Business Risk and Trading Risk

I like reading Traderman diaries so much that I do it at least once a week. This is what Traderman wrote on the 27th of October, a market holiday.

9:00 a.m I am so excited. I am getting to meet with Broker "X". He wants to start a prop desk and wants me to head it. Boy I cannot wait for 4p.m to happen. (Dear Diary I cannot reveal the name even to you. It is TOP Secret. If other prop traders come to know about it they might undermine my pitch)

11:00 a.m Making a ppt is so boring. Why cannot people just take my word for it instead of asking me to detail returns and drawdowns for the last few years

3:00 p.m What should I wear? A T shirt and Jeans or should I go the formal route? Will he be getting his cute secretary along? Unlikely. Today is a holiday. I will go with the Tshirt and Jeans.

6:00 p.m Fck! What a waste of time! Well not a complete waste. I did have a chicken club sandwich and a nice cold coffee with icecream at his expense! But how could I help it? This guy eventually turned out to be like all others I have met. They talk about prop and then ask me to set up an institutional broking desk. I asked him how much was he willing to invest to set up institutional broking and when does he expect to breakeven? Can you believe it? He was willing to invest upto 5 crore a year in salary costs, marketing expenses and other fixed costs for the first two years without expecting anything in return. He said that he was in it for the long term and he knew that empanelments take time. He expects a breakeven only at the end of the third year!

I told him give me a prop book instead which can lose 5 cr per year for two years and I will most probably make 10 cr in two years. Can you believe what he told me??? He actually told me that he could not take the risk of losing 5cr. How ironic! He is willing to spend 5cr into a already crowded institutional broking business and he thinks it is an investment and not a risk. When I ask him for a 5 cr stoploss for my prop book it is a RISK in capital letters. Why can't he realise that the 5cr investment in a crowded space is as big a risk (and I am being kind here. It is a bigger risk if you ask me) as a 5 cr stoploss in prop?

I told him that Infosys is covered by 67 analysts compared to say IBM which is covered by only 29. Why did he think that a 68th analyst would add value to clients? Was there a need for it? He told me that his company will do research better than others and he is confident that clients will see the value in his work and reward him for it.                                                       I told him that there is no hope in hell of him setting up a profitable institutional desk. He told me that he did not need a loser like me to tell him what he can and cannot do. This piece of friendly banter ended our meeting.

6:30 p.m Fck Fck Fck In that friendly banter I did not even show him my ppt. I am glad that I just cut paste some silly spreadsheet into that ppt and did not work too hard at it.

7:00 p.m May be I should call him to ask what salary he could pay me to head his institutional broking?  The poor loser is going to lose money. Why shouldn't I make some of it!

8:00 p.m I hate holidays!!! I went long on Tuesday when Nifty futures crossed 5163. But I bought puts to protect me during the two day holiday. Now Singapore Nifty is trading at 5430.... at least 5% above my purchase price. I should have made 5% but might end up with at best 2% because of the stupid puts! 

9:00 p.m I do not understand the European solution to their problem. But then I am not certain many people do. I think the fact that the meeting ended with a statement that had the words "solution" and "unanimous agreement" in the same sentence was enough for the markets to rally.

10:00 p.m Hey!! What do I do if that cute girl from CNBC calls me and asks for my view on the European solution. She has never done that before but it pays to be prepared. I better surf the net and get my answer ready.

10:30 p.m Fck the surfing. My motto is work smart not hard. I think I will just read some analyst's analysis of the European solution. I am sure that tomorrow my mailbox will be flooded mails on this.

11:00 p.m I should remember to delete my internet browsing history.... 

That was the last entry in his diary yesterday. I am looking forward to the market today. The key now is to see whether Europe continues to gallop after that resounding rally yesterday.