My Interview with Terrible Mr. X – Lessons on What NOT To Do in Stock Market

Disclaimer: This article is a piece of satire, a figment of my imagination. But it is still an expression of what I see in the real-life stock market and how most people behave when it comes to investing their hard-earned money. Any resemblance to any living person is purely coincidental, though I would love to meet that person and interview him.

Today is January 1, 2045…so happy new year, tribe members. I hope you had a great start to the year, and hope that you manage to take your resolution(s) past the first 30 days of January.

Anyways, I recently got a chance to interview one Mr. X (not his real name), who has been in the stock market for the past 35+ years – starting 2007 – but has NOT been able to create wealth over such a long time. In fact, net-net, he has been a loser after more than three decades of playing the stock market. And he continues to play it, as he believes that there’s no easier way of making quick money.

I love the patience and perseverance that he has shown all these years in losing money and never learning from his mistakes. And that’s why I thought he was a great interview material. Why?

Around six decades back, in 1986, Charlie Munger gave the commencement speech at Harvard School, where he took inspiration from a prior commencement speech given by Johnny Carson. In that speech, Carson used the principle of inversion to tell students how they could guarantee a miserable life. His prescription was –

1. Ingesting chemicals to alter mood or perception;
2. Envy; and
3. Resentment

Charlie Munger, in his speech, added four more suggestions to lead a miserable life –

1. Be unreliable;
2. Ignore the experience of others, and learn everything you possibly can from your own personal experience;
3. Go down and stay down when you get your first, second, and third severe reverse in the battle of life; and
4. Ignore the advice of the rustic who said, “All I want to know is where I’m going to die so I’ll never go there.”

As my friend Anshul wrote in a brilliant post thirty years back on principle of inversion, where he mentioned how answers to many difficult questions can be arrived at by simply re-expressing the questions in inverse form.

So, asking “what not to do” can often be a more powerful mechanism to arriving at solutions than asking “what to do”.

It is in that spirit that I bring to you this interview with Mr. X, who has been a terrible investor for the past 35+ years (calling him an investor is a shame, but anyways). He presents a great lesson and example for wannabe investors on what NOT to do in the stock market.

Mr. X confessed to me that this was the first time he was ever being interviewed, because all interviewers are obsessed with only successful people. He is shy, and that’s why he was reluctant to share his photograph with me. But I convinced him and he sent me this 25-year old photo of his, though he claims that he still looks almost the same.

Anyways, let me start with the email exchange I had with him recently before heading to the interview…

Wed, 28-Dec-2044 9:27 AM
Mr. X iamtoosmart@smartmail.com
Re: Request for an Interview…

Dear Mr. X,

Trust you are doing great.

First, here’s wishing you a wonderful 60th birth anniversary! May you live a great, peaceful life ahead.

I have received the answers to the questions I asked you for an interview for Safal Niveshak readers…

…and those have been enlightening to say the least.

You are a great lesson to every investor on what not to do in the stock market. If only a few of my readers are inspired from your story and DO NOT walk the path you did, the purpose of this interview will be solved.

Thank you so much for your forthrightness. I’ve never met someone as candid and helpful in my journey as an investor.

With great respect,
Vishal

---

Sat, 31-Dec-2044 8:59 AM
Vishal K vishal@safalniveshak.com
Re: Request for an Interview…

Dear Vishal,

Thanks for your wishes!

It would be my privilege that you share my interview with your readers. As I mentioned, I have never ever been interviewed in my life, so thanks for this opportunity!

By the way, happy new year 2045 in advance!

Regards,
X

---

Let’s now jump straight to the interview.

Safal Niveshak (SN): Before I pick your brains on investing, can you please share something about your personal life and career?

Mr. X: First of all, thanks Vishal for inviting me for this interview. It’s an honour for me, because nobody has ever cared to interview me as an investor in my life, so this is a great chance for me to share all my lessons learned over the years.

Let me now talk a bit about myself. I belong to a middle class family. In fact, there was a time when we were among the well-to-do families in my home town. But because of the great losses my father incurred in the stock market in the Harshad Mehta crash of early 1990 and then dotcom bust of early 2000, we lost almost everything.

But an eternal hope remained that we could get back our wealth from the stock market in the same way we lost it…and that was my inspiration.

SN: Are you saying that losing money in the stock market runs in your family?

Mr. X: Not really. It was just my father and a few of my uncles who played the stock market during those days.

SN: Well, that’s what running in the family is all about. Anyways, please continue.

Mr. X: Oh yes. So, my father lost everything in the stock market, but kept playing the game. It was his persistence in trading and speculating in stocks that inspired me a lot. I learned much more from seeing what my father and uncles did than I learned from reading books.

SN: Yeah, it shows in your miserable investment track record in the stock market over the past three decades.

Mr. X: Yes, it seems so. Anyways, coming from a well-to-do family in those days, my father never wanted me to get into a job but join the family business that was flourishing. But here is where I never took his advice, and thus took a job straight out of my engineering college.

The software industry was booming those days – it was the year around 2007-08 – so I settled for a project manager job at a leading Indian IT company. Working in a beautiful campus, and then the sight of seeing my first paycheque was so great…

SN: What did you do with that…your first paycheque?

Mr. X: Well, I still remember that day. We had Internet banking in those days, so we received salaries straight in our bank account. So the first thing I did after getting the salary was to transfer about half of the same to my best friend…

SN: Wow, you gifted half of your first salary to your best friend! I wish they made such friends these days!

Mr. X: Not really! The half salary that I gave to my friend was towards repaying part of the loan I had borrowed from him to buy my first stock…on which I lost almost 80% of my money.

SN: You bought your first stock on borrowed money, and that too before you got your first salary?

Mr. X: Oh, not just my first stock, but I bought many more after that using borrowed money. I had learned this art from my father. But since he was also short of cash, because he was in debt for the money he borrowed to buy his own stocks, I never dared to ask him for money for my own stocks. So I borrowed from my best friend.

SN: And how did you manage to lose 80% of your money on that stock?

Mr. X: Well, that was not my fault. I had invested almost all my money, plus borrowed money on that real estate stock in around 2007. It was rising like crazy, and a lot of my other friends and uncles had bet on it. And since I trusted them a lot, I bet my money on that one stock.

And then 2008 came. We went through one of the worst crashes in the Indian stock market history. The stock crashed, and I lost money. So not my fault at all. Though I was lucky because after I booked an 80% loss, that stock fell another 50%.

SN: Looking back now, you still believe it wasn’t your fault investing, I mean betting, on a bad business during the mania of 2007?

Mr. X: Bad business? Well, as I mentioned, I bought it because my friends and uncles were buying it in loads, and I trusted those people a lot. Plus, understanding what a business is all about has never excited me, and it was the same during that time as well. Why waste time reading about businesses when you can make money in the stock market without it?

SN: But you never made money in the stock market in these past 35+ years, right?

Mr. X: You may say that because net-net, between 2008 and now 2044, I have never made money in stocks. But there were several times during these years when I made a lot of money trading in stocks. Like I made a lot of money after I bought that real estate stock in 2007 and till it crashed in the middle of 2008.

SN: But that was just on paper, right?

Mr. X: So what? I still made a lot of money. Isn’t that enough?

SN: Well, that’s what you think. Anyways, please continue.

Mr. X: Okay. Coming back to my job, it was very hectic in office those days. But I was happy because, thanks to my hard work, I got constant promotions and thus salary hikes. In fact, my salary in 2012 – five years after I joined my first job – was three times my starting salary. So I earned a lot, and that helped me bet more and more on stocks.

SN: You must have made money starting 2009 right? This was when the Indian markets started recovering after the 2008 crash.

Mr. X: Yeah, a lot of paper wealth you see. This time I was much smarter than in 2007. So I borrowed very less money to buy stocks.

SN: I just don’t get this habit of yours of borrowing money to buy stocks. What made you do it every time?

Mr. X: Well, that’s simple mathematics. If I can borrow money at 15% interest rate in a year and earn 40% return on that money from my stocks in the same year, a simple calculation would suggest that I have made a net return on 25%, right? So my Rs 100 invested will rise to Rs 25 at the end of the year.

But see the magic of compounding. If I continue to grow that borrowed Rs 100, on which I pay Rs 15 as annual interest, at 40% return, my wealth after 10 years and after repaying that borrowed Rs 100 would be Rs 1,745.

SN: But this is only in hindsight, right? How do you know when you are borrowing money that you will certainly earn 40% on it every year and for ten straight years? In fact, if you earn 40% annually for the first seven years on such money and lose 40% annually in the last three years, after repaying the Rs 100, you will be left with just Rs 21. Plus you would have paid Rs 150 in interest in the previous ten years. How do you explain that?

Mr. X: See there are a lot of ifs and buts in investing, but you have to work with certainties when it comes to the stock market, isn’t it?

SN: Oh! All these years, I thought one needs to work with probabilities and not certainties when it comes to as fickle a place as the stock market. You have turned my learning on its head.

Mr. X: I don’t know from where you have learned this concept of probability, but I have never understood this, so I never applied this to my investing too.

SN: Okay, leave that. Let’s talk about your process of stock selection. Can you enlighten us with how did you do that?

Mr. X: Well, my stock selection process was very simple and straightforward. I bought any stock tip that came from my broker, whom I trusted as much as my friends and uncles. I always believed, and still believe, that whatever he recommended was good for me. Plus, I watched a lot of business channels and read a lot of newspapers, so those were also sources of stock tips for me.

In fact, thanks to my broker and those smart guys appearing in business media, at one time my stock portfolio went to around 85 stocks. Just the act of adding another new stock in my portfolio was so nice. You see, I love novelty, and have used that a lot in my stock picking. I have also invested in most IPOs for listing gains. Though I did not make much money there as well, but just that wait for seeing the first-day gains was exciting enough.

And then, I used to see a lot of technical charts and made my decisions using them, but only after my broker validated the same.

In all, I have always been a believer in working smart and not working hard, so I have let the smart guys do the hard work for me for my stock investing too.

SN: Wonderful! And you lost a lot of money on those stocks you bought on tips and seeing those charts, right?

Mr. X: No, as I mentioned, I made a lot of paper profits every now and then. I lost money net-net. But just the excitement of making quick money without doing the hard work gave me the kick to continue doing what I was doing.

Over the years, I have bet on everything that looked exciting – real estate, biotech, ecommerce, green energy, futures and options, and of course, commodities.

I’ve lost money everywhere, but I have never lost the excitement.

SN: And you love it so much that you continue to do that even now, 35+ years after you started doing it.

Mr. X: Well, yes. In the initial part of my career, my mentor – also a stock broker – told me that I should keep working on things with complete patience and persistence, and one day I will get positive results.

As far as my stock market investments are concerned, that day has not yet come when I can see positive results. But then, I remain patient and persistent and thus I keep doing what I was doing 35 years back. In fact, I just invested 25% of my money on crude oil futures. An analyst just recommended the same on television yesterday.

SN: 25% of your savings in commodities, and that too, commodity derivatives? You seem to have deep pockets and a big heart.

Mr. X: Well, no deep pockets here. As I mentioned, we were a well-to-do family before my father lost almost everything in the stock market. We are middle class family now. I have managed to save some money for my retirement, plus now my sons is also working. So, while his salary is used to meet household expenses, I use a large part of savings to bet on the stock and commodity markets. I am old now, so I don’t borrow anymore, so that I can sleep peacefully at night.

SN: Great to know that at least you have corrected your habit of borrowing money to trade the stock market.

Mr. X: Well, that has happened by default. I have no friends now who would lend me money, and so…

SN: Leave that. You said you invested in all exciting industries and companies over the years. Did you ever think of investing in companies with moats, I mean, solid business with competitive advantages?

Mr. X: Oh yes, I remember investing in some of such moat stocks in 2014-15, again on my broker’s advice. He told me that these were great businesses and that I could buy them at any prices. So I bought some of them very cheap. But sadly, even those stocks have never made me money.

SN: You bought great businesses cheap, and still you haven’t made money? How did you manage that?

Mr. X: Well, that’s what is still surprising to me. I bought a few good names from the consumer goods space…some businesses that sold stuff like pressure cookers, innerwears, garments, shoes, housing loans, motor bikes etc. and I paid just about 75-80 P/E for those stocks.

SN: Wow, you understand P/E and you think 75-80 P/E was cheap!

Mr. X: Well, yes, when a business was growing at 100% every year, and as long as its story was exciting, loved by everyone in the media and also liked by most stock market experts.

I used the PEG ratio then. Not sure if all of your readers are that smart, but if the earnings of the business is growing faster than its P/E, the stock is cheap on a PEG basis. And that’s how I bought such great businesses cheaply then. Now it’s another thing that I sold some of them at a 50% gain after one year of holding and a few at deep losses after a few years.

SN: So you have held stocks for years?

Mr. X: Well, that entirely depended on what the stock was doing. I sold stocks after making 50-100% return quickly, and held on to the ones that went down 50%. I hope you remember this quote from Warren Buffett who said that an investor must never lose money. So all my losses were only on paper. And then, I reduced them by averaging down on my losing stocks.

SN: I think Mr. Buffett said that you must not lose money permanently, but he never said that you should hold on to bad businesses to get your money back.

Mr. X: In that case, I think you need to read Mr. Buffett again. But anyways, I have held on to some stocks for 5-10 years because these came down 50-80% from the original purchase price and I did not want to convert my paper losses to real ones.

SN: So you got back your money from those stocks?

Mr. X: Well, no. Remember what I said about patience and perseverance?

SN: Oh yes, how I could forget that! Anyways, can you talk about your biggest investment mistake, what caused it, and the lessons you learned from it?

Mr. X: I believe in life being a long journey of making mistakes, so I have never gotten tired of making them. Plus, I believe that I learn more when I make the mistakes myself, instead of learning from someone else’s.

So I have made a lot of them, the biggest being sitting on some stocks for many years. Though they were making me money and also paying dividends, but that robbed me of the excitement of making the same or more money by trading in derivatives, where my friends were making so much money.

SN: So what led you to hold on to these few stocks instead of using that money to trade in derivatives?

Mr. X: My promise to my wife, who got angry seeing me stressed out day and night looking at the stock market. I kept the promise for about 5-6 years (while secretly also trading with some money), but then broke it completely in the next bull market. I was so happy to get back to what I loved doing.

SN: What are the 10 big lessons in investing that you would like to share with others, especially people who are starting new in the stock market?

Mr. X: There are more lessons to share, but since you have restricted me, let me list down just ten of them –

1. Work smart, not hard. Avoid wasting time researching businesses, and instead buy stocks on tips.
2. I don’t know why people say otherwise, but you must blindly trust your broker’s advice. Like mine, he is your best friend and has your best interest in mind.
3. Go for what is working – like stocks that everyone is talking about and are rising the most. It’s very safe at the center of the herd. You should follow the trend.
4. Be willing to pay any price, however high it is, for a good business. In the long run, any mistake you make this way will be washed away.
5. You must go to the stock market with an open mind. So try your hands at derivatives as well. You can make quick bucks there. Don’t be disappointed if you lose a lot of money because, over a period of time, this will make you mentally stronger.
6. Avoid reading investing books. Read stock prices. They are your best advisors.
7. Avoid long term thinking and play the quick game. It’s exciting and lot of people make lot of money doing it.
8. Have more than 30-40 stocks in your portfolio so that even if a few go bad, you are still saved.
9. Never lose money. Hold on to your losers and hope that they come back again someday. Better, average down your costs whenever you can. But never lose hope.
10. Don’t listen to your wife or anyone who wants you to invest for the long term. They just don’t know how enjoyable is the kick that trading and making quick decisions can provide.

SN: That was wonderful! I would not like this interview to end but then time is limited. But before I close, it’s customary for me to ask this – can you recommend any books for young investors? Books that have inspired you?

Mr. X: I have not been much into reading, but I would suggest youngsters to read the following three amazing books –

1. Sensex 100,000: The New Strategy for Profiting from the Coming Rise in the Stock Market
2. Sensex 200,000: Fact or Fiction
3. Make Money Doing Nothing in Stock Markets

SN: Are you planning to write a book yourself?

Mr. X: Well, this interview gives me some confidence…so I may write one soon. And I just thought of a couple of title ideas too – How to Win in the Stock Market, or Games You Can Play with Your Money.

How’re these?

SN: Oh, as wonderful as you are! Thanks anyways Mr. X. I’m sure my readers would take lessons (and seriously) from your long and expensive experiences in the stock market. And I pray some of them stay far away from what you have done over these years.

Mr. X: Well, I’m not so sure. What I have done in the stock market is so exciting that I am sure most people will follow my path, like most have done in the past. Thanks anyways for this opportunity!

---

So that was my interview with Mr. X. I am sure you loved reading it as much as I loved taking it.

Let me know your biggest takeaway from the stock market experience of Mr. X in the Comments section of this post…and maybe also share what characteristics of Mr. X do you already possess, and what you are doing about it.