You have nailed it.

  4. Subra,

    Not saying that regulator shouldnt do its duty. What I am questioning is whether day trading and people touting it should come under its vigilance.As far as I know, day trading is a legitimate activity and people (a small minority) have made money and built successful careers out of it.Pointing at those examples, fraudsters tout such schemes to entrap the wary.Is it designed to make the investor lose his money? Yes. Is it illegal? No. Should it be made illegal?No,as day trading is a legitimate activity.

    Now, if they claim guaranteed returns, then yes the regulator should intercede.If they claim only indicative returns ( in their fine print) , I believe it’s fine. It is not an outright fraud or ponzi scheme.

    And yes, the people( I will not call them investors) who lose their money will again claim the stock markets are all rigged and are just the domain of insiders.

  5. Hehe…such a subjective interpretation isn’t it…hopefully the other 20% will learn and become genuine stock investors:)

  6. On the face of it, since the scheme is that of education, SEBI can’t do much. However, it definitely can put a ban on the kick-back portion of the training.

  7. if ponzi schemers and unsrcupulous people go away will it reduce foolish activities by greedy people? nope. they will find other avenues. legislating virtue is impossible. greed will remain.fear will rule. common sense is not that common. etc

    i’d say,the market does a wonderful job of teaching greedy people a lesson.what better way to REALLY understand that a 20% return per month is not possible than to lose your money.the market exists to show people what they are made of -it is a mirror to their souls.
    regulators are just babus who pretend they can solve this character flaw of human beings.
    there IS no market failure.bringing down to earth of greedy people is a necessary market outcome.

  8. I strongly believe that regulator has its role in curbing these ponzi schemers. The whole capital market runs on the “Trust” and regulator does have the role to keep that “Trust” enact.

  9. nitin, pray tell WHY the regulator is expected to have those superhuman qualities of omniscience and omnipotence?
    will he get a record of all criminal thoughts from the thought police?
    trust is not free of charge.trust comes from a)experience in the real world and b)due diligence and common sense.

    if there is a breach of trust AFTER a contract is signed,then the courts are the way to resolve the issue.this faith in single babu while seemingly simple (and wrong!),is a problem.it makes the rest of us lower our guard lowering the quality of the whole market

  10. Pravin,

    To answer your Q, Lets talk about Real Estate market, where there is no visible regulator and hence, there is a lot of friction in the transaction. You decide upon buying a property after a long and tiresome homework and even then you won’t be 100% sure that what will/may go wrong after a few years. So you see the problem of leaving the bad guys in the market to operate actually drives the good guys away too and not only customers.

    So what you are saying that let there be free market and let everyone learn it the hard way. Good but it can not be applied everywhere. Many areas you can’t let the mistake happen and make people learn from the mistake. And I think, capital market is one of the places where you need to have a police (read regulator) to keep a watch (with Eagle eyes) over it. It will enable more people to participate and will lead to healthy system.

  11. nitin,

    it is not the absence of an omniscient regulator that cause friction in the transaction -it is usually lack of clarity in the legislations (conveyance,fsi and whatever unhelpful stuff the govt comes up with).there IS a lot of regulation in real estate.rent control,FSI,CRZ,are just the well known ones.the existence of crowding out agencies like MHADA/DDA are the other.
    looks like what you really want is to outsource the due diligence to some babu regulator and hope and pray that the bad guys will go away.not so.every regulator is invariably “captured” by those who will benefit most. ie the ‘bad guys’.
    if people are afraid of the bad guys,business in real estate would be dropping -but as is well known,real estate and black money etc are booming.so it is thriving and hardly is there any complaint of ‘lack of participation’. people are more careful -yes,it is tiresome and it takes time to get your papers in order.most of which have nothing to do with the business of real estate and more to do with the dubious property rights laws of india.

    ofcourse cheats exist -the solution to cheating is to simplify property laws and ensure the court system works. those are simple things,but will not get done thanks to our politics.therefore many people think that the short cut of appointing a well meaning babu is the solution.

  12. there is lot of noise created in financial market.

    trading can be taught, it is easy but it hard to learn becz the concept is petty simple.

    it is a kind of sport like chess or cricket.

    every body play cricket but how many have courage & dedication to take it professionally.

    we play cricket & tandulkar also play cricket for fun & enjoyment. but dedication level is far different. becz of this difference we still play gully cricket & he is international star.

    same applies to trading.

    as far as trading course it is like tuition class. u may have gone for tution classes in school day. can any govt. body stop these class.

    always remember trading is not a definite science. Here laws often get fail.

    i have been trading fulltime for last 7 yrs & succeeding in all my interest.

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