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How I lost Rs 35 lakh in the stock market


Kamiya Jani,Wealth Special
Oct 08, 2008 at 11:56am IST

Wealth spoke to a man who grew up wanting to become rich, but lost all that he had earned in a flash.

Name: Omprakash Chaudhary (name withheld on request)

Age: 73

Where I live: Mumbai

It's been eight years since Omprakash Chaudhary lost Rs 35 lakh at the stock market. (IBN)

What I do: I used to work in a steel company. Now, retired and resting.

It's been eight years since Chaudhary lost Rs 35 lakh at the stock market, but he is still recovering from the loss. "The only thing that's churning in my mind is, I need to recover the money somehow, and pay back all creditors," he says.

Chaudhary had no idea how the markets work. But his younger brother Narayan made good money. So why not him?

The first investment

In 1996, when Chaudhary was 62 years old, he made his first investment of Rs 40,000. He invested in Wipro, Infosys, Associated Cement Companies (ACC) and Gas Authority of India Ltd (GAIL).

"This was my strategy – buy shares in the morning and as the price shot up, sell it the same day before the clock strikes 3.30 pm,” he says.

His highest one day profit was Rs 30,000. This obviously encouraged him to invest more. It worked well for him. His younger brother, on the other hand, had invested for long term. He hardly did any day to day trading.

The crash

"In 1999-2000, the IT sector went bust and I made huge losses. I would buy shares blindly and sell them in the evening. This habit was a big mistake. I was suffering a loss every day. Worse, I would sell it off before the markets closed."

Bogus companies

"My younger son would hear the buzz in the market. Little did he know that bogus companies called 'Ahmedabadi companies' were doing the rounds. It seems the promoters were from Ahmedabad and they knew the drawbacks of the stock market."

"We would buy their shares when the rates had already increased. Then suddenly, these companies would shut down and take off with all the stocks from the market," he shares. Chaudhary had already lost Rs 10 lakh.

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Borrowing to invest

Then came a time when he realised there was no money left to invest. "I started borrowing money from others to recover my losses. This did not help. By then, I owed Rs 25 lakh."

He borrowed Rs 20 lakh from his younger brother and Rs 5 lakh from a friend. By now, his creditors refused to lend him more money. Today, he is 73 and still trying to pay back his creditors. He has not been able to return his debt to any of his creditors.

Is the stock market for rich people?

Chaudhary believes that investing in equities is a good idea for those who have lots of money. So, even if you lose, there is no problem.

Chaudhary is now back to the stock market with a ray of hope in his heart. He has invested in two stocks – Rana Sugar and Maharaja Shree – but their prices have reduced to half in the last two years.

He does not favour his sons getting into the stock market. He says, "The stock market is no different than gambling!"

We spoke to Yogesh Chabbria, founder of GSIFS.com about Chaudhary and his first thought was that Chaudhary viewed the stock market as a gamble and not an investment.

Here is Yogesh’s advice:

Rule number 1: No day trading

It is a proven fact that those who indulge in day trading, either lose lots of money or they go bankrupt.

For any company to prove itself, it takes at least two years. If you are a farmer who wants to grow mangoes, you sow mango seeds in your farm. Next day, your friend tells you oranges will do better. You replace the mango seeds with orange seeds.

The day after, another friend suggests apples are the best bet. So you sow apple seeds.

In the process, all your money is spent on seeds, fertilisers and other raw materials with no fruit at all. To enjoy fruits, you will have to wait for at least two years.

To cut a long story short, day trading has not done anything better for anyone.

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Rule number 2: Invest in knowledge

All you need to get into stock market is basic common sense. Buy stocks of a company only if you see their products on streets.

If you are planning to invest in a Maruti car, check whether there are Maruti cars running on the streets. If people like the product, it means the company will do good and will give good returns.

Since Chaudhary was working in a steel company, he could have any steel company because he has the knowledge of the same. Cement and steel is definitely required for so many constructions coming up.

Use simple logic and invest in companies you have heard of. People try hard finding companies. Invest in simple companies whose operations you can easily understand.

Rule number 3: Ignore rumours

If you are confident about the company you have invested in, leave it. Ignore rumours.

Rule number 4: You do not need crores

It's a myth that you need lots of money to start investing. If Chaudhary had stayed invested with Rs 10,000 in Infosys in the beginning, today it would have been worth nearly a crore."

Similarly, today, even if you are investing a small amount in a company you are confident of, it is sure to grow a lot more after 10 years.

Rule number 5: Get professional help

Often, in the haste to get rich fast, we lose patience and make some wrong decisions. Remember, there is always a doctor for your finances, whose advice is medicine for your money.

The choice is yours!

Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither the site nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.

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