Don’t borrow and trade

October 5, 2015

Ashish KR Joshi from Valsad district, located on the Gujarat-Maharashtra border is a private wealth manager. He has closely observed all the three major crashes — 1992, 2000 and 2008.

“The 1992 crash was spurred by excessive leverage; people even pledged their homes to play in stocks. Greed was at its peak then,” he recounts. “They were not ready to listen! In the end, they lost money, faith in the system and many tried to end their lives also! Even today I see the aftershocks of 1992.” Ashish is well placed to comment on the 1992 crash since he hails from a region where many are passionate about the stock market.

He thinks that both in 1992 as well as 2000, investors suffered losses due to abnormally high valuations. “Lack of awareness, absence of shares in dematerialised form and delay in physical transfer of securities widened the losses of many investors.”

According to Ashish, the 2008 crash taught investors the perils of trading with leverage. Many small investors suffered huge losses due to their exposure to equity futures.

“The 2008 crash also taught investors the importance of asset allocation and asset rebalancing,” says Ashish. “Major inflows through the systematic investment route began only after this episode.”

This article was published on August 30, 2015, in Business Line (The Hindu)