90%
Where are the Customers' Yachts? - Part Deux
Ever since I started researching financial products (especially brokers) for moolahgeeks, YouTube started serving me a never ending stream of ads for trading seminars - options, FX, equities, CFDs, cryptocurrencies (ok those have mostly stopped).
The ads are unfailingly irritating and each seems to follow the same script, tone and setup - its almost as if they all went to the same marketing seminar.
A promise to reveal secret strategies that allow you to make guaranteed profits trading the said instrument and an appeal to your FOMO by showing hundreds of others, just like you, making that easy money, sitting at home.
And it wasn’t just Singapore. A little digging revealed these seminars were huge in India too - huger if anything. The seminar leaders were bolder, gaudier and louder, the promises were more outlandish. The yachts were replaced with Mercedes’ and BMWs but the underlying game was same.
I had been meaning to dig a bit more into this phenomenon, may be do a piece for the website about why you shouldn’t be wasting your time and money on one of these.
However I have been beaten to the punch by that tireless champion of consumer rights, protector of the hapless, the defeater of manipulators, the dynamic, the fearless, the… uh… umm… (checks notes)… SEBI?
For those unfamiliar with the Indian markets, that’s the Securities and Exchange Board of India. As with all Indian bureaucracies, they may not always live up to the adjectives heaped above, but sometimes they really come through.
And boy! Did they come through here. That is the link to their excitingly titled report “Study - Analysis of Profit and Loss of Individual Traders dealing in Equity F&O Segment”. They helpfully provide a more digestible summary here.
Even more helpfully I shall excerpt / paraphrase it below and save you a click. For those unfamiliar with Indian English, F&O stands for Futures and Options… derivatives… the stuff all seminars want to you trade.
The study is based on a sample of all 4 million plus individual clients of the top-10 stock brokers in India during two years - 2018-19 & 2021-22. This is the April - Mar Indian financial year. The key findings are:
Nearly 90% of individual F&O traders lost money in each year. 90%!
The average active trader who lost money, lost 15 times, yes times!, as much as what the average profitable active trader made.*
People who lost money in trading gave up another 28% as trading fees to the brokers while the profitable traders paid 15-50% of their profits as fees.
Needless to say, this is not the recipe for guaranteed, easy and high returns that these seminars are promising. While the report does not mention this, the boring, old Nifty Index was up 14.9% and 25.4% in those two years.
All those exclamation marks I used above were justifiable! I wonder how these figures will look in a year that the Nifty ends lower.
Now, to be fair, the seminar leaders may use this data for marketing. Come to us! they will say, or you will be part of the 90%. The SEBI report doesn’t look specifically at the results of the seminar students so may be there is reasonable doubt here.
But this just looks like a horrible game to play.
Past performance is no guarantee of future returns but you are probably justified in at least expecting positive market returns over time. India has done about 14% a year for the last 10 years while the STI has done about 3.5%, both in local currency terms.
This other seminar game seems to have a massively negative expected return, with most people losing money in a solidly up market. How much better than others do you have to be to make money here?
And 15-50% of profits as trading fee? How much are these guys^ trading? Most brokers in India charge ₹20 per order so either the order sizes are very small or they are trading like crazy.
This isn’t just worse than I imagined. Its worse than I could have imagined.
* SEBI makes some adjustments to get to this number. I don’t get the logic for those adjustments. My read of the un-adjusted data is that the average profitable trader makes about 1.3-2.0x the average loss-making trader. So not as bad but it does make for a better story.
^ 84% traders are male, only 72% of profitable traders are male. Women are twice as likely as men, to be profitable.
The Nudge
This months nudge is brought to you by, who else, chatGPT.
As the New Year begins anew Resolutions, we all make a few But one that's often missed Is subscriptions dismissed So let's take a look and cancel a few From streaming services to magazines We sign up for many, it seems But now's the time to be strict Take a look at the list, tick tick tick And cancel the ones that are no longer beams You'll save money, that's true But also, you'll have more time to pursue Things that matter, Like taking a walk or just chatter Without worrying about subscriptions to renew So, as part of your New Year's resolutions, Take a step back and take a look at the subscriptions And cancel the ones you no longer need You'll see the savings and your life will be freed.
You know what to do.
This month on moolahgeeks
January continued to be all about India at moolahgeeks. Kshitiz collected data on and analyzed another 130 credit cards, this time from 6 of the smaller banks.
With this we have now evaluated nearly 400 credit cards from 15 providers in India. Credit cards profitability is a game of scale so it is no surprise that most of the credit cards from the smaller banks do not offer great rewards. Still there were a couple of gems in there that made it worth the effort.
Our very first Intern, (and, in the spirit of full disclosure, my cousin) Hanu, did a piece looking for the best UPI app in India. Somewhat disappointingly for us, there wasn't much to separate the apps since the service is free and the UIs more or less identical across the board.
With the UPI set to be opened up for non-residents like me, this may be a better article for the Singapore site instead.
Around the web
Jeremy Grantham Always a good read, almost always bearish but as he points out, things are a lot more complicated now that many more people are also bearish. And here's the podcast he mentions in the appendix - also great.
A skeptical take on reward cards The subtitle says it all - Credit card rewards are only good for you if you are good at them. If you are revolving your card balances, you should not be thinking about the rewards - you aren't getting any, no matter what the statement says. Here's the paper this story is based on.
Bad news for me? “People only have time to consume so much. So you have to be the best, or in the top few, in any given space,” said Austin Rief, chief executive officer at Morning Brew. “It's really tough to be the 37th best finance creator.”
Damodaran on Tesla An old favorite of mine. Insightful discussion on the challenges of investing, valuation and the difficulty of avoiding biases.