Jain Saab: From king to pauper; 12 key learnings on how to invest your money

It was at the start of the 90s. This young kid was in his late teens. He was fascinated by the stock market during his college days. The stock market building in his city was on his way to college. He used to see a crowd gathered around that building every day. So one day he decided to check and soon he found himself to be a part of that crowd. In those days, the trading was in paper format and electronic trading was yet to start.

His father was already an investor in the stock market. But as a young kid his fascination was different. He was mesmerised by the glamour around the market. When he started visiting the market, he saw that few people in the ring significantly impacted the entire market. They were like market movers.

They would come into the ring and everyone would be in a corner. They would not buy a few hundred shares of a scrip but a few thousands and sometimes lacs.

One such example was of Jain Saab. No one remembers his first name but he was known as Jain Saab in the market. Jain Saab was always nicely dressed, with shining shoes, clean shaven, always having paan in his mouth. He was like a millionaire. Jain Saab would come on the trading floor and corner everything.

For example, he will start asking for Neo Sack shares trading at Rs 35. He would order 5000 shares then 15000 then 50000 shares. His quantity would not stop if he starts ordering irrespective of the amount. This will lead to soaring prices immediately while the newbie like our protagonist would be in awe standing in the corner. Jain Saab was a hero whom newbies could not muster courage to talk to.

Soon our newcomer left the market after experiencing losses as it happens with every newcomer. He started focusing on his studies and forgot everything else.

3 years later. One day he was waiting for a friend in a bylane. It was just a km away from the stock exchange building. He saw a man coming in slippers. His clothes were in tatters and his hair was unkempt and filthy. He was holding a cotton bag (Jhola) on one of his shoulders. He was feeble and scared of something unknown. Our newcomer recognized him immediately. He was his Jain Saab, the hero of every newcomer.

He was aghast to see Jain Saab in this condition. He greeted him and asked how he was? His Jain Saab, however surprised, was scared to see him. Jain Saab’s first reaction was do I owe you any money? He said no, not at all. He told him how Jain Saab was his hero in the market.

Now it was Jain Saab’s turn to share his story. He said greed took him over. He went beyond his capacities and did not realise when he crossed the limits. He never anticipated a correction of that magnitude that took him off the market permanently. Not only that but it ruined him so badly that he had to leave the city to save life. He had some work so he came back. But did not want anyone to recognize him.

That boy in late teens is none other than yours truly. It was a shock for a newcomer like me. There are many lessons that I learnt that day. These lessons remained with me throughout life and continue to have a significant impact on the decisions in my life. I thought I would share these with my readers today. I am sure it will help you too.

We develop a self-enforced belief that the person ordering large quantities and moving the market will have a great understanding of business and be an amazing investor. It happens when everyone is doing the same thing. The public force is brutal in making perceptions. But portfolio and purse size do not always mean great understanding. The appearances could be deceptive especially in the stock market. Self-enforced belief and hero worship should be strictly avoided.

I am listing some of the learnings:

• Avoid “respect quota” or keep “respect quota” limited to a tiny percentage of the portfolio. “Respect quota” is mimicking investment/ trading based on investments/trades of other investors/ traders. More often than not such mimicking results in losses.
• Never get carried away with what others are doing.
• As soon as you see that easy money is in the making, be more alert and cautious.
• It is better to be slow.
• Avoid media/WhatsApp/Telegram/social media
• Go alone, take a break, take a deep breath, do meditation, calm down,
• Don't be in a hurry.
• Book profits and let someone else also earn.
• Read good books that help.
• Form a good circle of friends. This trusted circle should not be a source of “tips”. This circle of friends is to bounce off ideas and to check if your investment thesis has any holes.
• Never trust any “Tips”. Remember the reverse of “Tips” is “Pits”. “Tips” take you to “Pits”.
• Finally, NEVER TRUST ANYONE especially reputations. Keep in mind one thing that here anyone can go bankrupt if they are not disciplined and orderly.

Einstein once said, ‘A clever person solves a problem. A wise person avoids it.’

If we add more wisdom to this quote, ‘An idiot invites the problem.’ It becomes appropriate for the stock market. Because the stock market is the place where more often than not we end up becoming idiots if we do not follow basics while falling in the pits.

Niteen S Dharmawat is one of the founders of Aurum Capital, a SEBI-registered Investment Adviser and Research Analyst company. This article does not constitute personal recommendations and advice. Niteen can be reached at his email id niteen.dharmawat@aurumcapital.in or Twitter handle @niteen_india