Why there are more losers than winners amongst Indian players in the Indian Stock Markets?

The stock market is virtually a zero sum game. Let's consider that all stock market players, instead of trading from their trading terminals distributed across the globe, are trading in a closed hall and no money leaves or enters the hall. Although various amounts of money keep moving from one trader to another, the total amount of money in the hall remains the same.

This means that if some traders gain money in some corners of the hall, some other traders must have lost that money in some other corners of the hall because the total amount of money in the hall remains the same.

But the money keeps on entering and leaving the hall.

The money that enters the hall consists of (a) Dividend payout by the companies whose papers are being traded in the hall and (b) fresh investment inflows by traders.

The money that leaves the hall consists of (a) STT , service tax on brokerage, stamp duties etc. (b) expenses of all brokers, broking houses, stock exchanges, depositories and other intermediaries, SEBI, mutual funds, financial advisers etc. (c) household expenses of traders themselves who have no other income (d) investment outflows by traders (e) THE BIGGEST OF THEM ALL, supply of fresh paper by needy / greedy corporates.

If the money inflow into the hall equals the money outflow from the hall, the stock market becomes a zero sum game. That is, the gains of the winning traders will be equal to the losses of the losing traders. If the inflow is greater than the outflow, there will be net winners and if the inflow is less than the outflow there will be net losers in the hall.

Let us now compare the money entering the hall with the money leaving the hall.

There can absolutely be no doubt that Part (a) of the money entering the hall is far less than Parts (a) , (b) , and (c) of the money leaving the hall. This leaves us with part (b) of the money entering versus parts ((d) and part (e) of the money leaving. That is net investment (investment inflows - investment outflows) by traders versus supply of fresh paper by corporates. If net investments by traders exceeds both the supply of fresh paper and net expenses ( all expenses - Dividend payouts) there will net inflow of money into the hall and winners will exceed losers. However if the net investments fail to match the supply of fresh paper as well as net expenses losers will exceed winners in the hall ( By amount of loss and gain and not necessarily by number of winners and losers).

Moreover net investment by traders and supply of fresh paper are more like Sundry debtors / creditors portion of a Balance Sheet rather than income and expenditure portion of the balance sheet.

Since the income and expenses portions of the money flow into/from the hall is always negative, the losers will always exceed the winners (by amount of loss and gain) in the hall.

Now let us return the traders from the closed hall back to their original places and the situation does not change at all.

Hence The Stock Doctor believes that there are always more losers as compared to the winners in a stock market. Apart from this another reason and an equally valid one is that the dice is biased in favour of one set of players i.e. Foreign institutional investors.

They pay less taxes and are equipped with much better tools to play with. They have extremely sophisticated computer software and automatic options trading programs at their command which most indian players have, forget seen, not even heard of. When the dice in biased in favour of one set of players, the other set of players is likely only to lose more than win.

(The term traders above also includes investors)

To change this, either the stock market system has to reduce its total expenses to below the total dividend payouts by the corporates whose paper is traded so that everybody can win or the Indian players must play with even better tools as compared to those available with FIIs.

Stock Doctor helps the sufferers of the stock markets in recovering their loss through better use of options and reduction in execution costs.

So if you have suffered loss in the Stock Market, do not lose heart, contact the Stock Doctor, fight the market movements and the chances are that you will succeed.

Do not forget to bring a printout of your outstanding position from your broker(s)