Madras Stop Exchange

This week’s topic is how to get rich.

When you talk of the rich, you cannot but help think of people like Mukesh Ambani, Vijay Mallya and Kumaramangalam Birla. How did they get to where they are now? What is the secret behind their astounding success and unimaginable riches? Is it sheer hard work? Hehehe, perish the thought. We are talking of people like Mallya here.

Yes, you are right, their respective dads left behind for them a huge empire.

As far as I can tell, the best route to acquire wealth is to inherit it. Today if some of us are not rich, then the original mistake is that of our parents.

So what do we do? Adopt a new set of parents.

Hahaha! Just kidding. Luckily for us, there is hope. Because there is the stock market, which is the still the second best avenue, next to open robbery, to become rich fast. Not many people, however, dabble in shares because deep down they are ashamed to use terms like Sensex.

Fear not. Here’s a quick primer that dispels your doubts and unravels the mysteries of the stock market:

Stock Market:  The moment you decide to take a jump into the stock market, the most elementary thing to do is to ensure that you land safely. This is the advice a fireman would give you. But as you must realise I don’t work for the fire department, so I would merely tell you to understand the various investment options in a bourse.

Stock market is the place where they keep track of the local weather. I mean there is no more keen trackers of monsoon than those who operate in the share market. Yesterday, the markets tanked because the forecast on the monsoon front was bleak. But today the share prices perked up on the hopes that Modi might make it as the Prime Minister. Linking the two, it would seem that the BJP are fighting the elections on the plank of, I don’t know, rain-bearing clouds.

Some of the other things that have a direct impact on stock market operations include: Fighting in Afghanistan or Iraq, Lokpal Bill, Rajinikanth’s health, Digvijay Singh jokes. Actually anything can affect share prices. In general — you can quote me on this —rolling of a dice is less random than stock market operations.

Debentures: When you decide to invest in the stock market, you have to make up your mind on whether to park your money in shares or spread yourself on bonds and debentures. Most experts, primarily me actually, would advise you to stay away from debentures for the simple reason that nobody has really understood what they stand for.

The official definition of a debenture, I am not making this up, is: ‘The ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. Like other types of bonds, debentures are documented in an indenture.’ Unable to crack this, most stock markets have stopped trading in debentures.

Shares: When you plan to put your money on shares, the basic thing to do is to evaluate the company you have set your eyes on. How does one understand the intrinsic value of a company? Some misguided mentors will tell you to take into account the P/E multiple of the company.

‘P/E stands for Price/Earning multiple, Here the price is the current market price of the share and the Earning is the EPS of the company. A P/E multiple of the stock shows the times that the market is willing to pay for the present earnings of the company.’  If you can decipher the meaning hidden somewhere in the above dense lines, then you would actually be president of SEBI. So the P/E ratio actually doesn’t work with common people like you.

But a prayer or two can help.  Don’t complain that you are an atheist. Actually, you can find more rational things in organised religion than in stock market operations.

Mutual Funds: You have the money. Somebody else has the market expertise. In classical economics, this situation benefits none because there is no transfer of skill or wealth. But when these two forces combine, the wheels of economy are set in motion, and he gets the money, while you acquire the expert knowledge: Never ever trust a third party. This is broadly the basic framework of mutual funds operation.

When you invest in a company, you do so at your own risk. In a mutual fund, you place the money in the hands of highly qualified share market wizards, who, using all their trade experience, will park the same money at your own risk and take a hefty commission for doing so.

There are two kinds of mutual funds: Open-ended and close-ended. When you opt for close-ended funds, you will think that you would have been better off with open-ended ones. And when you pick open-ended funds, you will see merits in close-ended ones. This market rule clearly establishes that none of it actually works for you.

This is all to the basic stock market fundas. Now, all you have to do is rustle up several bags of rupees and go to the nearest stock market (you can identify it from the name board outside) and begin investing. When you end with a lakh, do feel free to call me.

But don’t tell me that you started with a crore!

PS: Even as we are about to finish writing this piece comes the news that the 76-year-old Madras Stock Exchange is set to close down shortly. This is indeed shocking. Not the least because we never knew that the city had an operational stock exchange all along.