'Always keep an eye on liquidity': Big Bull’s 10 commandments for traders

Moneycontrol revisits the investing philosophy of late Rakesh Jhunjhunwala on his first death anniversary.

While many big traders today try various illegal ways to access credit from brokers, it would do well to remember that a big proponent of trading and the Big Bull of Indian market had turned down various such offers because he believed it led to careless behaviour.

In a talk given to students of FLAME University a decade ago, Rakesh Jhunjhunwala spoke about people approaching him with funds. “I have various people (brokers) coming to me and saying, ‘you trade with us, don’t give us anything till Rs 20 crore’… but I refuse. When you start depending on people to cover your losses, you become careless,” he said.

Jhunjhunwala passed away from cardiac arrest on August 14, 2022, in Mumbai's Breach Candy Hospital.

In 2013, Jhunjhunwala was speaking on the importance of maintaining liquidity while trading. “Always keep liquidity. There is no mummy or pappa to help you here. Every morning, the broker will ask for the cheque (for margin money to cover trades), if you don’t have it, woh phod dega (he will let you have it)”.

He then spoke about brokers who were willing to loan him up to Rs 20 crore for trading.

Jhunjhunwala, who referred to trading as the “mother” (the originator) of all his success, shared his ten commandments in trading.

They covered the importance of keeping expectations realistic and the dedication needed to trade successfully, among other things.

He started with having realistic expectations and said that trading decisions should be price dependent and not opinion dependent. Later, he quoted a favoured line: “Bhav Bhagavan, hum kadardaan (price is God and we remain respectful towards it)”.

According to Jhunjhunwala, trading has to be a full-time profession and not something you do in the middle of a 9-to-5 job. “It cannot be half-hearted,” he said.

One of his commandments draws from the card-game Teen Patti, in which players bet based on what they think are the cards dealt to the other players. Players can bet ‘seen’, that is, after looking at their own cards; or they can bet ‘blind’, that is, without looking at their own cards.

Traders, according to the Big Bull, should play ‘seen’ and not ‘blind’. He added, “The market offers many an opportunity even after the cards are open.”

The other commandments follow.

* Know the rules and verify them. For they may not be what you assume

* Never aspire to be the market’s master. It’s best to be its slave. Leverage your skill, not your capital

* Have a broad idea of the direction. Remember: trend is your friend

* Don’t be afraid to make a mistake, only make one that you can afford so that you may live to make another

* Know what and how much to risk. Assess risk.

* Take a loss. The first loss is the best loss. Pyramid your profits (which means use your profits to make the next trade).

* Good judgement comes from experience. Experience comes from bad judgement. Trading can only be learnt, it can’t be taught.