Category Archives: Patience

The Cycle of Flow

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Life is riddled with cycles.

Words flow. Then they stop. Lulls can be long.

Doesn’t bother me anymore.

I know that when the flow starts, I’ll be there, milking it completely. You’ve seen me do it. I’ve been amazed myself by the sheer force of flow.

I’m happiest in full flow. At this time, I don’t believe in containment.

Lulls are good too. They happen for a reason. Especially if your situation changes. Your system is busy getting accustomed to the new situation. It is accumulating and assimilating. Respect its silence. Conserve your energy. Let it do its work. Don’t try to get busy just for the sake of feeling busy. You don’t have to prove anything to anyone. This is your unique game. No one else is playing your particular game. Wait for your system to finish assimilating. Let it use whatever energy is available. You don’t waste this energy.

At some stage, your system will be ready to disseminate.

It’ll give signs.

Flow will ignite.

Words will emerge.

Many of us block at this stage.

We’re afraid of embarrassment. We don’t want to look silly. We hate awkward situations.

Fine. Block. Fall sick. Your wish. Blocked flow turns toxic inside.

Why do you behave like an unevolved j#ck@#s?

The human being has come to evolve. Devolution is not your purpose. Evolution is.

If you wish to evolve, don’t block.

Just like you respected the silence…

… now, respect the flow.

Charting Charting Charting

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Why don’t you just…

… trade what you see?

Trade the chart, dammit.

Not the level.

Not the expectancy of a turnaround.

And, although I still do this because it gives me a kick, why do we even trade corrections?

Why can’t we just trade the sheer chart?

Every chart is either going up, down or nowhere.

So it’s pretty obvio, that the first step would be to…

… to what?

… to decide where the chart is going.

Again, it should be pretty obvio, that if a chart is going nowhere, then you are doing… what?

Are you trading such a chart?

NO!

Wait for such a chart to break out in one particular direction.

Wait for the LTT to turn in this direction.

Then trade this chart. Not before.

Yeah, LTT stands for long-term trend.

Yeah, we’ve befriended the LTT so much, that we have an abbreviation going for it…

Once you’ve sorted out the direction, look for an entry setup.

Be patient.

If the entry setup hasn’t formed yet, wait for it. If you can’t stop your twiddling fingers from doing something, feed in a trigger entry in case of a hypothetical setup formation within the next few hours / days, if your trading station allows this.

There’s no up or down anymore, to be honest. You are going where the chart is going, period.

You are also not asking the stooopidest question of them all…

… you guessed it… “Did the sensory index go up, or down?”

Just forget about the sensory index, ok?

I mean, we’re so done with sensory indices in this space.

Why?

DLF could tank 20 bucks on a day the Sensex goes up. Dow Jones could be down 50 points, but Pfizer could just spring into a stellar upwards move. Why should we have lost the short-side opportunity that DLF hypothetically gave, or the long-side opportunity that Pfizer could present, for example? We will do exactly that, i.e. lose the opportunity, if our focus is on the sensory index.

Focus on the underlying.

To be more precise, focus on the chart of the underlying.

Happy trading.

🙂

If it Fits You…

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… then nothing else matters.

Who told you that finance is a one-size-fits-all game?

Actually, the truth is very far away.

Truth is truth.

It doesn’t matter how much you twist it, or bury it or whatever.

It eventually emerges, unchanged, unscathed, true.

And the winds here are talking about unique sizing for each market player.

Yeah, only a unique fit is going to fulfill your own market play.

It will look silly to others.

People will laugh.

Doesn’t matter.

It fits you.

You’ve found your fit. That alone is invaluable. People undergo decades of struggle looking for theirs. Many don’t find it.

What is that state of being, when you know that you’ve found your fit?

Satisfaction.

You’re not jumping.

Not edgy.

Not looking further.

Looking for extra time, to develop and enhance what you’ve found.

You’re at peace.

You’re happy sitting.

Small things count big in the markets.

Options Setup El Cheapo

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What are the basic ingredients of a cheap options setup?

We’re not bothered about what the underlying is.

We’re outlining in general. 

A correction / rally needs to have taken place. 

The correction / rally level needs to be significant.

That’ll account for the cheapness of the option.

I suppose it’s obvio, but I’m still saying it nevertheless, that you’re going to be trading in the counter-correction or counter-rally direction, but in tandem with the overall long-term trend.

Then, a slight move needs to have started in your trade direction after this significant correction / rally. 

That could account for correct choice of trade direction. 

We need just one more ingredient.

Can you guess what that is?

Yeah, breathing space. 

Allow the trade time to pan out in your direction. 

Buy an option which has at least 3-4 weeks left till expiry, if not more. 

That’s it. 

It’s as simple as that. 

Lucrative ideas are simple. There is nothing complicated about them. 

Lose your sophistication and / or complicatedness. You’re not going to make it big by being sophisticated or complicated. These two characteristics will negatively affect your trading. Flush them down the drain. 

Be simple. 

Happy trading. 

🙂

When a Model collapses…

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… that’s when you shouldn’t collapse.

A model is something temporary. You use it. Successfully. For a while.

Then it starts to play up. You tweak it into yielding successful results.

You keep doing this, till the model is representable. Ultimately, it collapses.

You don’t grieve or look back. Construct a new model.

Tweak it into success.

Move on.

Construction of a market model requires you to use common-sense and your observatory powers.

How do you mould a market into your daily usage without tipping any other balance in your life?

Right, we are only going to be discussing holistic models. Such models should not make you a worse human being. Otherwise, find a better model.

You’ll also need to create some vacuum in your system to attract the required energies for the construction of a new model from scratch.

Use your imagination. Move stuff around. Donate. Write. Help. Be kind. Do good. Pro bono. Create a vacuum in your system.

Soon, your vacuum will attract what you deserve and require. A missing link might flash as a brain-wave. An obstacle might get removed. A vital family member might become kinder. Nature’ll give it back to you.

Before you know it, you’ll be working with your new model…

How to Swallow Small Losses…

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… as if nothing has happened … is one of my biggest trading goals.

You see, our society teaches us not to lose. 

It doesn’t teach us that we can lose a bit 5 times, and after that we can win big, recovering all our losses and making money overall.

No. 

It teaches us to try and win all the time. 

That’s the exact reason 90%+ of all society members actually lose in the markets. They’ve not learnt how to lose small, move on, and take the next trade.

Mrs. Market won’t budge an inch for you. You’ll have to make the adjustment. 

So how does one take a loss in one’s stride?

Only one type of loss is immediately digestible – a small one. Therefore, define your risk in the market. Cut and scoot when required. Don’t get married to your trade.

Then, once the small loss has happened, and has been taken, it will nag you. 

It’ll be there, trying to bite your brain in the background. 

Focus on your next trade. 

Identification – Implementation – Entry – Management – Exit – Next Trade Identification – Implementation – Entry – Management – Exit – Next Trade Identification – Implementation – Entry – Management – Exit – … … [what’s the difference between implementation and entry? Well, you could be implementing the trade through a trigger, which is not equivalent to entry yet].

Don’t let the nagging bother you by keeping yourself busy with Identification – Implementation – Entry – Management – Exit – Next Trade Identification – Implementation – Entry – Management – Exit – Next Trade Identification – Implementation – Entry – Management – Exit – … … 

Ultimately the nagging will die out, as your mind starts to revolve around your current trades. 

If you give in to the nagging, it will grow, and will slow you down. You might snap at a family member. You might go into depression. You might freeze. DON’T. Don’t give in to the nagging. Don’t let it grow. Don’t let it slow you down. Maintain your family equilibrium at all costs. Move on. 

The nagging is worst if there’s been a close below your stop, and the market is to open the next day, or after the weekend. You have to deal with this one. If you’re not able to deal with this particular situation, you’ll either need to expose your mental stop prematurely and feed it in intraday (before there’s been a close under it), or you’ll need to follow the progress of your trade from half an hour before next market open onwards.

Yes, this last one’s tough, and you need to absolutely work your way around it. 

You can do it with a bit of practise. 

🙂

Happy Third Birthday, Magic Bull!

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Hey,

We turn three.

You know it, and I know it…

… that this year’s been a slow going.

Sometimes, life is slow.

Such junctures are great times to recuperate and consolidate.

Inaction is big in the markets.

Very few know how to be inactive – and stay sane.

Those who do – well – they make big bucks when it’s time for action.

That’s only if they haven’t gotten rusty and lazy by then.

Yeah, inaction is an art.

In the markets, it is at least equal in importance to – action.

So, for the most part of the year that’s gone by, my market activity’s been practically zilch.

It’s not that I’ve been sitting and twiddling my thumbs. No! For heaven’s sake! Of course I’ve been doing other stuff.

Inaction in the markets must be coupled with action elsewhere, if one plans to stay sane, that is.

Also, inaction in the markets leads to preservation of capital. That, what you made during active times, remains safe, pickled and intact.

Then, when there’s opportunity, you’ve got your whole arsenal to cash in with.

While changing gears, don’t jump out of your seat with your saliva drooling, though.

Have some rules in place for opportunistic action.

I have some basic rules for myself at such junctures. I don’t put more than 10% of my networth on the line, while pursuing an idea. This rule applies for me while changing gears too, more than ever. Also, I don’t pursue more than two ideas at any given point of time. Most of the time, I’m not pursuing any idea, till an idea appears, refuses to break down, and just sticks.

Safe.

Simple.

Comfortable.

Ideal circumstances…

… to hit the sweet-spot…

… when it’s time for action.

Wishing you happiness, safety and profits in whatever market activity you pursue,

Yours sincerely, and just there for you, period,

Magic Bull.

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.

Where Is The Love?

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There’s this song by The Black Eyed Peas, called Where is the Love?

It’s playing on my phone as I write. It’s really good. Features Justin Timberlake. Very catchy tune, amazing lyrics. The Peas are talented. Gotta hear them.

I drag myself through two customer-care calls, one with Dish TV, and the other one with Bharti Airtel.

Exasperating. Pathetic. Nuisance-value. Drains one out. Long.

Where’s the love?

These are some of the words / phrases / questions that come to mind.

Meanwhile, the Dish and Airtel jingles are coming out of all body exits.

Then, I remember my customer-care calls with AmEx.

Smooth.

Officers are clued in.

Zak-Zak-Zak, and your work is done.

Short, and sweet.

And, there’s love, for whatever reason.

What kind of a corporate India are we growing up in?

Indigestible growth over short periods leads to disease.

Are the majority of our corporates diseased?

If they’re not, one should be feeling the love.

Where’s the love?

One does feel it, in some companies. M&M, I think, Thermax, Wipro….Dabur maybe…

Before investing in a company, it might be a good idea to talk to the company’s customer-care, and to see if there is any…love.

It’s got to trickle down from the top. You are only as good as your boss is. If the boss is holistic, the company becomes a beacon of love, understanding and digestible growth. That’s the kind of company one feels like working for…

… and that’s the kind of company one feels like investing in.

Is Your Money Comfortable?

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Everyone likes being comfortable.

So does your money.

Can you function optimally under tension?

Well, neither can your money.

So… make it comfortable. Allow it to breathe.

Money is a concept, a force.

Soon, it’ll find its flow. Till it does, yes, you’ve allowed it to breathe.

What does all this mean?

What are we talking about?

Don’t worry, I’m not getting metaphysical on you…, yet.

Simple – no confinement, no locking, just parking, no further expectations – that’s when your hard-earned life-savings breathe freely.

Yeah, you park them, where you can see them.

If, then, a daily dividend emerges, well, that’s a bonus. Try and make sure that the avenue you’ve used for parking doesn’t reduce your corpus on a daily basis, even slightly. You are more than happy with a miniscule daily dividend, which, of course, is auto-reinvested into the same avenue.

Now, both entities are breathing freely – you and your corpus.

You can take a break.

Reassuring is the fact that your resting corpus is visible to you on your mobile.

You do take that break.

At times you think – freely.

You enjoy life for a bit.

Slowly a thought process emerges.

Where will your money go next?

Where does it want to go?

What’s the most lucrative path for it to flow upon?

You listen to the universe.

The answer floats in the universe.

It is your answer – the resultant vector of your struggle and learning.

For it to flow into your mind, your per saldo vibration must match the exact vibration of that part of the universe, where your answer lies.

If there’s a mismatch, then perhaps you need to struggle a bit more, till your vibration gets even finer and there’s a match.

The solution flows into you.

It’s like an energy bomb, that slowly explodes inside of you, and as the emitted energy starts to seep into every cell of your body, your new system simultaneously starts to dawn upon you.

You are now ready to move your funds to a more permanent and lucrative location. Speed of movement is defined by your new system. So are time, mode, avenue, repetitiveness and tenure.

Meanwhile, your funds have remained intact. That’s a very big thing. Very few human beings know how to keep their funds intact. If you know it, you already know a lot.

Soon, your new system takes over. More than half the battle’s won already.

All the best, wish you well, and if I did get metaphysical on you, it was only to get the point across.

Maybe you actually even liked the meta-bits, so let’s call it even stevens.

Can We Please Get This One Basic Thing Right? (Part III)

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Yeah, we’re digging deeper.

How does an investor arrive at an investment decision?

It’s pretty obvious to us by now that traders and investors have their own rationales for entry and exit, and that these rationales are pretty much diametrically opposite to each other.

So, what’s the exact story here?

The seasoned investor will look at FUNDAMENTALS, and will exhibit PATIENCE before entering into an investment.

The versatile trader will look at TECHNICALS, and will NOT BE AFRAID of entry or exit, any time, any place. He or she will be in a hurry to cut a loss, and will allow a profit to blossom with patience.

What are fundamentals?

Well, fundamentals are vital pieces of information about a company. When one checks them out, one gets a fair idea about the valuation and the functioning of the company, and whether it would be a good idea to be part of the story or not.

A good portion of a company’s fundamental information is propagated in terms of key ratios, like the Price to Earnings Ratio, or the Debt to Equity Ratio, the Price to Book Value ratio, the Enterprise Value to EBITDA Ratio, the Price to Cash-flow Ratio, the Price to Sales ratio, etc. etc. etc.

What a ratio does for you is that in one shot, it delivers vital info to you about the company’s performance over the past one year. If it’s not a trailing ratio, but a projected one, then the info being given to you is a projection into the future.

What kind of a promotership / management does a company have? Are these people share-holder friendly, or are they crooks? Do they create value for their investors? Do they give decent dividend payouts? Do they like to borrow big, and not pay back on time? Do they juggle their finances, and tweak them around, to make them look good? Do they use company funds for their personal purposes? Researching the management is a paramount fundamental exercise.

Then, the company’s product profile needs to be looked into. The multibagger-seeking investor looks to avoid a cyclical product, like steel, or automobiles. For a long-term investment to pan out into a multibagger, the product of a company needs to have non-cyclical scalability.

After that, one needs to see if one is able to pick up stock of the particular company at a decent discount to its actual value. If not, then the investor earmarks the company as a prospective investment candidate, and waits for circumstances to allow him or her to pick up the stock at a discount.

There are number-crunching investors too, who use cash-flow, cash allocation and other balance-sheet details to gauge whether a coveted company with an expensive earnings multiple can still be picked up. For example, such growth-based investors would not have problems picking up a company like Tata Global Beverages at an earnings multiple of 28, because for them, Tata Global’s balance-sheet projects future earnings that will soon lessen the current multiple to below sector average, for example.

Value-based investors like to buy really cheap. Growth-based investors don’t mind spending an extra buck where they see growth. Value-based investors buy upon the prospect of growth. Growth-based investors buy upon actual growth.

The trader doesn’t bother with fundamentals. He or she wants a management to be flashy, with lots of media hype. That’s how the trader will get volatility. The scrips that the trader tracks will rise and fall big, and that’s sugar and honey for the trader, because he or she will trade them both ways, up and down. Most of the scrips that the trader tracks have lousy fundamentals. They’ve caught the public’s attention, and the masses have sprung upon them, causing them to generate large spikes and crashes. That’s exactly what the trader needs.

So, how does a trader track these scrips? Well, he or she uses charts. Specifically, price versus time charts. The trader doesn’t need to do much here. There’s no manual plotting involved. I mean, this is 2012, almost 2013, and we stand upon the shoulders of giants, if I’m allowed to borrow that quote. Market data is downloaded from the data-provider, via the internet and onto one’s computer, and one’s charting software uses the data to spit out charts. These charts can be modified to the nth degree, and transformed into that particular form which one finds convenient for viewing. Modern charting software is very versatile. What exactly is the trader looking for in these charts?

Technicals – the nitty-gritty that emerges upon close chart scrutiny.

How does price behave with regard to time?

What is the slope of a fall, or the gradient of a rise? What’s the momentum like?

What patterns are emerging?

How many people are latching on? What’s the volume like?

There are hundreds of chart-studies that can be performed on a chart. Some are named after their creators, like Bollinger bands. Others have a mathematical name, like stochastics. Names get sophisticated too, like Williams %R, Parabolic SAR and Andrew’s Pitchfork. There’s no end to chart  studies. One can look for and at Elliott Waves. Or, one can gauge a fall, using Fibonacci Retracement. One can use momentum to set targets. One can see where the public supports a stock, or where it supplies the stock, causing resistance. One can join points on a chart to form a trendline. The chart’s bars / candle-sticks will give an idea about existing volatility. Trading strategy can be formulated after studying these and many more factors.

Where do stops need to be set? Where does one enter? Exit? All these questions and more are answered after going through the technicals that a chart is exhibiting.

One needs to adhere to a couple of logical studies, and then move on. One shouldn’t get too caught up in the world of studies, since the scrip will still manage to behave in a peculiar fashion, despite all the studies in the world. If the markets were predictable, we’d all be millionaires.

How does the trader decide upon which scrips to trade? I mean, today’s exchanges have five to ten thousand scrips that quote.

Simple. Scans.

The trader has a set of scan criteria. He or she feeds these into the charting software, and starts the scan. Within five minutes, the software spits out fifty odd tradable scrips as per the scan criteria. The trader quickly goes through all fifty charts, and selects five to six scrips that he or she finds best to trade on a particular day. Within all of fifteen minutes, the trader has singled out his or her trading scrips.

Do you now see how different both games are?

I’m glad you do!

🙂

Anatomy of a Multibagger

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Wouldn’t we all like to rake it in?

A multibagger does just that for you. Over a longish period, its growth defies normalcy.

In the stock markets, a 1000-bagger over 10 years – happens. Don’t be surprised if you currently find more than 20 such stocks in your own native markets.

Furthermore, our goal is to be a part of the story as it unfolds.

Before we can invest in a multibagger, we need to identify it before it breaks loose.

What are we looking for?

Primarily, a dynamic management with integrity. We are looking for signs of honesty while researching a company. Honest people don’t like to impose on others. Look for a manageable debt-equity ratio. Transparency in accounting and disclosure counts big. You don’t want to see any wheelin’-dealin’ or Ponzi behavior. If I’d been in the markets in the early ’80s and I’d heard that Mr. Azim Premji drove a Fiat or an 800, and flew economy class, I’d have picked up a large stake in Wipro. 10k in Wipro in ’79 multiplied to 3 billion by ’04. That can only happen when the management is shareholder-friendly and keeps on creating value for those invested. Wipro coupled physical value-creation with market value-creation. It kept announcing bonus after bonus after bonus. God bless Mr. Premji, he made many common people millionaires, or perhaps even billionaires.

A good management will have a clean balance-sheet. That’s the number two item.

The company you’ re looking at will need to have a scalable business model.

It will need to produce something that has the ability to catch the imagination of the world for a decade or more.

The company you’re looking at will need to come from the micro-cap or the small-cap segment. A market-cap of 1B is not as likely to appreciate to 1000B as a market-cap of 25M is to 25B.

Then, one needs to get in at a price that is low enough to give oneself half a chance of getting such an appreciation multiple.

Needless to say, the low price must invariably be coupled to huge inherent value which the market is not seeing yet, but which you are able to correctly see.

After that, one needs the courage and conviction to act upon what one is seeing and has recognized.

One needs to have learnt how to sit, otherwise one will nip the multibagger in the bud. Two articles on this blog have already been dedicated to “sitting”. Patience is paramount.

The money that goes in needs to be a small amount. It’s magnitude shouldn’t affect your normal functioning.

Once a story has started unfolding, please remember one thing. If a stock has caught the imagination of the public, it can continue to quote at extended valuation multiples for a long time. As long as there is buying pressure, don’t exit. One needs to recognize buying pressure. That’s why, one needs to learn charting basics.

Phew, am I forgetting something here? Please feel welcome to comment and add factors to the above list.

Here’s wishing that you are able to latch on to many multibaggers in your investing career.

🙂

Learning to Sit (Part II)

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Can you sit?

I mean, can you really sit?

Maximum money is made by sitting, not by wiggling about.

I didn’t say that, but people far, far greater did.

To name just two who did say so, I’m sure you’ve heard of Jesse Livermore and Warren Buffett.

Fact remains – if you’re a long-term investor, you have to be able to sit.

One can’t sit for very long if one isn’t comfortable.

So, logic dictates – make yourself comfortable first.

Get rid of all extra background noise that disturbs you.

Keep consolidating – till you are comfortable to a point of not wanting to move from where you are.

You’ve gotten rid of investments you don’t understand.

Then, you’ve also dumped those investments that you do understand, but which don’t interest you.

Your rapport with your family is healthy.

You eat and sleep well.

You enjoy your life.

Then, the investments that you’re gonna sit on – are their volumes influencing the normal flow of your life?

If yes, it’ll be hard to stay focused somewhere down the line, because some fragment of your life will invariably be disturbed positively or negatively due to the voluminous investment in question.

Can you digest the volume such that its level does not interfere with your daily life?

What is your capacity for volume digestion?

Some have very large digestive capacities, like RJ. Such people can sleep comfortably on gigantic invested volumes for a very long time.

Others don’t digest volume at all, and can’t sleep over volume, like that day-trader who lives down the road. When the market closes, his invested volume is nil. Otherwise, the rest of his day is ruined.

Identify your volume threshold.

Invest below it. Then, you’ll be able to sit on your investment.

Any investment must have a rationale. Is your investment rationale sound? You’ll only be able to sit long-term on an investment made with sound rationale.

Therefore, take your time. Do solid research. Your research is pivotal for your investment. It doesn’t have to be so technical or so fundamental as to psyche a lay-person. It doesn’t have to deal with nitty-gritty. It doesn’t have to look for wheels within wheels.

In my opinion, market research needs to be broad-minded, and done with common-sense. Researching a company is an art. One doesn’t need to go ballistic with numbers, mathematics, projections, charts etc. One needs to formulate the long-term picture in one’s mind, based on key ratios, charting basics, knowledge of cycles, quality of management etc., and of course (based on) the million dollar question – is one looking at a multibagger? You can fill in the blanks here, for yourself.

Then, don’t enter with too big a bang. That’s my formula. Enter small. You can always top up later, if your conviction about your investment has grown. That’ll allow you to sit if your investment goes wrong in the initial stages. If you’ve entered too big and things go awry, you won’t be able to sleep, and then the first thing you’ll do is exit. So, enter small.

See, you can average down if you’re an expert, but for the longest time and till you get the hang of things, do not average down.

Why am I saying this?

Averaging down can make you even more jumpy if the stock in question goes down further. Your chances of sitting on your investment become even lesser.

Now for the flip-side. Sitting on a profit? Are you booking? Yes? No?

Depends. On you. On your outlook.

I mean, are you going to nip a multibagger in the bud?

I think you got the point.

So, till when do you sit?

Till you’re comfortable. Till you can sleep and eat well. Till you have a happy family life. Again, define you own “tills”.

The rest, as they say, is (your own investing) History.

A Critical Look at Debt on the Balance-Sheet

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Borrowed money needs to be paid back.

Pray where is a company going to pay it back from?

From current reserves and /or earnings, of course.

Unless you do a Suzlon and restructure your 2 billion dollar debt.

When I hear the word “restructure”, I feel like puking.

By the way, one can even do a “Mallya”, and expect the government to pay off chunks of one’s almost 1.5 billion dollar debt.

By now, I’m really throwing up.

I mean, first, some people borrow. Then comes a spending frenzy. Then these people don’t want to pay back what they borrowed. Oh, sorry, some don’t even want to pay the interest back, let alone the principal.

Frankly, I don’t wish to invest in companies run by people who delay paying back their debt through maneuvering and manipulation.

I detest manipulation. Prefer it straight-forward.

You guessed it – I’m a debt-averse human-being. What pleases me most in a company is a debt-free balance-sheet. It is challenging to find debt-free companies that are able to grow freely and fast, and when one runs into such a company, it’s like a home-run. After that one waits for the right price, but that’s another story.

Most companies borrow. They wish to grow, and funds are not there, while opportunity is.

Fine. Borrow.

Then, show me that you want to pay back. On time. ( = integrity ).

Show me that you haven’t lost your marbles while borrowing, and have borrowed an amount which by no means risks the existence of your company. ( = balance ).

Furthermore, show me that you are creating value with the borrowed amount. ( = shareholder-friendliness ).

Show me, that after payment of interest on borrowings, you can still generate a reasonable earning per share. ( = diligence ).

That would make me want to invest in your company, despite your debt.

Oh, one more thing, I would only stay invested long-term in your company, if I see you decreasing your debt-burden year upon year. ( = like-mindedness, i.e. debt-aversion ).

Also, if any new debt taken on doesn’t fit the above criteria, I would look to exit. ( = over-confidence because of earlier successes ).

Once invested, keep rechecking the story every few months. Times are bad. If you don’t look, it is likely that a CEO will pull a stunt right under your nose. Yes, it’s totally possible that your investment doesn’t meet your criteria anymore, and that you are still invested. Don’t let that happen.

At least with regards to debt, have an exact check-list. If a company doesn’t meet your standards regarding debt, discard the company. During times of high interest-rates, large debt on the balance-sheet is like a raging fire which refuses to be stilled, and which can well terminate the existence of a company.

Your success as a long-term investor depends much on how you react to debt.

Here’s wishing you wary and successful investing!

Cheers!   🙂

A Tool By The Name of “Barrier”

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Come into some money?

Just don’t say you’re going to spend it all.

Have the decency to at least save something.

And all of a sudden, our focus turns to the portion you’ve managed to save.

If you don’t fetch out your rule-book now, you’ll probably bungle up with whatever’s left too.

Have some discipline in life, pal.

The first thing you want to do is to set a barrier.

Barrier? Huh? What kind of barrier?

And why?

The barrier will cut off immediate and direct access to your saved funds. You’ll get time to think, when hit by the whim and fancy to spend your funds.

For example, a barrier can be constructed by simply putting your funds in a money-market scheme. With that, you’ll have put 18 hours between you and access, because even the best of money market schemes take at least 18 hours to transfer your funds back into your bank account.

Why am I so against spending, you ask?

Well, I’m not.

Here, we are focusing on the portion that you’ve managed to save.

Without savings, there’s nothing. There can be no talk about an investment corpus, if there are no savings. Something cannot grow out of nothing. For your money to grow, a base corpus needs to exist first.

Then, your basic corpus needs a growth strategy.

If you’ve chalked out your strategy already, great, go ahead and implement it.

You might find, that the implemetation opportunities you thought about are not there yet.

Appropriately, your corpus will wait for these opportunities in a safe money market fund. Here, it is totally fine to accept a low return as long as you are liquid when the opportunity comes. There is no point blocking your money in lieu of a slightly higher return, only to be illiquid when your investment opportunity comes along. Thus, you’ve used your barrier to park your funds. Well done!

Primarily, this barrier analogy is for these who don’t have a strategy. These individuals leave themselves open to be swept away into spending all their money. That’s why such individuals need a barrier.

An online 7-day lock-in fixed deposit can be a barrier.

A stingy spouse can be a barrier.

Use your imagination, people, and you’ll come up with a (safe) barrier. All the best! 🙂

Danza Kuduro x Gangnam Style = Indian Political Circus

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Can you ignore the circus around you?

Sooner or later, you’ll need to learn how to.

Why?

Because growth is where we are.

And, growth is dying in many parts of the world.

So, why do you need to ignore the circus?

To focus. The circus won’t let you focus properly.

And why do you need to focus?

To take advantage of the growth around you.

Growth is a coveted commodity, remember that.

One could say that you are lucky to be born in an area showing growth. You are in demand. People from other parts of the world want to participate in any available growth story. These are competent people, selling highly developed technology and expertise. They deserve to participate in growth stories, why not? The question here is about you.

Are you able to make the most of your times, and that too – ethically?

Then forget about the circus.

The circus won’t let you function ethically.

You need to learn to function despite the circus.

Welcome to the world of minimal exposure. At times, you will need the circus, since it controls the machinery of your system. That’s about it, that’s your minimal exposure. No more exposure than what is absolutely required – these are golden words summing up your policy of minimal exposure.

And you are totally going to succeed despite minimal exposure – many have done so already, so why should you be an exception?

The quality of success that emerges, after having followed a policy of minimal exposure, is sweet. It’s a no-strings-attached kind of success. It is lasting, and brings peace and exhilaration. Definitely worth striving for. So, circus shmirkus, don’t even bother, just go for it, and make the most of the growth happening around you. Because of your ethical angle, I wish even more, that you succeed.

All the best! 🙂

Going Legit in the Times of Robber Vodka

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A good, clean, healthy and tension-free life – don’t you want that for your children and families?

Right, people, go legit.

It is possible, despite the Robber Vodkas, the Call Muddies and the Rama Lundgren Rajus of our times.

The first step is going white.

Go white, people. Declare your assets, pay your taxes, just sheer refuse to deal in black money as much as you can, and for heaven’s sake, start cutting out unwanted people dealing in black from your lives.

Second step – avoid people wearing whites. 98%+ of male folk dressed in whites in this country are either inactively or actively politically connected. In the process, you might pass up on the 2% genuinely good ones in whites, but you’ll have avoided all the ones you want to avoid. Political connect in India will not allow you to go legit. People hook up with politicians for favours, and / or because they feel that in their hour of need, their political clout will save them. Did you know, that for the one favour, your political connection will make you do ten illegit things in reciprocation, stuff you’d never dream of doing normally. Ask yourself. Is the trade-off really worth it? No, right?

Then, avoid dealing with people who use body-guards. I mean, use your common-sense. There’s no reason to shun a benevolent, well-known corporate honcho with or without body-guards, like Anand Mahindra for example. You’ll learn to recognize shady honchos. There’s that feel about them, that mafioso vicious vibe. If you can sense that vibe in a honcho, don’t deal with that person. Forget about the profit you’re losing out on, and look at the level of tension and complication you’re avoiding.

Don’t deal with people promising stupendous returns. Nip the Ponzis in the bud. Dealing with a Ponzi will eventually land you in court, to get your money out . Believe me, you don’t want our super-efficient judicial system messing up your life, if you can help it.

Be firm while dealing with any government officer. The government officer will only start to misbehave if there is any weakness from your side. Remember, a government officer is supposed to serve the nation. His or her salary is paid from the taxes you dish out. If your dealing is clean, the official could harass you for refusing to bribe, but that’s about it. Take the harassment, but keep coming back till your work is done. We need to stop bribing. Then, and only then will government officers eventually stop expecting us to bribe.

Right, we’ve pretty much cut ourselves off from a lot of people and things, so where does this leave us?

Don’t worry, we are not alone.

There are like-minded people around, and we need to make these like-minded people a part of our lives. Yeah, and we can lead good, healthy lives with such people surrounding us.

Also, don’t for a moment think we can’t do anything for our country, just because we’ve nixed the political linkage. Private opportunities come along everyday, to help people and society. If you want to still make a difference, grab these opportunities. Poor people come to you for medical aid. Help them. You can contribute privately to social-welfare. Many private citizens are running clean NGOs. As the name suggests, these NGOs have no government involvement, and are less likely to be corrupt. Funds donated to clean NGOs will very likely reach disaster areas on time and in full.

You can make a difference, all by yourself. You don’t need a corrupt government to make a 20-odd% difference for you per unit of currency you trust them with, as tax or whatever. Yeah, only about that %age gets converted into welfare; the rest is nibbled up along the way.

Make a difference – all by yourself.

What are you waiting for?

Clean up your act, go legit.

It’s not going to cut you off from any good, clean and healthy action.

Trust me on this.

Finding the “Switch-Off” Button

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Gadgets have a switch-off button, right?

Whatever for, have you ever wondered?

Do we have one too?

If we do, is it clearly marked, i.e. is it easy to find?

If we do, and if it isn’t clearly market, where and how can we find it?

Why is it essential to find it?

What if we don’t have a switch-off button?

First, let’s observe the Master. Sherlock Holmes. Master at the art of switching off.

Observe Holmes when the next obvious lead will take a day to obtain. Since the case is going nowhere, Holmes will take the day off. He will play his violin, trip on some coke to study its effects on mind and body (he’s Holmes), go to the art gallery, or what have you. The case at hand has gone into oblivion. Attenuated. What happens when it is time to pursue the case again? Holmes switches on. He is fresh. Alert. The switching-off really helped.

Remember the “attenuate” button on your car’s stereo?

Why do you think it is there?

So you can take that call without getting disturbed by the music. The music is still there, but upon pressing this button, it becomes really soft. So soft, that you don’t get affected by it. You conduct your business on the phone, and then press this button again, and the music comes back on in its full glory.

Same goes for the markets.

Once you are in a trade, market-forces are connected to you.

If you cannot attenuate them during off-market hours, you can ruin your evenings, nights, weekends, health and family life

Big, big price to pay.

Not worth it, so get busy and learn to attenuate the market’s connecting force once you switch your terminal off. Rest assured, it will come blaring back at you when you switch your terminal back on, but that time between terminal off and terminal on is oh so precious. That time belongs to you, and not to Mrs. Market. Don’t allow her that extra privilege. Use that time for things that you wish to do in life. Use it for your family. Mrs. M will be getting your undivided attention during the next market session anyways. Let her be content with that. Keep her in her place.

Just as any gadget needs rest, so do you.

Sometimes, the markets go nowhere, and / or are choppy. It doesn’t pay to trade. Switch off from the markets. Take a holiday. Do something else, till conditions become better for trading.

Yes, we do have a switch-off button. It is not clearly marked. It is located in the mind. One activates it indirectly. By switching on to some other relaxing activity that has the ability to grab the mind’s interest.

Switching off is a skill, and this skill needs to be developed. We don’t necessarily come with it. Most of us need to learn it. Otherwise, we’ll become tired, erratic, irritable etc. etc., scale up to commit big blunders, and then we will eventually burn out. That’s if the Street doesn’t throw us out as paupers before a looming burn-out. Also, our family lives will have gone for a toss. Our children will remember us as dreadful parents. Yes people, we need to find the switch-off button asap, and then we need to learn to activate this button at will. Essential.

And please don’t worry about not having such a button. After all, it was the human being who put such a button into all gadgets. Well, the idea must have come from somewhere. From inside our own mind, perhaps, where our own button exists?

So, When Does One Attack Here?

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Ammunition.

Your game revolves around it.

We’re not talking war over here.

Or are we?

The marketplace is a war-zone, come to think of it.

Question is, how do you use you ammo?

Do you fire the bulk right away?

Who are you trying to scare?

This is the marketplace, people, overall, it’s not scared of your few rounds. There are just too many players, with varied interests and ideologies. Your few rounds might cause a mini-spike in the underlying concerned, but that’s about it. That mini-spike is not going to make it to tomorrow’s paper.

So, why bother? You don’t need to attack here. Straight away, that is. You can attack when the time is ripe, and when you are ripe too.

What does being ripe for an attack mean?

It means that your defences are fully in place and on auto-pilot. Your basic income is taken care of and suffices your family’s needs. Actually, let’s go a little further and say that your family is able to live comfortably on income generated by you which is independent from any of your speculative / risky activities. This is the first step. You need to work yourself into such a position, even if it takes you a long time. Without knowing that your family is safe, no matter how you fare in the marketplace, you will not be able to trade freely.

Then comes the second step in setting up your best defence. You need to have access to an emergency fund. Meaning, this kind of a fund needs to be salted away first. It then needs to be made accessible when required, and otherwise, it is to remain unused. Don’t let your emergency fund’s miniscule return bother you. In lieu of that, you are getting safety. Your emergency fund needs to remain safe, sound, and there, when you need it. This way, if and when something happens, and funds are required, a). you won’t have to tap into your family’s basic income, and b). you won’t have to tap into your trading corpus. You’ll access your emergency fund. Your family will remain financially undisturbed, and so will your trading, despite the emergency.

Now comes the final step, before you can get on with your trading, yes, even aggressively. In this step, the focus is on you. While setting up your family’s basic income and your emergency fund, you have struggled. Your health could have taken a knock. Your mind could be in a whirl. Normalize, my friend. Take time off. Stare at the wall. Get your body-chemistry back to equilibrium. Take a vacation. Take many vacations. Finally, when you are in shape, go for it.

Ok, so you’re in shape, and ripe for attack.

Now, the time needs to be ripe for attack too.

Mrs. Market has three basic modes of movement. She trends, moves in a range and then, she just plain goes nowhere, i.e. she’s flat.

Your aggression needs to be implemented only when she’s trending. Period.

That’s when it’ll yield mind-blowing returns.

Fire away when she’s flat or moving in a range, and you’ll keep getting stopped out.

How can you tell when she’s trending?

Through technical analysis.

So, study. Learn to differentiate between her three basic modes of movement.

Then, when she trends, and only then, use your ammo aggressively.

Making the Grade

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It’s your convocation. From now on, you’ll be a degree-holder.

Yippeeee!

Just pause for a second.

All your life, you’ll be introducing yourself as a master’s in this or a bachelor’s in that, or perhaps even as a Ph.D. in xyz.

Have you even once considered, that your respective field will continue to evolve, long after you stop studying it?

For example, one fine day, in a Chemistry lecture to class XII, I noticed that the stuff I’d learnt for my master’s degree exams was the very stuff I was now teaching these 17-18 year-olds. That was a big realization for me. It then dawned upon me, that I had to either keep moving with the developments in the subject, or I needed to change my profession. I moved on from Chemistry in 2004.

So, for heaven’s sake, a paper degree is not your ticket to your subject for life. Things, people, seasons, subject-matter, issues at hand – everything changes. Every decade or so, there’s a complete overhaul. To stay on top, and still feel like a degree-holder of your subject, you need to be with things as they move, through the whole decade.

Does your marriage give you a licence to stay married to that same person for life without working on the relationship day in, day out? No, right?

Your degree doesn’t make you a king-pin in your subject for life either, without the appropriate ground-work everyday. Let’s please digest this truth.

The worst-case scenario of whatever I’ve said above happens in the markets. It is a worst-case scenario, because you enter the markets with some finance degree, thinking that the degree has taught you to play the markets successfully. Nothing is further from the truth. Here, you have a piece of paper that gives you false confidence, and you see your balloon bursting after your first few live shots at Mrs. Market.

Financial education in colleges and universities lacks two basic factors. The thing is, these two factors are game-changers. Get them wrong, or don’t know much about them, and your game becomes a losing one.

What are these two factors?

Everything and everyone around us teaches us not to be losers. We are taught to shove our losses under the carpet.

Cut to reality: winning market-play is about losing. Losing, losing, losing, but losing small. To be successful in the markets, we need to learn how to lose small, day in day out. It’s not easy, because our entire system is geared up to win, every time.

Then, everything and everyone around us teaches us to seal that win and post it instantly on our resume, on facebook, on twitter. Modern society is about showing off as many wins as possible. Losers don’t get too many breaks.

Cut to reality: winning market-play is about winning big, very big, every now and then, amidst lots of small losses. That can’t happen if we immediately book a winner. We need to learn to nurture a winner, and to allow it to win big. Again, that’s not easy, because as soon as a winner appears, our natural instinct tells us to book it and post it. So bury your “win it-cut it-post it” attitude. Instead, win, let the winner win more, and more, and when you feel it’s enough, without getting greedy, cut it, and then keep quiet, bring your emotions back to ground zero, and move on to the next winning play.

The reason, that most teachers of finance in colleges and universities don’t know about these two factors, is that their own money is almost never on the line. They have almost never felt the forces of live markets through this “line”, day in, day out. The line one puts on is one’s connection to market forces. Only a regular connection to these forces teaches one about realistic, winning market-play.

One could argue that the case-studies examined in finance school are very real. Well, they are very real for those protagonists who actually went through the ups and downs of the case-study in real-life. They got the actual learning by being exposed to live market forces. You are merely studying the statistics and drawing (dead) inferences, devoid of first-hand emotions and market forces. Whatever learning you are being imparted, is, well, theoretical.

Theory doesn’t cut it in the markets. Theory doesn’t make the grade.

So, what makes the grade?

I consider a seven year stint at managing your own folio a basic entry requirement into bigger market-play. What happens during this time?

Each body cell gets attuned to real market forces, live. You get to know yourself. You build up an idea about your basic risk-profile. Your market-strategy takes shape. It is fine-tuned to YOU.

During this stint, money needs to be on the line, again and again, but the amounts in play need to be small, because you are going to make many, many mistakes.

And please, make whatever mistakes you need to make in this very period. Get them all out of your system. Make each mistake once, and never repeat it, for life. Point is, that after this stint, money levels in play are going to shoot up. Mistakes from this point onwards are going to prove costly, even devastating. The kinds, where one can’t stand up again. You don’t want to be in that situation.

Once you are comfortable managing your funds, and don’t get rattled by Mrs. Market’s constant action, her turnarounds, crashes etc. etc., your market decisions are such, that you start applying your knowledge of money-management successfully. You have now become a practitioner of applied finance.

Applied finance is advanced level market-play. To win at applied finance, your money-management basics need to be fully in place and rock-solid. You can define applied finance as Money Management 2.0.

Winning at applied finance is self-taught. You don’t need a degree for it. In my eyes, a degree here is in fact detrimental, because you then spend a long time unlearning a lot of university stuff during real market-play. You actually see for yourself, that most of what you learnt applies only in theory. The stuff that makes winners, where is that? Why wasn’t it taught? Well, you’ve got to go out there and learn it for yourself.

Let theory be where it belongs. Respect it, but leave it in its appropriate world. The world needs its theoreticians to make it go round, but you need to go beyond theory, to win big.

Put on your practical shoes when you put your good and real money on the line, and be ready for anything.

Let your mistakes teach you.

Keep making the grade, day in day out.

Long after society tells you that you’ve made it.