Category Archives: Panic

Matrix Diaries

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Hey.

I think…

…you’ve pretty much understood…

…that we’re buyers in this whole mess.

I’d like you to add one more word to your understanding.

We’re…

…fearless…

…buyers.

We were not always fearless.

The human being is born with fear built in as a protective emotion.

During the process of rewiring, we wired this emotion out.

How does one do that?

Before I delve into it, wish to reiterate the we.

Who’s the we here?

Everyone who gets taught forward in this space and from this space, and then goes on to implement successfully, that’s the we. Why do such a thing? Gives me a kick. What’s a good life? A collection of meaningful things that give one a kick, implemented repeatedly.

Now imagine a matrix.

We are in the matrix.

Outside the matrix are all things that cause us fear.

Inside the matrix we implement our strategy without fear.

We have built systems that have automatically thrown out of the matrix all things that cause us fear against acting in the markets.

First we created a safety net. An emergency fund. Perhaps two. Out went fear of existence.

Starting with a small networth, we plunged into the markets. Luckily, we tasted failure fast, and lost it all, broken down, emergency fund to fall back on, young, enough energy and will power to bounce back. Now we had a model of how not to do it. We knew where we didn’t want to land up, and understood somewhat how not to do it. The experience of a blow-up and the knowledge of how not to do it made more fear exit the matrix, as we itched to get back into the game.

Slowly we built a system. Incorporated models. Saw what worked. What didn’t work for us exited. Model developed a slight edge. Tasted some wins. Confidence started to grow. As it grew, more and more fear exited.

Then came replication. Would the model work again? It did. Would it work bigger? Scaled up a bit. Working. Till not working. Fine-tuned. Working again. Knew we had something now. Came a black swan and its aftermath. Model excelled. Realized we were anti-fragile. Whatever was left of fear was now outside the matrix. We were tready for all out implementation.

And that’s where we are functioning from in this crisis.

If you say might last a year, no fear, we silently implement. We’re liquid because the model creates liquidity in good times. Two years? Still no fear. Liquidity might run out after 18 to 20 months, probably, but that’s the whole goal, to be fully invested, as per a model in which one has high conviction. Three years you say? We say still no fear.

The biggest money is made by…

…sitting…

…and we didn’t say this first. Someone you look up to did.

We’ve learn’t how to sit. Sitting is an integral part of the model.

While we sit, we do many constructive things. Since we’re investors, while we sit, we invest heavily…

…in OURSELVES.

Do the math.

Fool?

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I don’t mind.

What?

Being called that.

Why?

For me, it’s an indicator.

How?

When someone in my environment expresses that he / she considers me foolish, this acts for me like a guage.

Where?

In order formulation.

Which?

Good till traded orders.

Explain.

Ok. Let’s say someone considered my 787 GTT HDFC Bank entry foolish. With price having fallen to 745, and still not showing signs of stability, someone might consider me foolish for having entered ‘early’ at 787. I want this to happen. I want to sense this attitude in another person’s behaviour.

Then?

Simple. Formulate and enter next GTT for HDFC Bank at 690.

What’s the logic?

That’s just the way I use this indicator.

Position-sized small quantum?

Absolutely.

Considered bulk-entry at bottom?

What’s the bottom? Who claims to know the bottom?

499?

No idea. How do you know you’ll catch the bottom? What if you miss entry altogether?

What if I get full entry in lumpsum, at 499?

What if price stays below 400 for a month after that? Your lumpsum entry will hardwire you to your terminal, and it’s one month of sleepless nights, I can promise you that. Neurosis. Psychosis. Freeze. God knows how long it will be before you can take another rational decision.

And your staggered full entry with a higher buying average will not cause all these things?

That’s the whole point. It will not.

It will not? How?

Market psychology is counter-intuitive. When are you going to understand this one basic point? Going in, let’s say ten times, between 800 and 499, over three months, at every new entry, the nervous system forgets older price. It focuses on newer price, not even on buying average. It actively registers one small quantum entry at 499 as per this strategy, and forgets other entries above, at least forgets them well enough to suit the purpose. Bottomline – such a nervous system is poised to avoid neurosis, psychosis and the like.

You’re just making this up.

Try it out. This is what works for me towards full strategy implementation. I am able to successfully fool my nervous system into buying maximum units without setting it up to hurt itself, should the market fall more, and stay lower for longish periods. This is my win, and a cornerstone of my lowering the buying average strategy in high conviction stocks during crises. Tested successfully during CoViD. No more testing. Current crisis is about full implementation. Will keep this buying strategy on through the entire crisis, or till fully invested, whatever comes first.

Why put in everything?

This is money sidelined to go in. It’s not daily resources money, or college fund money, or family expenses money. It is investing money. It’s supposed to go in. What’s better for it than to go in low?

Where is the courage coming from?

High conviction is a state of mind. It’s a reflex. Over time and over many, many studies, observations, behaviour analyses etc., you develop it for a stock. Once you have high conviction in a stock, nothing should come in between you and full entry, if price allows.

Am still trying to decided whether you look foolish or intelligent?

Though I don’t care for your opinion, I don’t mind it either if you give it to me, for I will use the encounter as an indicator.

Is that what you’ve gravitated down to, using ridiculous and self-concocted indicators to navigate the markets?

Doing things which no one else has before sets me up for vindication no one else has gotten before. No more questions, do the math.

Miners

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Hey.

We’re miners.

We mine for…

…margin of safety.

Surprised?

As in, can one mine for…

…something abstract?

Sure, no biggie.

Ok, bear with me on this.

Entry quantum = shovel.

Wedge it in deep enough = Good Till Traded (GTT) Order = Poise.

Emotional sell most likely on open or on close = mined material falling into basket.

GTT executed = margin of safety mined successfully.

All the time?

No. In times like this, specifically, when there’s blood on the streets.

Isn’t margin of safety already available in times like this?

Yes it is. However, we want to mine for extra on top of what is available.

Like your yesterday’s experience with the HDFC Bank GTT hit well below trigger, a couple of seconds after open?

Exactly like that. Oh, there’s another add on.

Tell me.

We buy with a lag.

Meaning?

Let’s say something’s fallen big, and has come on our radar owing to levels broken.

With you. Then?

We let it fall for the whole session, setting up GTT only after the session, and placing GTT around 4 to 5% below close. Time and price lag.

Isn’t that way below?

That’s the whole point. An emotional sell will hit, and then price will stabilize.

What if no hit?

Possible. Good with that. What’s also possible is, there could be no hit for two or three sessions, and then there might result a soft execution. We’ve still mined the extra margin of safety, even though it’s taken us a few more sessions.

What was your experience with the recent HDFC bank buy?

GTT was set up on 2nd March, for 809, when price was at 887.

Just fishing in the air or what?

Didn’t want it at 887. Wanted it at 809. That’s all there is to it.

So, 78 points were mined, that’s almost 8.8%, wow!

Hold on. There was so much emotion in play, that scrip opened at 770, a massive 72 points below previous close, order triggered at 773 a second or two later, and was executed at 778 after some more seconds. So that’s about 12.3% mined. It took 17 days and 13 trading sessions. By the way, the extra 12.3% mined goes a very long way.

Explain.

In 25 years, at 15% per annum compounded, it compounds to 4 times plus the entire sum that’s gone in just now.

Tremendous!

Welcome to the world of compounding, and that of…

… mining.

Specialization

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Hey.

Calls have started coming in.

Am I doing ok?

Is the panic getting to me?

Am I going under?

I was waiting for this.

Calls of this nature, coming in, are a fantastic guage for the onset of panic.

You see…

…I specialize in guaging panic. You could call me a fall-specialist. A crash is my field of action.

During the crash in CoViD wave 1, I categorized two levels of panic.

Level I was classified as middling panic and identified at the point when calls were coming in asking if people should cancel their systematic investment plans. Aversion to invest with blood beginning to flow on the streets. Noted.

Level II was classified as grave panic, and identified at the point when calls were coming in of the nature, that now that all companies would be bankrupt, why was I still putting in money, into the markets? Questioning the whole financial system. Noted too.

In current scenario, questions about my health followed by queries about which stocks to invest into, after I had answered with a ‘never been better’ reply, for me, corresponds to level I of panic, identified.

Am still waiting for those other calls, asking why I’m putting in money when everything was going bankrupt anyway. Probably coming soon.

So, what’s the course of action, now that level I prevails.

We take it up a notch.

Meaning?

Look harder for entries.

Weren’t you already entering?

Yes, but wasn’t trying very much. Was letting the market punch me hard into an entry.

Meaning?

I’ll give you an example to drive this point home.

Ok.

HDFC Bank, right?

Right.

I had a GTT on for the last many sessions for entry at 809. Wasn’t coming. GTT remained. Either the market socked me into this position, or I wasn’t entering. Happened this morning. Triggered during open, at 773, executed at 778. Market pushed me into the position with force. I let it.

And now?

Will leave myself open to a lesser force push. Will put nearer GTTs, let’s say ~3% away.

If such prices don’t come?

Then not interested in entries.

What happens at level II of panic?

Even lesser force required to enter. Only GTTs lesser than 1 to 2% away perhaps. Many entries.

How come you are so liquid?

This approach creates liquidity during good times. Entering with small quanta now, as compared to networth. Can go on buying for more than one year from this point, if required. Such is the strategy.

Good to know, thanks for sharing.

Mind you, buying during panic does take a toll on one’s psyche. One needs to recuperate and regenerate. It’s not as easy as it sounds. I try very hard though, to recover mentally before the next session. Wish to last very long in the markets, …

…successfully.

Mindset

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How long is this lasting?

Everyone’s asking.

I have another question, …

…since no one knows the answer to that above question.

My question is, …

… as far as your market strategy is concerned, …

… why are you even asking?

Just implement your strategy na.

Asking means you don’t know what to do.

Which brings us to some more observations.

‘Don’t know what to do’ state of affairs is digestible, …

… if this is your first time.

First time as in first time facing such conditions.

Conditions?

Panic. Confusion. Sell and ask later mindset. Gullibility. Mass hypnosis. Massive spin-doctoring. Etc.

If you’ve seen such stuff before and haven’t devised a plan for next time round, you are not excused, but please do so now.

If you’ve been through all this more than twice, and still don’t have a plan for situations like this one now, well, maybe you should rethink your market foray. Are you in the right space? Are you doing it out of compulsion? Keeping up with some Joneses? Whatever applies. Rethink. Shape in, put a strategy in place for market crashes, or, shape out, meaning, do something else where your expertise is challenged, and emerges forth naturally.

It boils down to rewiring.

What boils down to rewiring?

One’s behaviour during a crash.

Not panicking? Coolly implementing set strategy? Liquid enough, exactly for such situations? Not looking over your shoulder to see what strategy someone else is implementing? Not asking others for opinions? Implementing your own, mapped course of action without regret?

Great. That’s a fantastic mindset to have earned.

Such a mindset is going to take you places when mass psychologies reverse.

Wait and watch.

Yawn

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Mass hypnosis…

…sweeps psychology…

…into a space where common sense…

…goes out of the window.

Such is the power of a pseudo ideology vis-à-vis a public that is now constantly in fight or flight mode.

Since CoViD.

Vaccinations.

Constant pursuit of growth at any cost.

Next story.

Next story.

Next story.

Let’s spin them a yarn.

Not any yarn.

A yarn that looks very realistic. Cut to ten years ahead, and the yarn probably alters current reality to a yet uncertain level. However…

…it’s not true NOW, in the shape it’s being spun and sold.

Masses are lapping it up. No need for implementation proof, no need for some years of field testing, perhaps at least five, antibiotics take ten in the actual world, no need for anything, no discounting for blunders, just spin it and we’ll lap it up. Ok.

Please do so. We, on the other hand, shall take huge advantage of your mass gullibility, masses. That’s why we remain liquid, for exactly these mass hypnoses.

Yes, we are buyers for Indian IT.

We’ll be buying till the bottom and slightly beyond.

We are fearless. Over more than two decades, we have created conditions for ourselves, mentally, in our environments, financially, which have thrown fear out of the equation.

Our strategy is one that benefits from ridiculous crowd behaviour. Again and again, we’ve gone against crowds, and emerged with multiples, financially free to take our principals out and deploy these into the next mania, panic, or whatever have you.

And so shall it be this time.

We are liquid enough to keep buying Indian IT, with small entry quanta, right to the mid single digit PE levels. Yes, we have that conviction.

Why?

First up, track record. 40 years of successful navigation through disruption. This disruption is different you say? Replace billable hours with a 1000 times more outcomes coupled with handholding, and revenue streams make billable hours look like dust particles. This one para just breaks the back of the story being sold. Do I think it’s possible? Yes. ‘Necessity is the mother of invention’, and the companies we buy have track records to prove that they are capable of emerging in the avatar that is required.

Then, poise. Zero or quasi zero long term debt. Massive free cash-flow per annum on the balance sheets, i.e., the conditions and means to R&D one’s way through. And, why is the public discounting the last five years that have been laden with exactly such R&D? Why is the public further discounting the level-headed input of Indian IT into AI? Owned billions put in with equilibrium. Indian approach. Borrowed trillions thrown in without looking left and right. Western approach. BIG DIFFERENCE.

Then there’s Buffettology. Tried and tested. Down the ages. Value. Deep discounts. Quality. BUY. HOLD. Beats most growth pursuits without having to look. Time and effort requiring growth pursuits are another story, and those pursuing them also become slaves, as in they don’t own their time. WE DO. WE OWN OUR TIME. HUGE WIN.

We are independent, and this current panic shall enhance our level of independence financially in the medium term, which is when we will pull out our current principals going in now, leaving part of our multiples in the market for further compounding.

Pulled out principals will then be deployed into the next panic.

One can already feel it brewing.

No Pharma required anymore. AI and implants will cure everything.

No Auto sector required anymore, it’s merged with the AI sector, or, better still, Auto is now AI. Forget Auto. Invest in AI. You automatically get Auto. Aviation. Tourism. Banking. Everything.

Etc.

New bottles. One after another.

Same old wine.

This time is always different. Ok, keep it rolling.

We’ll just keep doing our common sense thing each time, which is deploying, making a multiple, and then pulling our principal out.

And repeat.

Pigs

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A structural component of markets…

…are its hands.

There are weak ones.

Then, other hands are strong.

Weak hands can be snatched from…

…easily.

They panic fast, and throw their holding during mild turmoil, …

… they are afraid, …

…not possessing holding-power, because they haven’t created the circumstances, and have prematurely jumped into a market.

Buying without margin of safety is one such premature jump.

Without fundamental, technical and / or general knowledge are others.

They are the mythical ‘pigs’ that get ‘slaughtered’.

Evert cycle produces new ones.

The ‘pig’ of one cycle eventually goes on to become a strong hand of another future cycle.

Strong hands know.

They study fundamentals, or technicals, or are generally savvy from experience, having developed market intuition. Strong hands have come prepared, perhaps, with a combination of all these traits.

They are liquid.

The’ll buy through the fall, piece by piece.

You can’t throw them off, …

…because they have holding-power.

It didn’t come for free, for once upon a time, they too were ‘pigs’ that got slaughtered, but they survived to live another day, learn, and rebuild.

As we grow in market experience, our hands tend to get stronger.

Some ‘pigs’ don’t make it to the next market.

Their slaughter moment might come late, paralyzing them financially, with no time, or energy, or both, to recover.

Some just give up on markets after an early slaughter experience.

We need to make many mistakes, early in the game, by sheer doing, learning, and not repeating, these. Early on, the numbers that we play with, are generally small. That’s when we need to get fatal errors out of the way.

As our numbers grow, and as our hands become strong, we then position ourselves…

…to thrive in the markets.

Any market.

Secret Ingredients in Times like Corona

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Hi,

It’s been a while.

Unprecedented times call for every iota of resilience that’s inherent.

Whatever we’ve learnt in the markets is being tested to beyond all levels.

If our learning is solid, we will emerge victorious.

If there are vital chinks in our armour, we will be broken.

Such are the market forces that are prevailing.

Have we learn’t to sit?

Meaning, over all these years, when over-valuation ruled the roost, did we sit?

Did we accumulate funds?

Did we create a sizeable liquid corpus?

If we did, we are kings in this scenario.

One of the main characteristics of a small entry quantum strategy is that it renders us liquidity, almost through and through.

If we are amply liquid in the times of mayhem, there is absent from our armour the debilitating chink of illiquidity.

Illiquidity at the wrong time makes one make drastic mistakes by succumbing to panic.

We’re not succumbing to any panic.

Why?

Because our minds are focused on the bargains available.

The bargains are so mouth-watering, that they are entirely taking away our focus from existing panic.

To twist our psychology into the correct trajectory in a time like Corona, the secret ingredient that’s required is called (ample) liquidity. This secret ingredient is a direct result of the small entry quantum strategy, which we follow. 

Then, let’s address the other potential chink, and just sheer do away with it.

Having access to ample liquidity, are we now greedy?

What does greed mean?

It’s not greedy to buy when there’s blood on the street, no, it’s actually outright courageous. 

Greed Is defined here as per the quantum of buying.

Are we buying disproportionately vis-à-vis our liquidity-size and our risk-profile?

Yes?

Greedy.

No?

Not greedy.

How will we know the answer without any doubt in our mind that we have the correct answer to this question, since it is vital to our learning curve to answer this question correctly?

The answer will make itself felt.

Are we able to sit optimally even if markets crash another double-digit percentage from here?

50% from here?

No? Greedy. We have bought in a manner that doesn’t gel with our risk-profile. Our liquidity is exhausting, and focus shifts from bargains to panic. Ensuing tension amidst further fall will very probably cause us to commit a grave blunder, with this happening very probably at the bottom of the market. We are poised to lose in the markets like this. 

Yes? Not greedy. We have bought and continue to buy as per our risk-profile. We will win…

…in the markets.

The secret ingredient that locks in great prices and continues to do so as the market keeps falling, is called quantum-control as per the tolerance level of our risk-profile towards further fall. This secret ingredient ensures that liquidity outlasts a longish fall, keeping our focus on the bargains and not on the panic. This secret ingredient provides for the basic mechanism of our small entry quantum strategy.

Going beyond the P-Word

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Hey,

You panicking?

Why?

Don’t.

How?

To go beyond panic at a time like this, you’ll need to be amply liquid. 

And, then, you’ll need to have the guts to engage. 

One way for remaining liquid for life is to follow a small entry quantum strategy. 

Since we’ve spoken about such strategy ad-nauseum in this space,…

…yeah,…

we won’t be going into the nitty gritty of how the strategy works for the moment. 

In a nutshell, our small entry quantum strategy leaves us liquid, and then some. 

What exactly is a time like this?

Well, Benzes have started to go for the price of fiats, and…

…that’s why we need to…

…engage. 

Forget your pain, pinch or panic. 

Buy…

…quality that’s going for a song.

Now.

Keep buying such quality for as long as the cheapness lasts. 

Year, two years, three, four, bring it on. 

When you engage in this manner, you’ll have gone beyond all your P-words. 

Wishing you lucrative and happy investing!

🙂

Evolution Anyone?

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What kind of a game do you prefer?

Do you like to play without challenge? Where you won’t be pushed, to your limit perhaps? Where you know the solutions? Where you’re king?

Or, do you like the game to challenge you? The game pushes you around. You don’t know the solutions. You’re not king. Do you like that kind of game?

Why am I asking?

Well, simply because I concern myself with growth. 

As in evolution. 

I measure life in evolution per unit time. 

The latter kind of game evolves you. You score heavily, though this might not show on the outside, yet. It will eventually. Big time. Promise. 

The former kind of game deceives you. You kinda start believing you’re actually king, and start behaving like one too. The fall from a height can be so heavy, that it can decapacitate you, forever. Who would want that? Not even you. But you’re too busy playing king to remember. This is the reminder, right here, right now. 

Wake up pal, to the coffee. 

Play some latter games. Try converting loser odds to winning ones. That’s the big league. 

If you’re king, fine, be a good one. Do good to many. Make it count. In your spare time, though, do some other stuff which takes you into uncharted territory. That’ll round you off as a king. 

What is it about uncharted territory?

Eventually you’ll find yourself in one. It just happens, suddenly. 

What do you count upon?

Assets. 

Ability to not panic. 

Clear thinking. 

Savings. 

Relationships. 

Gut-feel. 

Courage. 

Mental strength. 

Fill in the blanks. 

All of the above have to be developed / nurtured. In some way or the other, all of the above come by charting new territories. A new relationship is nurtured into a solid life-long asset. A new job becomes a steady earner. Savings accrue. Mental / intuitive assets strengthen themselves by being exposed to tricky situations. These will always be there for you, in your next situation. 

Don’t be a bore. Take that calculated jump. No one’s asking you to jump off the cliff. However, times are such that you’ll need to think out of the box, again and again, and again. 

Speed of Rise vs Speed of Fall

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Specifically, equity markets have this one repetitive characteristic.

Their average speed of rising is lesser than their average speed of falling. Much lesser, I would say. 

Why?

Falling has to do with selling pressure being more than buying pressure. Selling pressure is connected to fear. Add caution to fear, and one has already sold out. 

Rise has to do with buying pressure being more than selling pressure. Buying pressure is connected to optimism. As markets keep nudging higher, slowly, optimism turns into euphoria, with a hint of caution. This caution slows the speed of rising, till greed takes over in the last stage of the rise, and one fails to see any caution anymore. At this time, the speed of rising is the highest, but is still lesser than the speed of falling at the nadir. Why?

What is the prevalent situation at a nadir? There’s blood. People are running for their lives. They take action before asking questions, and before looking here or there. 

Many times, you come across someone holding a stock which he or she has inherited from a parent. This someone comes to you with the ubiquitous query – what to do, sell it now? You look at the chart. Whoahhhh! You see the buy price, one and a half decades ago. You look at the current level. You calculate the profit. Along the time axis of the chart, you also see that the stock fell back to its buy price or below in a market crash, all within a month and a half. After this, the stock has recouped its losses of the crash, and is showing a healthy profit again, six years after the crash. During the crash, how long did it take the stock to fall below the buy price of one and a half decades ago? A month and a half. Holy moly!

That’s the equity playground for you. 

It’s directly connected to human emotions. 

Anything can happen on this playground, so keep your eyes and ears open, and…

… be prepared. 

Taking the Pan out of Panic

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Panic – Pan = ic = i see = I SEE.

Times are unprecedented.

We’re breaking new lows of evil everyday.

Ours looks to be a hopeless nation.
Is it over for us?

Shall we pack up our bags and migrate?

Just take a deep breath. Bear with me for a moment. Try and cast your panic aside. Try and think clearly.

I’ll share with you an observation. Take any Indian. Doesn’t have to be an outperformer. Take an under-averagely performing Indian, for all I care. Weed him or her out of our pathetic system, and place him or her in a nation with good governance.

Lo and behold, our candidate will start performing. Not only that, soon, he or she will be outperforming. After a decade or so, he or she will probably have mastered the system and punctuated it with innovative short-cuts.

Get my point?

We are a resilient race. We might look fickle, frail and harmless superficially, but we can struggle, bear, survive, and finally break out. Just give us good governance.
Don’t panic. We’re not going down that easily.

What’s happening currently is a purge. Yeah, it’s a catharsis with a big C. While it continues, asset classes across the board will probably get hammered.

What does that mean for you?

Only one thing.

Stay in cash. Accumulate it. Learn to sit on cash. Sit on it as long as the purge lasts. Let its value depreciate, doesn’t matter. Park it safely with a conservative private bank. Fixed deposits would be the instruments of choice. Yeah, you don’t want to leave unattached cash lying around. Potentially, unattached cash could be susceptible to online fraud. Attach your cash, safely, and keep it before your eyes. Put some watch-dogs in place, as in sms and email alerts. Password-change attempt? You are immediately alerted. New payee added? You are immediately alerted. Watch-dogs bark.

As per my instinct, though we probably won’t go bankrupt as a nation, we might just go a long way down before the purge is over. After the purge, there will be tremendous bargains on offer, across the board, in all asset-classes. Cash will be king. Save your cash and sit on it – for that day.

Meanwhile, your wealth-manager will try to push you into panic purchases with your cash. As in, buying gold at 32k, and the USD at 65. Don’t listen. These are crazy levels. One doesn’t invest at crazy levels. These are not even normal trading levels. Yes, they are institutional trading levels. One does not invest at institutional trading levels.

It’s time to use your common-sense and maintain a cool head.

You can only do that by refusing to panic.