A guest post by Indrazith Shantharaj, Seeker, Full-time Trader (Quit IT in 2016), and Best Selling Author at profiletraders.in
Warren Buffett knew that he wanted to accumulate wealth from a very young age.
As a generation, we are inspired by Jeff Bezos, Elon Musk, Rakesh Jhunjhunwala, and Mukesh Ambani.
But our previous generation saw some of the interesting personalities related to the stock market — Imelda Marcos, Bernie Madoff, Raj Rajaratnam, and Harshad Mehta.
Just a few months after SonyLiv streamed the show on Harshad Mehta (Scam 1992), Hotstar has released The Big Bull, a film inspired by Mehta’s real life.
Harshad Mehta was often referred to as the ‘Big Bull of Dalal Street’ during those days. ‘The Big Bull’ movie has a clear narration and explains how people misused the banking industry’s loopholes.
Many financial journalists recall how people manipulated the stocks by using the money from different banks using fake bank receipts.
Instead of going deep about the story (most of you watched the movie), I want to see the essential lessons present in the film as a trader.
Lesson 1 — Beginners luck will not be lost forever
Most people start their footsteps in the stock market by investing some money in some tips from friends or experts.
Interestingly most of them make some good profits in the beginning, and it gives an assumption that making money in the stock market is effortless.
In the movie, Hemant Shah also receives a tip on Bombay Textiles and makes a 3 lakh rupees profit.
Traders should note that it is known as beginners’ luck in this field. This experience sets a substantial positive impact on the subconscious mind, and many traders take more bets or risk more capital in the following few trades.
There is no need to explain what happens next. Most traders end up losing all their savings or the capital deployed in trading.
Lesson 2 — Overnight Success is a Myth
In the movie, Hemanth Shah says,
“Zindagi mai do cheez zaruri mani jati hai — 1) Paani aur 2) Sona”
(It means two things are important in life — 1) Water and 2) Gold)
He wants to become gold as soon as possible.
Do you know over 90% of Warren Buffett’s wealth was accumulated after the age of 53? The creation of wealth takes time, and we should not take shortcuts to get success in less time.
Think of any scamster; they are ambitious people who tried to accumulate massive success in less time. Never follow their footsteps!
Lesson 3 — Don’t use Borrowed Money in Trading
In the movie plot, Hemanth had some investment ideas, but he will not have the capital. Hence, he ends up taking a fake Bank Receipt (BR) of 2 crores with his friend’s help.
In my opinion, this is the first mistake committed by him. The creation of fake BRs continues, and he ends up in a scam of 500+ crore rupees.
Many traders make the same mistake. They have some reserved capital (which was accumulated for some important event like marriage, hospital bill, etc.), and they think their new idea of a trade can never go wrong.
Hence, they deploy all their capital in that one trade only to lose all the money. Please don’t commit such a mistake.
Anything can happen in the share market, and the market doesn’t know that you have deployed some emergency fund. It takes back your money ruthlessly if your trade idea is wrong!
Lesson 4 — Don’t show off to Impress Others
After becoming a broker, Hemanth tries to meet the owner of NCC Company.
But he doesn’t get permission to meet him. Hence, he starts accumulating NCC shares and takes the price from 300 to 500. Later he will get a call from NCC to meet their owner.
Some traders commit similar mistakes in their life. They buy unnecessary gadgets or vehicles to impress others.
It is a waste of money and time. A trader doesn’t get any returns on such expenses, and the value of such assets also depreciates with time. Please remember, Warren Buffett has an old car, and he drives himself.
Lesson 5 — Manage the Risk
In the movie, Hemant’s two more famous dialogues are:
‘Jo Dikta Hai, Wo Bikta Hai’ (what is visible, it will sell)
‘Risk Lena Hai To Bada Lo!’ (If you want to take a risk, take a bigger risk)
All these dialogues look good only on the screen. But when it comes to actual life trading, whoever takes more risk will lose the capital.
Let me explain.
Assume you have a trading system with 80% accuracy (80% accuracy is too good, but I am using it for the explanation’s sake), and it means out of 100 trades, 80 will be profitable trades, and the remaining 20 will be losing trades.
Let’s say you take 10% risk (of your capital) for one trade.
But is there any guarantee that these 20 losing trades will not come in one stretch?
Forget 20; even if you get 10 losing trades in one stretch, you end up losing all your trading capital.
But I want to add one more thing.
Whenever we lose over 40–50% of our capital, a revenge attitude fills our minds. We take more positions in the following few trades, or we take unnecessary trades only to lose the remaining capital at a higher pace.
It is the main route-cause for the failures of most of the traders.
Think about it.
Successful trading is neither magical nor mysterious. It is the natural consequence of consistently applying the simplified trading approach.
‘The Big Bull’ is an exciting movie and Abhishek Bachchan and Ileana D’Cruz’s acting is good. If you are interested in the stock market, then definitely you will love the movie.
Above are essential takeaways from the movie for all the stock market traders.
But one positive takeaway from the film is during Hemanth’s interaction with the lift operator. He says, ‘If you want to buy a vehicle, invest in tires first.’