I have met 4 people who have lost large amounts of money in the share market (relative to their net worth). Let me talk about them today – One doctor’s son lost Rs. 4 crores about 5 years ago. One Sub-broker lost about 3 crores about 4-5 years ago, and two housewives lot about Rs. 1.8 crores and Rs. 73 lakhs.

Some similarities:

  • None of them had any background in finance, equities, trading, – by education or experience
  • All of them dealt with well funded PE funded / bank owned brokerage houses
  • All of them made some small profits in equity trading
  • All of them had access to other people’s money with which they could delay the ‘finding out’ by the family
  • All of them were led up the garden path by the ‘relationship’ managers
  • All of them have now pulled out of the market and are now staying away from the market (well as per them)
  • All of them are bad ambassadors for the equity market

Two of them closed their mutual fund accounts, withdrew the money, and put it into the market..now they are looking for jobs to make good a part of their losses. None of them understand equities, debt,..etc. BUT believe that they do not need help in investing. And they were getting help from the RM, right? So they do not know the difference between good advice and bad advice.

Some of you know that I used to be a broker in my earlier avatar – 1989 to 2000. It was during this period that I built up my equity skills – in a professional kinda way.

We used to have ‘settlements’ of 15 days – which meant that I could buy on day 1 of the settlement and sell on the 14th day. Many traders would come to our office and trade. Our CHAIRMAN was a stock market veteran who had a hawk’s eye for loss makers. So if a person lost money for 4 settlements in a row – i.e. for about 35 odd trading days, he would call that person for a meeting.

He would go through this transactions, and discuss how the losses were happening. He would easily spot a personal behavior problem – people call it a ‘financial behavior problem’ these days!

He would see what caused the problem and find a solution. If the client insisted that he would do his own transactions and not listen to one of us, he would put the client on watch and insist on say 70% margin kinda trades – very difficult for a seriously big trader. If the losses were being funded by some other family member’s shares, that person’s written consent saying “I know that I am giving my shares for delivery – and it is being used for funding losses’ would be taken. There have been times when the parent did not know what the son was doing. IN one case the wife screamed at her husband and father in law for selling her blue chip portfolio – she had created it with her own money.

So at the end of the day a person could not lose much. Our mechanisms would ensure that there was a quick stoppage to the blood bath. Funnily, we charged 10 times the current brokerage…BUT NONE OF OUR CLIENTS lost big money in trading.

We just had an awesome risk reduction mechanism for ALL the clients.

We knew clients over 2 if not 3 generations.

We did not have ‘relationship managers’ but all our staff attended Diwali pooja in all client homes and offices.

We could talk to the whole family to ensure that the losses were contained.

We had no ‘customer grievance cell’ but all our employees would solve customer issues.

We collected margins

We whetted clients and also

We paid clients first if he had an emergency..and then sold his shares.

We had elaborate systems – and a few of us could over ride it.

Some stunning things that we did:

  • forced a client to make a Rs. 1 million fixed deposit with the bank and kept the receipt with us
  • forced a father to give in writing that he would fund the son’s losses even if it exceeded Rs. 50L. Son stopped trading.
  • forced a mother in law to keep her shares in single name – her daughter (joint holder) was giving bank guarantees for the losses
  • got a doctor to get his grandson admitted for counselling – we FORCED account freezing

these days you can go to a good big reputed broker, lose tons of money and go home!!!

 

 

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  1. Yeah These days there no ethics. These full service brokerages need “PIGS” to be slaughtered to make money. Having said that lots of educative material is available online to safeguard oneself from ignorance.

  2. guru,

    such people were outlawed. So they do not exist. Imagine we used to charge 2.5% brokerage..and I still do not feel guilty about it. NONE of them ever made TRADING losses. Yes investment mistakes happened..but no client of ours thought that we did ANY transaction to earn brokerage. Some of them who bought shares through us..STILL ask me for ‘what to do with Gillettee, Cummins, Hero Honda, ….blah blah..we never asked them to sell..we were in no hurry to create wealth. Not sure if such clients exist. I am not willing to do the paper work, admin, etc. that the regulator wants us to do to do this business/ profession. Our pics now appear with dinosaurs..

  3. This old model was not scalable! In 90’s how many small town people could invest in equity?

    And about people loosing Cr. Of rupees, they were gambling not investing.

  4. what was not scalable Ravi? and how many small town people are making money in the markets?

    how much do you know about equity trading and investing to say how people lose money in markets?

  5. Hi Subra,
    Been following your posts for a month or two.
    A question from a newbie, I read about your posts on how to choose Financial Planner, but a honest q, will i ever be able to find a planner after so many criteria ? 🙂 and how do you suggest to find brokers/planners of your generation, as none in my family ever hired a Financial planner. I know after reading your posts , and pattu sirs posts they could somehow manage with that.
    Generally a Financial planner is known through friends of friends, but none provide the clarity and are candid as you are. Please guide if you know a planner in bangalore for a middle class person like me.

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