Trading is against human nature: Rakesh Jhunjhunwala
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'Trading is against human nature,' says Rakesh Jhunjhunwala, while talking about his investment approach in the stock markets. He says:
All risk taking is associated with two human conditions, viz the greed for profits and the fear of losses. The ability to strike the right balance between fear and greed is the most vital determinant of profitable risk taking. Human nature operates on the chance of a gain rather than maximizing gains. There is lack of focus on the magnitude of gains and losses, which is why I maintain that successful trading and investing requires you to go against the basic tenets of human nature.
We are programmed to learn, and we learn to a pain. But in trading and investing, you have to learn to take a loss. In trading, the first and the last principle is that trading is trend and price based, and not opinion based. This requires you to square an unfavorable trade regardless of your opinion. This means that if I buy a stock at Rs 100, and then the price falls to Rs 95, I take my loss and square off my trade. This is counter-intuitive to most people. This is the one common quality of all successful traders.
To be successful in investing, many elements have to fall into place. But four things are critical. There has to be an attractive, addressable, external opportunity; a sustainable competitive advantage; scalability and operating leverage; and the management should be of high quality and integrity. All have to be present but they still constitute only 50% of our necessary requirement. It is important what one buys, but it is more important at what price one buys.
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