Investing 101: A Beginner's Guide | Nikhil Kamath | TEDxBITSHyderabad

Let's talk about the stock markets, let's talk about being an investor, a trader. I think everyone, their grandmothers and their drivers, are getting into the stock market right now, so it's probably a good topic to talk about. I'll give you a few different chapters of my life. where I have tried to trade and invest in different ways and what my learnings have been from that, so I entered the world of trading and

investing

very early, I started trading full time, maybe at the age of 17. This was around 2003 2004 somewhere around that. Initially when I was introduced to trading, I was doing it with a finite amount of capital that I had saved from my other job which was working in a call center, I would earn about eight nine thousand rupees a month and then I saved this money and Invest and try to buy and sell stocks.

The problem when you trade with such a small pool of capital, many of you, if you are in college, will face the same problem is that you will have to leverage yourself and take margin in order to make a reasonable amount of money, so I had the same problem. I would look at the stocks that were in the news and, much like playing roulette, I would pick a number in my case, which was the company, and wait for the price. of the company went up, I was very lucky at the beginning, the stock markets in many ways are very friendly to first time investors and most people who are just starting out tend to make money, it's a psychological thing or whatever, but how much The less you know, it tends to work. in their favor most of the time, so I bought this company called Mars Soft, it was a small tech company from a penny stock to four rupees or something like that and I sold it for 20 rupees and there was absolutely no reason why The stock should have gone up.

It was pure luck, but that was my foray into the stock markets and like many other people, I was hooked and addicted, and even if I lost money 20 times in the future, 20 times the amount of money I made on this one transaction , I had known it for a long time. The fact that this is something that gives me great euphoria, an industry and a profession that I would continue in for the rest of my life, so trading started like that, betting blindly and hoping that a certain company would do well, Marsoft was the number one company at this time. was followed by multiple bets on penny stocks that did well between the ages of 18 and 19.

That was pretty much how I used to operate on the road. I was introduced to a couple of books and, fundamentally, I analyzed companies. I think some of the few good books I read. At the beginning, perhaps, in Benjamin Graham's book, there were a couple of key analysts in both India and the West. Three years, four years of fundamental analysis of stocks led me to realize that companies don't move based on how well they do fundamentally. Companies are a sentiment factor and the number of people who perceive that a company will go up or that a certain stock will do well tends to move the company much more than you know.

Technical factors. The fundamental factors that could be supporting the company. They did this form of training. for a few years, followed by technical analysis, technical analysis is the type of trading where you look for patterns. Technical analysis is a very simple topic, it is subject to rules that will determine what happened in the past, past patterns. of repeating in the future, so you look at the charts, you look at the patterns created on the charts historically and then you attach a strange one to that same pattern, replication in the future did this for a few years, it was important in candles for anyone who is interested, I think.

Steve Neeson has a couple of excellent books on Japanese candles. It is an excellent way to enter the world of technical analysis. You trade things like moving average crossovers. I remember I used to trade the 2050 range of moving average crossovers. What technical analysis does very well is a lagging indicator, so in a market that is trending where there is substantial momentum, technical analysis will help you write the tide, so to speak, and carry and capture a large portion of the momentum there might be in a market, especially if you could get into it. At a very early level, when a trend is just starting, technical analysis occurred for a few years, three or four years, this was followed by a quantitative phase, trading in mean correlation regression, essentially bets that say, for example, two two stocks have a certain correlation between them historically and if they deviate from that relationship, you write an algorithm that I want and you short the other one and try to make that divergence every time it occurred, so in the quantitative phase I would have traded, you know, penetrating delta coverage in many statistics. type of arbitrage trades that involve capturing smaller pieces of a pie instead of buying something at 100 and hoping it goes to 120, you would enter a trade where you hope to win 20 or 30 bibs, but a lot of times after the quantitative game, eh , sentimental analysis. uh you like to try to gauge the prevailing sentiment in the market so I would try this by virtue of you know, look at what the promoters of a company are doing, look at the geopolitical issues, look at the interest rate cycles in everyone and try to figure out which direction the money will move, essentially, when money starts flowing in one direction, especially smart money for smart money, I mean money that belongs to institutional investors and not retail trading per se Typically, once they buy something, they go in five or ten times later and add it to their position.

They did this for three four years. None of these investment research methods work for everyone or they work in isolation. It is necessary to read and check each one of them. one of these implement them and see which one works best for you, which one is best for your psyche and then you know how to find a combination of two or three of them and implement them in your own investment cycles at the end of The day when, being a insincere, you have to figure out how the economy is doing or how a certain stock might perform in the future, it all comes down to the psychology of it all, it comes down to how you're able to figure it out. uh what's going on behind the price of a certain asset class going up or down?

I think a combination of these four methods will put you in a position where you can do this to a reasonable extent. India has a population. out of 130 million people, only a few million of that salary, you know, file income taxes. An even smaller proportion have direct or indirect exposure to stock markets. I would put that number at maybe one and a half two percent of the country, that number is set. to grow relative to developed western economies where 50 60 of the population is exposed to stock markets, we are still at a very nascent stage here in India and for any of you who choose to take up this profession or work in fintech, brokerage or asset management, I think the scope is tremendous.

You will have a lot of potential to grow and scale in this industry over the next 10 to 20 years. I would definitely recommend more people try fintech and choose this. As a profession, I mean, the two main things we do right now are brokerage and asset management. Intermediation under the zeroda brand is something we started 11 years ago. We were traders before starting zerodha. The intention of starting zerodhar was to save. The cost of current bankrupt pairs from 11 years ago was very expensive, it was very difficult for us as retail traders back then to remain profitable and earn a salary while paying half a percent brokerage to your broker, so we decided, You know, come on.

To obtain a membership ourselves, we will not consider this as a corporation but as a community run by merchants for merchants and we will facilitate transactions at a cost that is perhaps a tenth of what the incumbent peers of the time charged, so zeroda has done it. done very well in the last 11 years, we have grown laterally, we represent around 17 18 of all the volume that occurs today in the country. I think the biggest differentiator between us and other companies in our sector is that we have never really taken in outside capital it is a partnership between my brother and I and we have never taken money to go out and promote the brand, which in turn will help us acquire clients.

We have been organic in the process throughout our ethos. Our ethos has been to build a better product and word of mouth is the best marketing tool and with a better product, more people will come in and use our platforms and that has worked for us, a true beacon, on the other hand, it is a asset management company, it's a hedge fund, it's a hedge fund. which runs long and short strategies in Indian capital markets and manages money for selected ultrahnis across the country. We are trying to create a community of extremely influential investors, both from India and outside, whose money we manage and in turn we also hope to be able to help their holdings by connecting them with each other, and that is what Rubicon is also trying do.