Tag Archives: #CoVID

Basics Baby

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In the…

…ongoing…

…and incoming…

…frenzy…

…there’s only one go-to strategy…

…for me.

Basics…

…always.

During CoViD, during which everything was supposed to go bankrupt, one stuck to the ‘Basics, Always’ approach, and the rest became History.

This, today, has the potential to become a CoViD like crash.

First up, there’s been mass AI hypnosis. Everyone and their Aunties are in the loop and are talking AI. No one cares anymore about companies with great fundamentals and a penchant cum track record for metamorphosis. It’s ok. We do, since that’s what counts for a steady, long-term return in the market. We are not greedy. We wish to put away our money safely, not let inflation eat at it, and we would like it to grow over the next twenty to thirty odd years. We’re balanced. We’re basic. We’re simple. We’re the opposite of complicated and sophisticated.

And now, there’s all out war. Provoked. Just to bury Epstein consequences? All pipelines choked. Gold-nugget question being asked in this moment is…

…how should one act?

Should one get swept into the AI madness and buy into abysmally high PE multiples? Infinite PE multiples? Should one buy international stocks? Gold? Bitcoin? Silver? Sit in cash? WHAT?

Answer in such scenarios is SIMPLE, always.

Basics. Baby.

Basics, always.

Basics to the rescue.

What are your basics? Go back to them.

I’ll tell you my basics. I’ve gone back to them since I started buying, February 6th onwards. And I shall remain with them, till I’ve finished buying, or till I’m fully invested, whichever comes first.

Shareholder-friendly managements.

Companies with clean balance sheets.

Companies with zero or quasi-zero long-term debt.

Free cashflow to market cap upwards of 2% for large- and mid-caps, and upwards of 1% for small-caps.

Companies with multi-decade penchants and track-records for / of successful metamorphosis and navigation through disruption.

Margin of safety. Each high-conviction buy lowers average. Mathematics to support buying and selling. A low average has the capacity to quickly give a multiple in better times, from where then one’s principal can be skimmed off to fight another battle, and the profit stays in the market for eternity, on the back of the mathematics of compounding.

These are my basics. Shared with you, with pleasure, to inspire you to find yourself in the chaos. Use these till you find your own. You can pay it forward. Leads to a better world.

One doesn’t need more. Just one’s basics. Basics that are superimposable on the entire market, and when something conforms, there’s action. Like now, for me.

Please go back to your basics at a time like this. That’s why you have developed them. Your happy, go to place. Market success is more about a high-conviction frame of mind with holding power.

The rest, rest assured, will be History. Go for it.

🙂

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.

Fall Specialists

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Hey.

We come alive…

…during a fall.

Though we don’t panic, …

… we do feel a pang, here or there.

However, we have trained ourselves to…

…quickly normalize, …

… and then go about our business, …

… which is, …

… buying during a fall.

It hasn’t been easy.

During the first fall we experienced, we broke down.

You see, we were fully invested, and then that fall happened.

Now came two options.

Quit? Or learn to navigate?

Chose the latter. Learnt.

What did we learn?

We found ways to remain…

…liquid, calm, composed and poised.

Slowly, but surely, we turned into…

…fall specialists.

We argued with ourselves.

How many falls had this market seen in History?

Had they stopped its long-term growth?

In a growth environment like India’s?

The answers reiterated our stand.

The central idea that remained was to stand our ground and lock some great prices in, intensifying buying towards the bottom.

How would one recognize a bottom?

Technicals, pin-bars, big intraday swings, huge volumes, nihilist sentiment, depressing newsflow, one can sense these things if one is mentally there.

And that’s what fall specialists are doing, in the wake of disruption ruling international trade, difficult quarterly results, international fund-flight, regression to the mean, perpetuating newsflow, almost blood on the midcap street, actual blood on the smallcap alley, and what have you.

Yeah, we’re locking in great prices.

Remember to come back and read this piece when sentiment changes.

India is a growth environment, where lucrative prices have been hard to find since CoViD.

So, when these come, is it a wonder that fall specialists are lapping up the action?

Are you Saying These are Small Losses, Mr. Nath?

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No. 

Everything is taking a hit. 

Sure. 

Hit’s actually in the “Wealth” segment…

…and not as such in the “Income” segment.

Would you like to elaborate on this one, sounds pivotal?

Yes it is exactly that, pivotal. Because of this one fact, I’m talking to you with a straight face.

I see.

Auto-pilot income-creating avenues are still doing what they’re supposed to do, i.e. creating income. Nothing has changed there, yet.

You mean something could change there?

Sure, if companies start going bust, their bonds won’t create income. Instead, principal will take a hit. It’s not come to that yet, at least in India. You have an odd company going bust here and there now and then, but nothing major as of now. Income is intact, for now. If were done with CoVID in two months, this factor might not change. Let’s focus on this scenario. 

Right. 

Secondly, we’re highly liquid. We try and become as liquid as possible during good times, ideally aiming to be 80% in cash before a crisis appears. 

How do you know a crisis is going to appear?

This is the age of crises. A six sigma event has now become the norm. After Corona it will be something else. This has been going on from the time the stock market started. It’s nothing new. Come good times, we start liquidating all the stuff we don’t want. 

Don’t want?

Ya, one changes one’s mind about an underlying down the line. At this point, one shifts this underlying mentally into the “Don’t Want” category. Come good times, one makes the market exit oneself from this entity on a high.

Makes the market exit oneself?

Yes, through trigger-entry of sell order.

Why not just exit on limit?

Then you’ll just sell on the high of that particular day at best. However, through trigger-exit, your sell order will be triggered after a high has been made and the price starts to fall. It won’t be triggered if the underlying closes on a high. That way, if you’re closing on a high, you might get a good run the next day, and then you try the same strategy again, and again. In market frenzies, you might get a five to seven day run, bettering your exit by 15-20%, for example. Who wouldn’t like that?

You talk of market frenzies at a time like this, my dear Sir…

The market is like a rubber band. What were witnessing currently is the opposite pole of a market frenzy. Humans beings are bipolar. If they’re reacting like this, they sure as hell will react like the opposite pole when conditions reverse. Especially in India. We’re brimming with emotions. 

Which brings us back to the initial question…

Yes, these notional losses look huge. But, who’s translating them into actual losses? Not us. We’re busy enhancing our portfolios as multiples get more and more lucrative for purchase. That’s entirely where our focus is. We are numb to pain from the hit because our focus is so shifted. 

And there’s no worry?

With such high levels of liquidity, shift of focus, income tap on, dividend tap on – yeah, please don’t ignore the extra big incoming dividends, underlyings taking a hit currently are paying out stellar dividends, and these big amounts are entering our accounts, because we’ve bought such quality – – – we’re ok.

Stellar would be?

Many underlying have shared double digit dividend yields with their shareholders! That’s huge!

So no worries?

No! We’ll just keep doing what we’ve been doing, i.e. buying quality. We’ll keep getting extraordinary entries as the fall deepens. 

What if that takes a long-long time?

Well, the year is 2020. We’re all on speed-dial. 18 months in 2020 is like 15 years in 1929. Because we follow the small entry quantum strategy, our liquidity should hold out over such period, providing us entries through and through. 

And what if it’s a four digit bottom on the main benchmark, still no worries?

NO! Look at the STELLAR entry over there. A bluechip bought at that level of the benchmark can be held for life without worries. So yes, NO WORRIES.

Thanks Mr. Nath.

One more thing.

Yes, what’s that?

What’s my maximum downside in an underlying?

100%.

Correct. Now what’s my maximum upside in an underlying?

Ummm, don’t know exactly.

Unlimited. 

Unlimited?

Yes, unlimited. Entries at lucrative levels eventually translate into unreal multiples. Looking at things from this perspective, now, the size of these notional losses pales in comparison to potential return multiples. It’s a combination of psychology, fundamentals, mathematics and what have you. In comparison, these are still small losses. If we can’t take these swings in our side, we shouldn’t be in the markets in the first place, focusing our energies on avenues we’re good at instead.

Right, got it. 

Cheers, here’s wishing you safe and lucrative investing. 

🙂