If you believe F&O and ...

"Alice laughed. 'There's no use trying,' she said. 'One can't believe impossible things.''I daresay you haven't had much practice,' said the Queen. 'When I was your age, I always did it for half-an-hour a day. Why, sometimes I've believed as many as six impossible things before breakfast.' - Lewis Carroll

If you believe F&O and ….

.. hot tips can make you rich quick, you are not alone or the first. People have believed in much worse. One such excerpt comes from the book Longitude , by Dava?Sobel, a book I finished reading recently on how the problem of identifying longitude at sea was solved.?

Surely the most colourful of the offbeat approaches was the wounded dog theory, put forth in 1687. It was predicated on a quack cure called the power of sympathy. This miraculous powder, discovered in southern France by the dashing Sir Kenelm Digby, could purportedly heal at a distance. All one had to do to?unleash its magic was to apply it to an article from the ailing person. A bit of bandage from a wound, for example, when sprinkled with powder of sympathy, would hasten the closing of that wound. Unfortunately, the cure was not painless, and Sir Kenelm was rumoured to have his patients jump by powdering - for medicinal purposes - the knives that had cut them, or by dipping their dressings into a solution of the powder.

The daft idea to apply Digby’s powder to the longitude problem follows naturally enough to the prepared mind: Send aboard a wounded dog as a ship sets sail. Leave ashore a trusted individual to dip the dog’s bandage into the sympathy solution every day at noon. The dog would perforce yelp in reaction, and?thereby provide the captain a time cue. The dog’s cry would mean, “the Sun is upon the Meridian in London.”?

The key of course is the “prepared mind”. If you believe getting rich quickly is possible, it will be easy for some broker or finfluencer to convince you of a monthly multi-bagger stock or a F&O strategy that makes 2% a day or some such magical potion. For context, a daily 2% compounding strategy will grow your capital ~79x in a year. It’s never happened before, it is unlikely to happen in the future.

The best trading firm that I know of, Renaissance Technologies, “has posted annual returns in the firm’s flagship Medallion Fund of 68% gross and 40% net over the past 34 years, while never once losing money.“ Before you rejoice and boot up your state of the art M2 Mac to write some code to replicate their success, here is what it takes to be like them .?It is extremely hard and took a bunch of Math and Physics PhD to deliver the above.

So, next time you see the SEBI required disclosure (below) on your broker site, treat it as a warning to not venture into F&O and not a challenge to try and do better:

• 9 out of 10 individual traders in equity F&O segment incurred net losses.
• Individual traders incurred an average loss of?Rs 1.1 lakh.
• Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
• Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.?

Happy investing. Gaurav,? CEO | kuvera.in