What’s a 'must' for investing can be 'poison' for trading: Rakesh Jhunjhunwala

Rakesh Jhunjhunwala did not invest in what he traded in and did not trade in what he invested in.

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

The late Rakesh Jhunjhunwala had two diametrically opposite approaches to trading and investing. In trading, which he called the “mother” of his success, he called for more realistic goals. In investing, which he called the “multiplier” of his wealth, he called for persistent optimism.

In a talk given in 2013 to students of FLAME University, he said, “We do not trade in what we invest, and we do not invest in what we trade”.

Jhunjhunwala, the Big Bull of Indian stock markets, died from a cardiac arrest on August 14, 2022.

Addressing the students a decade ago, he added that dogmatism was a “must” for investing but was “poison” for trading. Explaining dogmatism’s function in investing, he said, “The biggest profits will be made (by investing in a stock) when there is no large institutional shareholding (in the stock) and most people will tell you about the stock and tell you why not to buy it.”

The same approach will be disastrous in trading, he said, and added that keeping this attitude in trading will even empty a nizam’s treasury.

On the method to be followed when trading, he said that a person should have a broad idea of the direction of the prices and remember that “trend is your friend”. When investing, however, a person has to be disciplined and have a gameplan.

When a trader is met with uncertainty, he or she should play ‘seen’ and not ‘blind’. With this, Jhunjhunwala was making a reference to the game of Teen Patti where players guess the others’ hand and the winner is the one with the best set of three cards. In it, one can choose to be a ‘seen’ player or a ‘blind’ one, with the former having looked at (seen) his/her cards and the latter choosing to play without looking at them.

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

Therefore, in trading, it is best to play knowing your advantage or the lack of it, rather than leaving winning to pure chance. Also, Jhunjhunwala added, “take a loss, the first loss is the best loss”. That is, the first loss and exit, and not wait accumulating losses and hoping that the trade will turn in your favour.

But, when met with uncertainty in investing, he said, have conviction and be patient. “Patience may be tested but conviction will be rewarded,” he added.

The focus for a trader should always be on the movement of the prices, he said. “Vadhare vadhare levanu, ghatade ghatade vechanu,” he added. That is, as the price rises, keep buying. As the price falls, sell.

In investing, the focus should be more on an internal compass. “Buy on broad direction, add on affirmation and exit (should be) an independent decision,” he said.

When a bet goes wrong and there are losses in sight, he said that a trader should remember that “bhaav bhagwan, hum kadardhan”.

That is, “price drives adding and stop loss”.

For an investor, on handling losses, he said, “Sell on irrational exuberance or sell on failure of hypothesis”.