The Beat Report: The secret life of Mr Market

In The Beat Report, Mint's journalists bring you unique perspectives on their beats, breaking down new trends and developments, and sharing behind-the-scenes stories from their reporting.

Here’s a charming story on risk and valuations. Sometime in 75BCE, pirates operating in the northern Mediterranean Sea captured a small Roman vessel. On board was a 25-year-old nobleman named Julius Caesar, who was travelling to southern Greece to continue his studies.

The pirates set his ransom at 20 talents, a huge sum at that time. Hearing this, Caesar laughed in their faces. While he was still a nobody back then, the uppity young man told his captors he was worth at least 50 talents and sent his companions to gather the sum. This was perhaps the only time in recorded history that a hostage had negotiated his ransom upwards. A ‘talent’ was an ancient unit of weight, often of silver or gold.

His behaviour in captivity was even stranger. As narrated in Adrian Goldsworthy’s masterful biography, Caesar would play games and crack jokes with the pirates, recite his poetry and even scold them when they disturbed his sleep. The pirates had never seen anything like this and were completely taken aback. Caesar also joked that he would have them crucified. The bandits roared with laughter and humoured him.

After over a month in captivity on an island, Caesar managed to pay the ransom and was set free. The pirates were overjoyed at making such a huge fortune. Perhaps a bit too much, as they stayed back at that island to make merry instead of sailing away to hunt for new targets.

However, in an astonishing turn of events, the young man, who did not hold any political office, proceeded to raise a naval fleet to chase the pirates. He found them on the same island. After an extended period of captivity and friendly banter, he had them crucified.

Somehow, this story played on a loop at the back of my mind while I was writing my year-end story on the Indian stock market. Not without reason.

The market's future and investors' options

While stock-market investing is generally full of stormy seas, sudden jackpots and cocky confidence, the greatest damage comes from not understanding what you’re playing with in the first place. The pirates learned that the hard way, and so did a fair number of Indian equity investors in 2025. Thanks to the magic of futures and options (F&O).

Among the defining moments for India’s markets this year was the Securities and Exchange Board of India (Sebi) crackdown on Jane Street Capital, the Wall Street-based high-frequency trading (HFT) giant.

The episode once again exposed the most unequal battle in modern finance: ordinary retail investors pitted against sophisticated algo-trading firms staffed with some of the brightest (and most well-paid) minds on the planet, who execute cutting-edge strategies equipped with lightning-fast supercomputers and billions of dollars in capital.

When the economic history of this era is written, more than a few chapters will be dedicated to explaining just how swiftly retail punters crossed the thin line between confidence and delusion.

“In my more than two decades in the market, I have not come across a single retail investor who has consistently made money from derivatives trading over a long period. Not a single one,” a Mumbai-based fund manager told me.

The F&O trading is a zero-sum game, meaning someone has to lose for the other to win. And if you are up against a team of math and physics PhDs from Harvard University working for Wall Street algo firms, you will lose. No exceptions.

Credit must also be given to the legions of finfluencers who seem to have successfully convinced every Som, Vik, and Hari that making money from the markets is as easy as snatching toffees from a child. Actually, finfluencers weren’t lying. The only people who’ve made money through these shenanigans were themselves, and that too from course fees, not actual trading.

The fund manager offered an interesting socio-psychological explanation for this phenomenon.

“Just who are these people who are signing up for these courses? Many would be in dead-end jobs, scared of all the negative headlines about how AI is coming to take their employment. Some would be fighting with their wives at home, others would have maddening managers or quarrelsome neighbours. Trading is an emotional wish-fulfilment outlet for them, a psychological crutch,” he ruminated.

“All of us have some emotional support systems or the other. It can be religion, or movies, or whisky, or love. Don’t we spend money on those? My two teenage children spend a bomb attending concerts by some American artistes, I haven’t even heard of. But hey, as long as they’re studying and not doing drugs, I’m okay. So who are we to judge traders, man? Just live and let live,” he said with the air of quiet resignation only a father of teenagers is capable of.

Quiet resignation may be endearing in fathers, but certainly not regulators, which is why we must be thankful to Sebi for taking action against errant players.

Questions worth asking

But one area where even the most watchful of regulators is helpless is managing investor expectations. 2025 will be remembered as the year when benchmark indices posted decent returns, and yet a large swathe of investor portfolios remained in the red.

“I think some ‘evil eye’ has afflicted me this year. My portfolio was doing so well until recently,” my school friend confided in me during a chat last month.

He had sold most of his large-cap holdings last year (“because they were so slow-moving”) and loaded up on small- and mid-cap counters as they were the ones driving his returns for the past few years. Bet on your winners, right?

Except that there are no permanent winners in markets. Stocks, in fact, all assets, move in cycles, oscillating between periods of exuberance and despair. Yesterday’s stars can become today’s flops, and vice versa, in a ceaseless turning of the wheel of life. When SMIDs were soaring in the post-covid bull market, every investor was a stock-picking genius. When the inevitable reckoning came this year, most were found to be swimming naked.

My friend was also blissfully unaware of such irrelevant concepts as the price-to-earnings ratios of the stocks he bought.

I researched the companies. They were profit-making in growing sectors. That’s all that matters, isn’t it?” he protested.

To think that investing outcome depends only on what you buy, instead of what you pay, has done more harm to investors than any bear market. A good company can be a terrible investment if bought at a high price. Conversely, even a mediocre firm can be a multi-bagger if you entered at reasonable valuations. Knowing your worth, like Julius Caesar, is the ultimate competitive advantage. But a close second is knowing the worth of what you’re paying for.

Incidentally, all these elements, such as valuations and cyclicality, are not some deep, esoteric knowledge only known to a select few. They are the very essence of the stock market and have been at play since forever. The only problem is that sometimes we need a nice little shake-up before the truth dawns over us. Even then, we should be grateful that we are able to learn from our mistakes and live to fight another day. Not everyone is accorded this privilege. Just ask the pirates.

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