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Sunday, May 24, 2015

Sunday musings: Why Eklavya’s sacrifice should be a warning about trading in stock or index futures

The epic, Mahabharata, has many stories and incidents that reveal man’s inhumanity towards fellow humans. The well-known story of Eklavya’s sacrifice is a classic example.

For those not in the know, or have forgotten what they had heard from their grandmothers when they were small children, here is a quick recapitulation.

Eklavya was a low-caste hunter who had ambitions of becoming a warrior. So he sought to learn archery at Dronacharya’s martial arts ‘school’. Dronacharya was appointed by the king of Hastinapur to teach the Kaurava and Pandava princes.

The brahmin Dronacharya refused to teach the low-caste boy. The third Pandava, Arjuna, who was Dronacharya’s favourite pupil, shooed Eklavya away by saying that a low-caste person was not fit to learn along with high-caste princes.

Eklavya was disappointed but not disheartened. He built a clay model of Dronacharya and installed it in a forest clearing. He regularly practised archery in front of his model ‘guru’, and became an expert archer within a few months.

One day, a barking dog disturbed his practice. In a fit of pique, he shot a few arrows into the dog’s mouth. The dog wasn’t hurt too badly, but stopped barking. By chance, the Kaurava and Pandava princes were on a field trip in the same forest. Dronacharya and Arjuna came upon the dog with a mouthful of arrows.

Astonished by the sheer skill of the archer, they sought and found Eklavya practising. When asked who his teacher was, Eklavya pointed to Dronacharya’s clay model. Arjuna was very upset at finding an archer with better skills than him. Dronacharya was secretly happy but to pacify Arjuna, wanted Eklavya’s right thumb as ‘guru dakshina’ (teacher’s fees).

The young boy cut off his own thumb without hesitation. Dronacharya blessed him and said that Eklavya will still be a great archer – which he became by learning to shoot arrows with his forefinger and middle finger (much like modern archers do now).

Moral of the story? Entering into any venture may seem easy at the beginning. Skills can be learnt by perseverance and hard work. But future consequences often depend on the skills and mental acumen of competitors.

Does that mean avoiding any venture due to the fear of competition? Obviously not. But weighing possible future consequences and having an appropriate strategy before starting out can save you from financial disaster.

Most small investors lose their shirt in the F&O market because of their failure to weigh future consequences. Particularly in the futures market, the risk of making a huge loss far outweighs the easy margin entry and possibility of making some quick profits.

Remember that competitors in the F&O market are typically large institutional investors and HNIs with huge resources in terms of money, research and experience. They will beat you regardless of your skill levels.

Want to make money in the stock market the easy way? Read this post.

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