Sunday, April 13, 2014

Sunday musings: have an exit strategy from a ‘Chakravyuha’

Of all the stories and incidents related in the epic ‘Mahabharata’ there are none more valiant nor tragic than the story of Abhimanyu. While still in the womb of his mother, Subhadra (who was Lord Krishna’s sister), the yet unborn son of Arjuna heard and remembered the details of a defensive military formation - called ‘Chakravyuha’ - being related by his father.

Unfortunately, Subhadra got bored by her husband’s military discourse and dropped off to sleep. Seeing this, Arjuna stopped his explanation right at the most crucial part of how a warrior can extricate oneself after successfully penetrating the ‘Chakravyuha’ formation.

Abhimanyu grew up to be a valiant and skilled warrior under the able guidance of Arjuna and Lord Krishna. He was considered an equal of his father in archery. In spite of all his knowledge and skills, there was a fatal flaw in his education. He never had the occasion to learn the exit option from the ‘Chakravyuha’.

During the Kurukshetra war, the Pandavas were decimating the Kaurava army and annihilating their strongest warriors. In desperation, the Kauravas decided to kill Yudhishthira by luring him inside a ‘Chakravyuha’ formation. Since Arjuna was the only one who knew how to break through a ‘Chakravyuha’, the Kauravas distracted him in battle and challenged Yudhishthira to enter the ‘Chakravyuha’.

Sensing danger to the life of the Pandava king, a teenaged Abhimanyu volunteered to enter the ‘Chakravyuha’ with his own army. But he fought so skillfully and valiantly that he progressed well inside the spiral formation leaving much of his army far behind. The Kaurava warriors used the opportunity to surround him. Alas, Abhimanyu did not know how to extricate himself and died fighting.

Many small investors enter the stock market without having a proper exit strategy. Entering the ‘Chakravyuha’ is easy. But inside the formation are skilled and experienced warriors like Rakesh Jhunjhunwala, Ramesh Damani, mutual funds, FIIs – just waiting to slaughter investors who don’t know how and when to get out.

How to sell, when to sell, how to stop a small loss from becoming a larger one, when to stay invested with a trailing stop-loss are skills that must be learned before committing big money in the market. Otherwise, like Abhimanyu, survival in the stock market will be a short one.


Hiren Banker said...

Few years back I went to a local stock broker with my father-in-law. It looked like a pensioners place and all those old guys were trading small time. Thats where I heard one of them say that when you lose in the market, you'll learn it. The stock market is very ruthless, like Shanidev, be disciplined or it will punish you so hard that you'll remember.

Bharath said...

Hello Dada,
How are you ? Hope you are doing well. Well after a recent rally most of the portfolios would have raised up significantly ... well now as you said its time to plan for exit strategy as well. Now I feel a fear of losing the gains as well after seeing portfolio in Red for last 4-5 years. Can you please write a blog on exit strategy as well ...? I am on swing between exiting prematurely on a long bull run or remaining on a opium-high on back of election euphoria..

Rajasekharan N. said...

Sorry, FYI, the narrator was Lord Krishna himself and not Arjuna as said by you. And the narration was truncated purposely as well!

Subhankar said...

@Hiren: Thanks for your comments. Stock market is a tough teacher - but like all good teachers it rewards you well if you learn your lessons.

It is ruthless when you keep repeating your mistakes.

@Bharath: Good to hear from you. I had written a post: "Learn the Art of Partial Profit Booking" back in Sep 2009. Links to two previous posts are there as well.

Please go through the 3 posts and the comments. Most of your doubts and questions will get answered.

If not, please send me an email with your specific queries.