So scream the headlines today.
The question is, do investors actually lose so much money when the markets fall and do investors make money when the markets rise?
The stock market index, Sensex, has risen from a level of 57,721 as recorded one year ago (One calendar year) to hit a high of 85,978.
Today, it fell by just over 2% from the previous close closing at 82,497 points.
If you look at it, the index, even today, stands at 24,776 points above the 52 week figure recorded one year ago.
These headlines are there to scare you. They don’t tell the real story.
If you had purchased the index itself 52 weeks ago, at 57,721 and sold it today, you would have made a profit of 24,776 rupees per rupee invested.
So, if you held 1000 shares of BSE Index, purchased at 57,721 you would have invested 5,77,21,000 and if you had sold today, you would have got 8,24,97,000, a profit of 2,47,76,000/- (Two Crores Forty Seven Lakhs Seventy Six Thousand)
Investors only make money and lose money when they actually sell the shares they hold. Till that time all loss is notional loss.
Just like the 1,47,000 Crores 2G Spectrum loss declared by CAG Vinod Rai.
So, the question is do people lose money?
Yes, the traders and the speculators, who trade in F&O (Future and Options) contracts, which are derivative contracts that have a time value, do lose money. They make money too.
But SEBI report has indicated that 93% of all F&O traders have lost money in the last 30 months or so and the quantum of loss is 1,80,000 Crores!
Half of this loss is due to brokerage charges (the brokers are laughing all the way to the bank and therefore you can understand why they want almost everyone to open a Demat Account and trade), STT (Securities Transaction Tax), GST and Stamp Duty. The last three are incomes for the government.
Thus if F&O Traders lost 1,80,000 Crores, then 90,000 Crores went to the brokers and the Government. The ratio is around 50:50.
That means the government earned around 45,000 Crores by running this casino in the name of price discovery. The brokers, like Zerodha, Motilal Oswal, Angel One, Groww and host of others earned 45,000 Crores.
Traders only made 45,000 Crores and most of the traders who made money were technology driven traders who used high speed algorithmic trading to score profits.
To scream that investors lost 9,76,000 Crores is patently wrong. Investors don’t make money until they book profit and don’t make losses until they book the loss.
Real investors don’t do trading. They invest with a three to five to ten year horizon and unless something goes drastically wrong with the company they have invested in, they almost always make money.
