Venkatesh is a young engineer who got completely mesmerized with the world of stocks. We spoke about his journey and decided to articulate the mistakes made and lessons learned.
His ability to be brutally honest with himself is a powerful weapon in his arsenal. And one of his greatest strengths as an investor is the ability to take it on the chin.
Here’s his story.
Mistake 1: Borrowing to trade.
There are so many trivial mistakes that can be encapsulated under this umbrella.
The (wrong) assumption that the return you make on the trade will earn you a tidy profit, even after you cover the interest payment on the loan, repay the principal, and pay taxes on the profit made.
The cocky confidence that you will emerge a winner, always. Every single time.
The ignorance of how debt hanging over your head can steal your peace.
I began working in April 2017 with a monthly salary of Rs 18,000. I received regular updates from a Facebook page and decided to try my hand at options trading. It actually appeared fairly simple and lucrative.
I approached the bank and took a personal loan of Rs 50,000 at a cost of 14% per annum. This was with the sole aim to become a trader on the side. The profit was great. I made a neat 100% per lot. Being naïve enough to think that this would continue, I put in more money. One day I found myself staring at a loss of Rs 40,000.
So there I was, at the age of 22, in debt. I lost money trading. Yet, I had to service a loan that was not cheap and had the additional responsibility of repaying the principal. This was not how I envisaged it playing out.
Mistake 2: Thinking that equity is a short-term game.
I realised that being a trader was not my cup of tea. I cut down my expenses and used my savings to clear my loan. Once that was done, I decided to buy stocks.
Unfortunately, I still held on to that short-term mentality. The frame of mind of a trader has to be completely different from that of an investor. I missed this pretty obvious nuance. I bought SBI, watched it like a hawk and ending up selling it on the same day. Of course, I made a profit.
A friend convinced me to hop on to the small-cap bandwagon because that is where the multi-baggers reside. I went along for the ride. I was young. I was earning decently. I could afford to take a chance. I invested all my savings of Rs 50,000 across Capacite Infraprojects, Apex Frozen Foods, HG Infra Engineering, Rain Industries, Salasar Techno Engineering, Allcargo Logistics, and Sanwaria Consumer.
Having a short-term investment horizon is futile when you invest in equity, and all the more disastrous when you invest in small-cap stocks. The stock prices dipped and I sold in panic. At a loss.
I studied mutual funds and narrowed down on Mirae Asset Emerging Bluechip and Parag Parikh Flexi Cap. I like the exposure to global stocks in the latter. But whenever I needed money to buy a gadget or shop for clothes, I would sell some units.
How I got an edge in the game.
I came across a seasoned investor on Social Media who mentioned that his father had invested in HDFC during its IPO and the family was still holding on to it. The sheer longevity of it baffled me. I recollected a saying in Telugu, which can be translated to “it’s better to drink water by standing in one place, than drink milk while running.”
That is when the realization hit me. There is no quick way to make money. Doubling your money happens only in casinos, if luck is on your side. I was incurring losses and once I took into account short-term capital gain taxes and exit loads, even the profits were not appealing. I was frittering away my money and time.
Instead of viewing my age as a leeway to take more risk, I should use it give me a long runway. This shift in outlook was the gamechanger.
I decided to be consistent. I began SIPs in both the funds I mentioned above – total of Rs 5,000 every month. I also invest systematically into stocks. Every single month, with a budget of Rs 10,000 I buy a few stocks of HDFC Bank, HDFC Life, Titan, ITC, TCS, HCL Tech and Tata Consumer. I manage my rent and expenses on the balance amount. My current portfolio value is Rs 3 lakh in stocks and Rs 1 lakh in mutual funds.
I have given myself a maximum of 20 years to achieve financial freedom. Fingers crossed.
