Series 71 – Statutory Warnings and why they do not work

SEBI Circular release

Last Week we had given you a note on the importance of cycles in portfolio positioning. Recently, SEBI came out with a circular on a data point on option trading and losses that most people are aware of, but not do much about. Its common knowledge that the Indian markets have the highest derivative to cash volume (the size of the market is 8x the next market) and this has been increasing in the last 4 years. So, its only normal to see SEBI come out with a statistic which states that 70% of the traders lost money in a given year. However, what this does not convey is when you are dealing with 70% negative odds of an action on a year, if you consistently keep at it, over 5 years, the odds of losing money increases to 95% (Meaning there is a 95% probability that you will lose money). However, these warnings have made little difference because the human psychology of fear and greed take over in the short term.

Think warnings along the lines of what you find in cigarette boxes : everyone knows but people continue to smoke.

Also, we keep writing to you about our SIP program that presents investors with a convenient avenue to regularly infuse capital into their portfolios. Feel free to check out the benefits for your clients. If you need more info, reach out to your dedicated relationship manager at [email protected].

These weekly episodes are now available in our website for your quick read and you may access the same in the below link.

Weekly Enlightenment Archives – ITUS Capital