Is Privitisation, the only solution?

A). INTRODUCTION: 

Continous onslaught on public sector enterprises terming them to be sick and giving them away to private players by the current NDA regime, is nothing but making things worse further. The current NDA gov, by all it's strength, have only made the things worse. The previous UPA government, had left the nation with few unsolved, minor and reversible issues, which the current NDA have made them worse, complex and irreversible, not only in economy but other aspects of governance like defense, social welfare, industry and foreign relations. In that list, do we really need to privatise the public sector enterprises calling them as a burden?! Is it justifiable, professional and scientifically tempered enough or just another mess up theory to complex the issue further before handing over the nation to the next government. 

B). EXPLANATION:

I). In India, from 1991 LPG Policy, privatisation have been taking roots from top to bottom till privatizing municipal finance (local bodies) too. This trickling down effect have proven that, people have took interest in privatisation. But, the reason from a common public, finding privatisation better, is from the 'service end' alone, i.e. privatizing is fine if the service is delivered good to us. But, infact, a broader and long term analysis is needed before supporting privatizing. 

II). If a single or few employee of a public sector bank, reluctant to serve people or lethargic in work, make it justifiable to privatise it entirely, on the premise that only then, services will be the best? Are these public sector bank employees the ones who sacrificed their last lives during COVID rendering their services to be termed 'essential' but their lives not so? Does a single employee's misbehavior or reluctance makes the whole sector deemed unfit? It only depicts the narrow mind of people. Governments make use of this narrow mind and collective thought of people, to privatise a sick public sector enterprise (in some case wantedly made sick), rather than treating their sickness. 

III). Public sector enterprises of our nation, are called as 'temples of our nation' by Jawaharlal Nehru. Not because it can provide services on daily basis, but a stronghold we can trust, that it's presence and strategic advantage is always made use by the government in all tough times. That's why probably he might have termed them so. Because, it is only when the tough times comes, we can see the public sector enterprise shine. Ex. During this COVID19 pandemic, the presence of public sector enterprises all around the nation, capable of delivering and obeying to emergency order from union government, proved to be a 'strategic advantage' to serve the people, especially at tough times. Imagine, those who support full privatisation, if such enterprises were not present at this dire time, do the 'so-called saviors of economy' able to coordinate, obey and implement government schemes and relief to people in an efficient way? What is the guarantee they will involve in social relief measures apart from their CSR (which even many does not adhere too)? What is the moral obligation of people to keep feeding these private players, when they doesn't have even a single point of moral or law to protect, preserve and promote the interests of the nation socially? Such so-called temples are the ones which act as a guardian of our nation's economy. 

IV). That doesn't mean, public sector enterprise are becoming more of a burden to the nation, unprofitable and low quality servicing to public. It is accepted that there are some enterprises that provide low quality services, run unprofitable and thereby becomes a burden tot he government. But, is it not the responsibility of the government to treat such sick enterprises rather than giving them off to some private player? Do we give our parents off to some caretakers for money if they feel burden? If we do so, do we recognise we being immoral and unfaithful? Reforming the sick enterprises and making them cured is the duty of the government. When the enterprise runs well, funds government, the government takes pride means, then at tough times, government should also stand with it. 

V). In India, there are 2 types of such public sector enterprises. One will be 'obsolete' in technology, men and machinery, impossible to save them, and irretrievably dying. Such can be closed and assets sold and labors amicably dealt with. Second type are sick, but retrievable, needs proper financial reforms, fresh personnel and more control over management with government being a backup. Then, they can be revived and slowly government can let them function free after sometime, when they are ready to fly alone. "Calculated disinvestment coupled with micro level management reforms increasing firm value in medium run" is needed rather than simply giving away them as a gift or takeaway prize to some private players, who doesn't have an understanding of the rationale behind creation such public enterprises and impact of their absence. 

VI). Does the absence of public sector enterprises have an impact on society?  Definitely yes!! A big yes! Because, it's simple, when it was framed it was kept in mind to be like a 'storehouse of energy' for the wellbeing of society and if such is dismantled no wonder the opposite will occur. To point out, the first societal impact is the 'social unrest' to burst out, when the labors are against it. No labor is ready to privatise the concern they are working in, if the government forcibly does so, labors tends to rise against the government, where all labors are solidly backed by proper politically affiliated organisations. So, is it possible for a government to risk their vote bank as well as creating a social unrest in the society by privatising a firm in which the labors are against it? Even if such labor issues, tackled by suppressive measures, no one will be ready to join in a company which is already in a tug with the existing labors. Not only in salary aspect, but in all terms of working conditions and environment, no fresh intake of labor is possible, if the current existing permanent set of affiliated labors are against such measures. Third and very important impact in the society, is the 'reservation' factor. In a public sector enterprise, their is a mandate to provide reservation eventhough the government wants it or not. But, when privatised, their is no reservation for the weaker sections of the society. This in particular is an agenda been pushed by the current government more vehemently to dismantle the reservation setup among the public sector enterprises.  Apart from these three, few minor situational impacts are also prone to occur due to proposed privatisation of public sector enterprises.  

VII). This narrow mentality of the current government have also affected the 'foreign investments' also. An investor invests in a place, only when he finds 'social & political stability' and law and order found. If the government itself keeps on breaching many Bilateral Investment Treaties(BIT) like Vodafone and Cairne energy due to its preferable ideology in between, FDI & FPIs are more prone to decline further. All this comes, when the government mixes its political ideology and agenda into economic, trade, commerce and industrial measures. Such regressive mentality would further damage the economy as a whole. 

C). CONCLUSION: 

So, is privatisation completely harmful? No. Privatisation must be done in a 'calculated' and in a way that private does not dominate the government decisions in any way even in a minor one. Because, such private interference in the government decisions have proven to be worse and a failure by many nations in the history. A private firm cannot run a nation entirely. A business minded organisation cannot act as a social welfare government. Never, can a private firm able to run a government, so efficient and empathetic than elected representatives and administration law mandated in our constitution alone. Nothing is bigger than that, to overshadow the nation guided towards a 'welfare state'. Out of 500 companies in the 'Fortune 500' list 124 are from China and the interesting fact is, 91/124 companies are public sector enterprises alone. To treat a sick public sector enterprise and make them bloom greater heights is the perfect solution. Private players are welcome in places where we need PPP(Public Private Partnership) sort of methods. India's current strategy to 'create a big business' and give the nation control to it, is also intangible, because, we don't have such huge 'number of big businesses' except very very fewest only. Just 2-3 big businesses cannot run the nation. What such big corporates can do, is to try to invest in 'sinking private companies' alone, rather than over-ambitiously trying to takeover government sectors, which are already in a bad shape, where these corporates does not have the resources to run them. What is best left to big corporates of our nation is to invest in both brownfield and greeenfield companies as well as save the sinking private companies alone, apart from some PPPs and agreements mutually cooperated with government., that much of involvement alone is enough. Only then we can be able to revive both private sectors as well as public sectors and have a perfect combination to fuel the economy. 

  

Experiences on Stock Markets

 

Difference between Trading and Investing 

 

Enter a position with a time frame in mind (typically shorter-term) to exit, it is a trade and not an investment. For example, if you buy a house to live in with no intention of selling, it is an investment. If you buy a house just because the price is attractive so that it can be sold when the price rises, it is a trade.Less than 1% of active traders earn more money than a bank fixed deposit over a 3-year period. While this percentage seems abysmally small, it is, in fact, similar to the success ratio of ordinary businesses; just that the ease of entry entices a large number of people to give it a shot.

              Time & Money

Markets can remain irrational longer than you can remain solvent – John Maynard Keynes

The best traders I know are those who stopped trading when they knew that either they are not good at it (they lost money) or they didn’t enjoy it. They didn’t wait for huge losses to force them out of trading. Like how not everyone can play a sport or make music, or run a successful business for a living, not everyone can profit trading the markets. Stock markets are like a black hole where you can potentially lose unlimited amounts of money if you aren’t good at trading. So make sure to define and stick to a sensible stop loss, an amount you can afford to lose, and a time period you will wait to turn profitable, more so, if you are a beginner.

 Have a stop loss

Two basic rules when trading: (1) if you don’t bet, you can’t win. (2) if you lose all your chips, you can’t bet – Larry Hite

Interviewing some of the best traders in the world — “you should make sure that you don’t lose more than 1% of your trading capital on any trade”. The larger your losses get on a trade, the higher the chances of you acting irrationally during or after the trade, so much that it can potentially ruin your trading career.

And for those who buy call or put options, placing a 1% stop is only possible if your buy option trades are never more than 2% to 3% of your trading capital. Remember, buying naked options is almost like buying a lottery ticket. If you had one lakh rupees, how much of it would you spend on buying lottery tickets?

Stick with the trend

In trading, what is comfortable is rarely profitable. – Robert Arnott

Intuitively, we are tempted to buy stocks whose prices have fallen and sell those which are expensive. While it might be a decent strategy when investing for the long term, it reduces the odds of winning when you trade short term. Stock prices tend to trend, i.e., move up or down in one direction for long periods. Going against the trend — buying a falling stock, or selling one that is going up, is a bad trading strategy.

A common beginner strategy is buying stocks which are at their 52-week low. The thought process being that the prices that have fallen are bound to bounce back up. This is probably one of the worst trading strategies ever. While we are all wired in our heads to buy when something is on sale or has a big discount, the optimal way to trade stocks is buying those that are doing well (going up) and selling when they are not (going down).

Averaging down is a wealth destroyer

Don’t throw good money after bad.

“Averaging down” is when you buy a stock at 100 and buy more as the price falls, say, to 90, some more at 85, and so on; buying more in hopes that a bounce will help recover the losses faster. Unfortunately, hope isn’t really a trading strategy. Stock prices tend to trend (go up or down for long periods), and buying more as it goes down may work out once in a while, but is generally a losing strategy in the long run. Buying more of the falling stock is essentially you trying to fix a trading mistake, which could have been avoided by having a stop loss. What makes it worse is that retail traders typically end up selling stocks which are profitable to average down on ones which are losing (also called the Disposition effect).

At least when you average down on stocks, you can afford to give it time to bounce. But when you buy stock or index options that have a limited time to expire, this strategy of averaging down is a sure-shot recipe for disaster.

Leverage is a Weapon of mass destruction

Money can’t be the goal; it has to be the process.

Leverage (including futures & options) is trading with more money than what you have. It is extremely dangerous in the hands of someone who doesn’t know how to handle it well. While it might lure you into believing that you can make substantial returns quickly when right, the fact is, you can go broke on a single bad trade if you’re over-leveraged. If you speak to any active trader who has stopped, he or she would most likely tell you it was because they traded with too much leverage. If you do decide to use leverage, make sure to use it sparingly and only when you are really confident about the trade. Even then make sure to have that stop loss!

Combining fundamentals with technicals

Buy on rumours, sell on news

Many beginner traders start their journey in the markets by learning fundamental analysis, the most popular strategy being Price to Earnings (PE) ratio. While fundamental analysis is an excellent way to invest for the long term, it isn’t for short term trading. For example, stocks that have a low PE can maintain that low PE and keep going lower for extended periods becoming even more attractive, while the stock price continues to fall. If you did wish to use fundamentals, it is best to mix it with some Technical Analysis (TA).

TA is based on the fact that markets discount everything and is reflected in the price (you don’t wait for the news to buy, you buy when prices go up (rumour) and then sell when it goes down (typically when the news is out)). Most TA strategies don’t let you trade against the trend. So by mixing in TA, if you did decide to buy a low PE stock, you would buy it only if the price of the stock is going up. For example, if the price is above the 50-day moving average (a simple TA strategy) — a trading strategy with much higher odds of winning than buying a stock just because it is low PE.

Just trading the price irrespective of what the stock is, isn’t a good strategy either. Penny stocks (companies with less than Rs 100 crore market cap and mostly with no real business) are wealth destroyers as well. These stocks are generally manipulated and tend to go up fast and then down even faster without even giving you an opportunity to exit. If Fundamental Analysis is part of your trading strategy, you’d end up avoiding such stocks.

Avoid stock tips

Always start at the end before you begin (think of all possible outcomes and be prepared before taking a trade). Professional traders have an exit strategy before every trade. – Robert Kiyosaki

While “advisors” who claim that they can give you stock tips that can generate high returns or make you quick money are a dime a dozen, it hardly ever plays out that way. When trading on a tip, you wouldn’t know the reason to enter, and hence wouldn’t really know when to exit, the most crucial part of the trade. Most of us are terrible at following advice as well, which means if you somehow found an advisor who gives good tips, you might still not follow it properly. Either way, this generally doesn’t work out well. Also trading on tips is almost like being spoon-fed, your learning curve and growth as a trader suddenly plateaus. More importantly, the bulk of the unsolicited stock tips dispensed on social media and as text messages are “pump and dump” scams. These scammers drive the stock price up by generating hype via tips, only to dump large blocks they hold at a profit at the expense of the traders who fall prey to it.

Diversify your portfolio

Don’t put all your eggs in one basket.

If you are creating an active trading portfolio of stocks, ensure that you don’t have more than 10% of your trading capital in any one stock. Make sure that not more than 25% of the portfolio is exposed to a single sector. While diversification might reduce returns, it also reduces risk. Lowering risk has to be the most important prerogative in the first few years, as a beginner trader. Think of it this way: you have to go through 16 years of education before finding a job. Similarly, you need to give yourself time and chance to learn and grow as a trader. But you can get that time only if you survive trading long enough, and that is possible only if you reduce the risk as much as possible.

Compulsive trading & bet sizing

Many times, no trade is the best trade.

Trading is extremely addictive. Most traders enter trades just because there is nothing else to do that was more interesting or exciting. It is imperative not to become a compulsive trader. Take breaks whenever you feel trading is taking over your life. If you are finding it tough to stop trading altogether, reduce your trading size to 1/10th when you know you are trading just for the heck of it.

By the way, this strategy of changing the size of the trade based on the situation is called “bet sizing”. Essentially, not trading all the time with the same quantity — decreasing bet sizes when you have a drawdown (losing streak) or when you’re not confident, and increasing them when you are on a winning streak and confident about your trades. Having a bet sizing strategy will improve the odds of you being a winner significantly in the long run.

Alternate income to improve your odds of winning

Confidence is not ‘I will profit from this trade.’ Confidence is ‘I will be fine if I don’t profit from this trade’. – Yvan Byeajee

If trading and making money is tough, making a living off trading is many times tougher. Very few succeed under the added pressure of having to earn from trading to put food on the table. This decision of trading for a living should be taken only when there is large enough trading capital, a source of income to cover your lifestyle, and hard stops in place. Even when all this is in your favour, it isn’t a decision to be taken lightly. The alternate source of income could be from a fixed income instrument, rental income, a salaried job, or anything that reduces pressure on having to earn a profit on every trade. In my experience of meeting countless traders, most of those who were profitable were also those who had another source of income.

And finally, remember that trading isn’t life. Trading is an exciting way to generate income. If you don’t enjoy it or are losing money trading continuously, stop it. Don’t let bad trades or missed trades affect your personal life. As they say, opportunities always look bigger after they have passed. And remember, there is always another trade; if not on the stock markets, something else entirely.

If you are a beginner, make sure to go through Varsity, our education portal on everything you need to know to get started trading and investing. For those trading for a while, make sure to go through this collection of Innerworth newsletters on trading psychology. They are amazing. If you have any follow on questions, you can post it here on TradingQ&A.

Happy trading,