The Hindu Business Line : Be financially literate, first

Knowledge of technical analysis and psychology will stand market participants in good stead. — MR PRADEEP CHANDRASEKARAN, SAFETY IN THE MARKET, AUSTRALIA

The foremost quality a young investor needs is discipline, says Mr Pradeep Chandrasekaran of Safety in the Market (www.sitm.com.au), `one of Australia's oldest investment training organisations'. Established in 1989, SITM has assisted thousands of Australians discover how they can trade for a living, says the site. Mr Chandrasekaran, who heads the India operations of SITM, is a cost accountant by qualification. He has earlier worked in the export finance and forex division of Coats Viyella India Ltd (now Madura Coats Ltd), and as the Head of Research and Private Client Group of Navia Markets Ltd (the stock-broking arm of the SPIC Group). "I am otherwise a full-time educator and trader," he introduced himself, in a recent interaction with Business Line.

Excerpts from the interview:

First, suggest a quick test to help the young assess if they are cut out for the market.

The following are the traits, which are pre-requisites for a good investor:

Discipline

Ability to follow rules

Ability to think on one's own steam

Love for hard work

Ability to control emotions

Ability to identify mistakes and iron them out

The above is by no means an exhaustive list of traits required for a good investor. These are all characteristics that will be tested in no uncertain terms at some point or the other during one's career in the market.

Do you think it is necessary to play it out pseudo, before getting real?

Yes, absolutely. It is vital to test one's methodology before venturing into the market. The two main advantages of this are:

You will know whether your system will work or not before you put your money on the line.

You can gain confidence in your methods and this will go a long way in helping you to keep your own counsel.

Even in the case of veterans, they would do better by testing out their new ideas before actually applying them to a real market situation. A couple of caveats here:

When you are paper trading, no emotions govern you.

Paper trading does not take into account real life situations such as a failure of phones or Internet and, god forbid, a situation where your broker is unable to execute your order because he has been logged out!

Because of the above, real-life results will vary from paper trading results. However, that in no way takes away the merits of paper trading.

What are the basic skills that young investors should have if they want to enter the markets?

At the outset, one must be clear whether to approach the market as an investor or as a trader. An investor must be skilled in reading and understanding financial statements. A trader, on the other hand, must have good knowledge of technical analysis. It is also important to understand money management techniques. A good grounding in human psychology will stand all market participants in good stead.

How much time should be devoted to market activity, so as not to hamper studies or work?

As in any profession, the more you are willing to put in, the more you get out. Most people are under the wrong impression that if they have a live trading screen, their results would be better. They could not be more wrong. You need a trading screen only to execute your order, which your broker can do if you phone in your order.

Time must be spent on study, analysis and preparation of trading plans. Once you have mastered the techniques, you will not need to spend more than two hours a day (if you are an end-of-the-day trader) and not more than five hours a week (if you are trading with bigger time-frames)

Will it be too risky for a young investor to get into the game full-time?

Anyone coming to the market should be clear of his or her objectives. I believe there is risk when you start out in any profession. A young boy who shows an aptitude towards playing cricket well has to take the risk of devoting large amounts of time and investing huge sums of money in acquiring the skill to succeed at the highest level. There is, however, no guarantee that he will make it big as a cricketer and if he fails to make the grade, it could be too late to prepare for another career.

When it comes to taking up a full-time career as an investor or trader, the question is: Is it to have a career in the financial sector or is to develop the skill to make a living out of the market? It is obviously easier to have a career as an analyst/fund manager rather than being in the market as a full-time trader or investor.

I frequently come across software professionals who ask me similar questions. In their cases, because of the long and inconsistent working hours, they find themselves burning out and want to shift to full-time trading. The stock answer I give them is that they need to prove to themselves that they are capable of making the market work for them.

The only way to do this is to start trading the market while they still have their regular jobs. If they can consistently earn more from the market than from their jobs, they are ready to get into the market full-time.

To what extent can parents/family encourage/instil investment habits in their wards? And how?

It is vital that youngsters become financially literate. We always draw inspiration from the success stories of others. Keeping this in mind, it is vital that youngsters find themselves good role models. I have gained great inspiration from the achievements of Jesse Livermore, W. D. Gann, Warren Buffet, Peter Lynch and David Bowden. Never hesitate when it comes to investing in knowledge. King Solomon's words of wisdom are worth recalling: "Knowledge is of more value than gold. Receive my instructions and not silver, and knowledge rather than choice gold."

What are the pitfalls that the young investor should avoid?

The lure of quick money in the markets inevitably leads to doom. It is important to keep in mind that there is no short-cut to success in any field, and the same holds true with respect to the financial markets. Youngsters would do well to make long-term plans and goals and work towards achieving that.

Your message to the young, in sum.

Have a definitive goal for whatever you want to achieve in life and work towards it.

The path towards achievement of your goals will involve sacrifice.

Dissociate yourself from people who have a negative influence on you.

Dare to dream.

Do not be afraid of failures; they are the stepping-stones to success.

Be open to change and in imbibing new ideas.

MuraliDe@gmail.com

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