The right question to ask an equity investor is “did you make money or not”. If an investor has made money in the long run, and met his goals, he is a successful investor.

Let me explain. The equity market is never about right or wrong. For example Franklin Templeton has a research team which does not believe in investing in Reliance Industries. It was not like that till a few years ago. I am not getting into right or wrong. I am just stating the facts. There have been times when I have seen the Reliance balance sheet and felt tempted to go short. Only knowledge of history prevented me from doing this. Never, ever, ever take panga with the king. Never. Indian Investing and Trading history is full of skeletons – of people who went short on Reliance Industries. Would I have made money going long on Reliance or going short on Reliance? Difficult to say. Of course in the long run, you would have earned money, but there have been times when it was SURELY not worth being an investor. Most important lesson in investing v trading is that when you take a tactical call, do not ever take an “all or none” call – especially in a company which is so hands on in the equity market. The risk is too much.

Let us take a much better documented story. Story of Amazon. It was Barron’s who wrote an article saying “the end of Amazon” or something to that effect. Twenty years later it sounds easy to laugh at the journalist, and feel Bezos is a genius. However, you have to remember that within 2 and a half years the SHARE FELL 85% IN VALUE. So the journalist would have been patting his back, right? Yes of course if he had bought put options he would have made a killing. However, after hitting a nadir..maybe it went even lower than the 85% – I am writing this from an ageing memory – the share went up 300 times – this must have been since the dotcom bust – 2002/3 to 2019. If the journalist was right saying Amazon.bomb – and then seen the share plummet almost 90%, WOULD HE HAVE in his wildest dream thought about buying the share? No way. His financial behavior would not have allowed him to.

I participate in Reliance in many forms. Directly I hold equity (it is now at its all time low since 1977) and in the portfolios of the mutual funds that I hold. I would have been tempted to go short – I do not like so much of debt, but one deal with Aramco can wipe of the whole debt! Similarly LnT as a group, ITC, even Icici – are nice 30 year shorts, but who knows what can go wrong in the shorter run? This reminds me of the old saying “the market can be irrational far longer than you can be solvent”.

Let me not give you only Reliance example. Take another shitty company called Silverline. I didn’t have much respect for this company when the share price was Rs. 10, Rs. 30, Rs. 300 or Rs. 1300. Jogging my memory, but I do not think it went beyond Rs. 1300. Then of course it famously fell to Rs. 5. I could have done a BADLA – AND FELT SAFE – even at Rs. 300, but the margin requirement would have killed me. If I were writing options, I would not have made money anyway. If I had bought put options – I would have been wiped out (or considerably poorer at least) in Silverline’s journey from 300 to 1300! However, a 30 year put would have worked well. This for a company which did not know how to manipulate its share price.

Look at Credit Suisse – last week they gave a sell call on Reliance. It prevents the same analyst to think afresh and give a neutral call. So he gives a “under-performer” call, with a modest target price. However, if the Aramco deal goes through, the share will go much higher. Even if the Reliance broadband – with a minimum charge of Rs 700 – could take the share much higher!

So what am I doing in Reliance? Well, nothing. Anyway, this was more to tell you that getting it right is intellectually satisfying, BUT WORSE, it is NUMBING. Our behavior makes us believe that since we got it right, we will make money!

Luckily for me, my expectations from equity is not high, and I have some money which I can lose (I absolutely hate losing money). However going short means getting the company, price and time frame correct. I know I can’t. Sometimes I get somethings right (more rights than wrong, of course) – but a lot of times it is just the power of “n” and not so much of “r”.