Book Reviews
Book Review: The Risk of Trading

A real-life view of trading risk


A lot of people know risk in real life. You know that you’re in danger when you’re in front of a speeding train. But do you, as in investor, know whether your savings are in danger after buying some financial instrument? Risks can creep up and hurt us, financially, because they’re invisible. While risk management is taken somewhat seriously by companies, it is generally missing at an individual level. Most investors rely on their gut feeling to measure risks. This book by Michael Toma  makes the case for a more ‘data-driven’ approach to risk management. In other words, analysing past data and making statistical inferences to manage risk will yield better results. While this may be true, it really depends on your style and discipline; because, eventually, risk management is all about the process and not just the numbers cranked out after feeding in a bunch of formulas into the system. Maintaining a journal is an integral part of the process as it inculcates the habit of recording (and learning) from every trade. At first glance, the book appears academic. Besides being heavy on text, it has questions at the end of each chapter to ensure that readers have understood the chapter. The book is divided into three sections. The first introduces the reader to the concepts of risk management. The second delves into the practical applications of data analysis and the final part deals with the psychological aspects of risk management. If you are interested in the concept of risk and want to know the history of how humans have handled risk, look no further than Peter Bernstein’s excellent book Against the Gods. However, if you want a book specifically for improving your trading or investing habits, this book could come handy. 




4 years ago


I just finished reading your review of "Makers" by Chris Anderson.

It was a great review. This brief review has touched on many core topics which programmers (hackers) and startup entrepreneurs are talking about these days. For example services vs manufacturing is analogous to consumption (content consumed or time wasted on facebook / twitter) vs production (producing something tangible, perhaps a blog post or even a product), 3D printing, open hardware (Arduino).

In general these topics are talked among programmers - but I was surprised and delighted to read about them from a non-technology journalist. The above technologies are new and you seem to have researched about them from the web - which is a good thing. Your mention of Wired also highlights that you have done fair amount of research on this.

Thanks for such an excellent write up.

Mutual fund regulations: Who contributes the most to equity inflows is overlooked

Independent financial advisors contribute the most to new equity fund inflows especially from beyond 15 cities. Yet the regulator chooses to ignore this ‘small’ distributor community by coming up with regulations that harms their business

Around 77% of the total equity assets under management come from the top 15 cities, according to CAMS MFDEx data (accounts for 91% of industry). In the top 15 cities most of the fund inflows come from independent financial advisors (IFAs), national distributors, and private banks; each of them contributing around 27% to 29% of the total fund inflows from the top 15 cities. From beyond 15 cities, IFAs’ contribute the highest share amounting to 55% of the total fund inflows. Direct investors contribute just 5% to the total assets in both the categories. On consolidating the data, IFAs have contributed the highest to the total equity fund inflows for the period from April 2012 to September 2012. IFAs brought in 33% of the total equity fund inflows followed by private banks and national distributors which brought in 26% and 23% respectively. Other distributor categories brought in less than 6% each. But yet the regulator ignores these facts coming up with regulations that go against the distributor fraternity and impacts the industry as a whole.

Here is why we feel the Securities and Exchange Board of India (SEBI) has a history of coming up with half-baked ideas. In August 2009, when SEBI banned entry load, the worst affected were the IFAs. With their commissions taking a hit many IFAs went out of business. Three years later, in order to increase penetration, SEBI allows fund houses to hike TER (total expense ratio). Our analysis has shown that a hike in TER stands to benefit the fund house the most and the earlier entry load worked out to be a better option for long-term investors. (Read: Much-maligned entry load was a cheaper option!) Instead of incentivizing the channel that has the highest penetration in beyond 15 cities, the regulator has done just the opposite by striking a blow at their business and introducing a direct plan.

The IFA community has also written a memorandum to be sent to AMFI and SEBI against the introduction of the direct share class. They mention that the abolition of entry load brought a major blow to the IFA community and that their income shrunk by three-fourths of what it used to be. This led to a huge exodus of IFAs from the industry. A number of active ARN holders shrunk drastically post-August 2009 directive. The proposed regulation of introducing direct share class and offering lower TER for direct investors would result in devastating effects for the IFA community. Their existing high net worth clients would shift to the direct route and would result in a loss of revenue for them. “With dwindling revenue, an IFA would find it difficult to remain afloat and soon abandon the business” they mention in the memorandum.

Though, at present, direct investors contribute the lowest to new equity inflows, it would be interesting to see whether the SEBI’s new plan would be able to increase the contribution of inflows from the direct route. A lot depends on the magnitude by which the TER of the scheme is reduced. Fund houses knowing that their distributor community contributes the maximum may not reduce the TER to an extent that it would cause investors to switch to the direct plan.

To read other research done by Moneylife on mutual funds, click here.

The direct route would be beneficial in the long run for investors but then that too would come at a cost. Direct investors may find it difficult to keep up with the various changes in regulations and documentation process without an advisor. There are various servicing activities like change of address, change of bank mandate, consolidation of folios, transmission of funds, inclusion of nominee, handholding on minor investments, arranging for periodical statement of accounts, correction of mistakes in the account, change in KYC, change in contact information, etc that are carried out by IFAs for their clients. Direct investors would have to do all of it by themselves.


Sales contribution from



National Distributors

PSU Banks

Other banks

Regional Distributors


Top 15








Beyond 15




















4 years ago

It was a great mistake to abolish entry load. It is given to understand that churning was the reason which prompted such action but it was ill conceived and half thought action. Leave aside financial products and think of anything other than the spiritual or social services given by a few holy souls in this world what is given free and who works for somebody without expecting remuneration by whatever name? Why should the public servants get salary? Further as in any other field free advice/service is available in every field from our friends, neighbours, relatives and social servants. They could have done this work also for the public. It was absurd to think that only mutual funds schemes should be sold without paying any commission to the agent and all other products, services may it be financial or otherwise can be sold with any amount of commission without any knowledge to the buyer. What is the situation in medical, education field? Who else declares the profits he earn by selling anything? Only 3/4% money is invested in equiry or equity related products. Why this sudden love towards these 3/4% investors developed leaving balance 96% of consumers of various products and services to the mercy of manufacturers, sellers and those things? Banks are in business for last more than 50-60 years and have branches everywhere in India. Everyone knows bank and who wants an account opens it. Everything is direct. Still RBI has formulated and allowed banks to create channels like Business Facilitators and Banking Correspondents paying fee/commission to them. From where this commission come, ultimately from the customer's account. This is contradictory. Why we can not find a person, organization or govt. body which can think about this disparity. Ok, if you want it to make direct and without any kind of payment on account of commission etc. to anyone make it in post office, life and general insurance, banking, RBI bonds, all private schemes and also make compulsory for all manufactures of pin to aeroplane to print amount of profit earned by manufacturer, distributor, retailer etc. on the bill. At least they should learn from the experience of PFRDA.

Suiketu Shah

4 years ago


MF is fine provided the agent provides positive service and adv to the client.Most agents fool customers into MF9there are 500 of them) into those where they get higher commission even at higher NAV etc.This is why most investors decide to play safe with FDeposits.If one needs to be in equity,shares is not so difficult with wonderful research by companies like moneylife.Im afraid to say MF is a dying industry thanks to the patheticallt agents(majority of them ,not all) who make more money than the customer.We strongly agree to disagree.



In Reply to Suiketu Shah 4 years ago


Investing is an act of faith. Mutual funds are not for those, who are not willing to put their ‘trust’ along with their money into mutual funds. However, those who have reposed unflinching trust in mutual funds and held on to them steadfastly through thick and thin have done well for themselves.

Mr. Shah, request you to ‘also’ read another article on moneylife titled “Indian retail investors tend to lose in the stock markets”.

Indian MF industry is on the death bed, not because there is something inherently wrong with the nature of MF industry. – But, because it has been brutally damaged from outside.

I am hopeful, you shall reconcile. The sooner you do, it shall be profitable for you. There is no compulsion to invest in mutual funds though.


4 years ago

As a mutual funds distributor please allow me to First and foremost say a BIG thank you to The Moneylife Team. Thank you MDT for the empathy.

This is perhaps the only article in the past four years, which has not listed us as some kind of crooks and whatnot. . . I can’t thank you enough for treating us, mf distributors with basic courtesy and respect for once.

To say that the past 3 -4 years have been tough would be an understatement. Yet the powers that be, do not want to define how much commission is fair and adequate for mobilizing money into mutual funds.
– But, How is it okay to offer more compensation for mobilization from Tier2 cities. It is rotten idea, not a half-baked one,

A mutual funds investor who follows asset allocation can NORMALLY expect to double his investment in 4 – 6 years time. In this period the agent use to get between 1% - 2.25% as a onetime upfront commission + 0.5% on annualized basis till the investment is alive. – Anyone who says this arrangement is unfair needs to undergo a mental check up.
If this upfront commission is deducted by the AMC from the investment amount and paid to the agent. What is wrong? Where is the problem? Why is it allowed to happen in Life Insurance & General Insurance?

Some intellectuals claim entry load is anti-investor. How can entry load be anti – investor?
Rather than penalizing the wrong doers they chose to strike at the entry load and positioned entry load as anti-investor.

Just consider the bad press we, as mutual funds distributors have been receiving from those very guys who have been merrily collecting advertisement revenue from speakasia and also a foreign bank charged for criminal offence and money laundering in the USA. Worst the mis-selling of some now gets glorified as ‘sharp selling’.

Economy & Nation Exclusive
Indian steel producers are being 'forced' to import iron ore

For the first time in history, Indian steel companies are forced to import iron ore as domestic production has almost come to a halt, courtesy the Shah Commission report

In an irony, several steel/pig iron producers from India, which is the third-largest exporter of iron-ore, are increasingly looking to import the main raw ingredient. Main reason is that the steel makers are finding it difficult to procure iron ore, especially following complete ban on mining in Goa and lingering restrictions on mining in Karnataka and Odisha. This is forcing them to import iron ore from other countries, when India has one of the largest reserves of iron ore.


The steel industry across the world is in doldrums due to decline in demand, especially from China. India was one of the major exporters of iron ore to China. However, due to steps taken by the authorities to clean up the mining sector, and slump in demand, domestic steel producers are being forced to procure raw materials from abroad.


Several overseas miners, like Brazilian Vale, BHP Billiton and Rio Tinto Group are looking to increase shipping to India. In July, Vale, the world's largest producer of iron ore, shipped 3 lakh tonnes of pellets to India, the first such instance in past several years.


“We believe iron ore lump shortage will be significant in the next two to three years. Given the lump shortage, we expect significant pellet/lump imports in the next two to three years. Signs of such activity are already visible. We expect the trend to gain strength in the next two to three years until new pellet capacities are commissioned," said Standard Chartered Equity Research in a note.

Incidentally, about 90% of NMDC’s recent lump ore e-auction was reportedly unsold as Indian steel mills resorted to capacity cuts due to lower profitability. During 2011-12, iron ore production in India was 169.66 million (provisional) as against estimated consumption of around 116.3 million tonnes by domestic iron and steel industry.


According to a report from Reuters, India's role switch is one reason for a rebound in iron ore prices, which this year fell below $87 a tonne, their lowest since 2009 due to China's slowing economic growth. India's iron ore exports to China fell to less than 300,000 tonnes in October—the lowest in at least two decades—after the ban in Goa. That followed a mining ban in Karnataka in 2011, after shipments there were halted a year earlier, the report says.


While the present iron ore production in the country is in excess of total estimated consumption, domestic steel producers are finding it difficult to procure it with ease. According to reports, steel and pig iron producer such as Essar Steel and Sesa Goa are increasing looking to import iron ore. JSW Steel is also procuring iron ore through e-auction at higher costs.


Earlier, Essar Steel's chief executive Dilip Oommen told DowJones that iron ore imports will be a significant portion of the total iron ore supplies in the current fiscal. “Iron-ore prices globally are quite conducive for imports, and we have already started importing shipments,” Mr Oommen has been quoted as saying by Dow Jones Newswires.


The Federation of Indian Mineral Industries (FIMI) estimates India’s iron ore exports in FY13 at 40 million tonnes (compared with 55 million tonnes exported in FY12) citing non-renewal or non-issuance of mining leases as one of the main reasons.

Meanwhile, Indian steel mills have continued to cut prices on the back of continued sluggish demand, rising inventory and a fall in raw material (coking coal) prices. Flat product demand has remained particularly subdued.


For the week ended 24th November, long product prices declined 0.9% on a week-on-week (WoW) basis to Rs34,500 per tonne, while sponge prices decreased 3.2% to Rs21,000 per tonne on WoW. Hot Rolled Coil (HRC) Mumbai prices (import parity) increased on currency depreciation and uptick in international prices although imports have become uneconomical as domestic prices at Rs33,500 per tonne are at much lower levels due to poor domestic demand.


Globally, during the week, steel prices were mixed, declining in China (down 0.6% WoW) and Turkey (down 3.5% WoW), while continuing to increase in North America (up 1.6% WoW) with some uptick in North Europe (up 1.1% WoW).

The Justice MB Shah Commission, appointed by the Union government to probe illegal mining in Goa, has reported a Rs35,000 crore fraud in the state. Even the Supreme Court, hearing a public interest litigation (PIL) filed by social activist-turned-politician Prashant Bhushan, has banned mining in Goa until a Central Powered Committee completes a probe. Since 5th October, mining in Goa has come to a standstill, with the state chief minister Manohar Parrikar clearing stating that mining would not be restarted till the apex court decides to.




4 years ago

I am afraid, it may not be proper to accuse the Shah Commission report for this situation without inquiring as to why there is a compulsion to import ore from abroad. I am afraid, it is too genealist an approach to blame the commission's report.

Bikram Duggal

4 years ago

I don't think that we should pay inordinate attention to the rising iron ore prices etc. The issue that needs to be understood here is that for the long term benefit of the country it is important that we should clamp down till we have transparent mechanisms in place for the iron mining sector to ensure that the public wealth is not looted on a/c of policies made behind closed doors by politicians who cannot think beyond the next election (that is doubt full as well sometimes)..

Shadi Katyal

4 years ago

This is India where left hand doesn't know what right is doing and we talk of becoming an industrial nation.One wonders where are the dreams of millions to find jobs,education and health while in 6 decades we are unable to provide potable water.
It seems at times that India is still being run as a colony and such reports show the lack of knowledge of what an industrial nation requires???
Would we always be enslaved by such rules>????

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