Tag Archives: #FixedDeposit

Liqui-Deity

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Ammunition. 

Ask the soldier about it.

Running out of it on the battlefield is the soldier’s worst nightmare. 

We’re soldiers too, in our respective fields of work. 

Our liquidity is our ammunition. 

What counts when an opportunity comes is how liquid we are.

When there is a market bottom, most of us are fully invested.

Is that sound strategy?

Putting together ammunition in one place is where it starts.

Holding on to ammunition and using it when most required – that’s sound strategy. 

Saving habits lead to accumulation.

Barriers hold the accumulated liquidity in one place. 

What are barriers?

Welcome to the world of self-created restrictions in an effort to have liquidity ready when one most needs it.

A dedicated bank account is what one requires first. 

Trading?

Link a bank account to your trading account, and use this one for nothing else.

Next, whatever accumulates in this account – take it away from your direct vision.

Meaning?

Block it as a fixed deposit. 

This is a barrier. One don’t see the funds as available. Thus one don’t feel the urge to use them.

When a trade motivates one enough to be taken, one then most need the funds. 

Break the FD.

Transfer the funds. 

Trade.

Has a trade just culminated?

Nothing else coming up?

Again, take the funds away from your direct vision.

Block them, either directly in your trading account, by putting them in overnight funds, or transfer them back to your bank account, if you know that you are not going to be trading for another week plus. 

Both options are valid. Do either. Bottomline is, the funds should not show up as available until you need them.

Investing?

Link a different bank account to your investing-only trading account.

Make multiple fixed deposits in this bank account, each one being one exact entry quantum in value.

Upon identifying an entry opportunity, whenever that happens, break one quantum’s FD, move the funds, and enter into the investment. 

Liquidity needs to be revered.

Unless we don’t give it proper respect, we will not have it at our beck and call when the next opportunity arises, whether we are trading or investing. 

Let’s go, let’s get our ammunition together, and let’s put it to great use.

What is Human Capital Capable of Doing?

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Sky’s the limit, and so’s the ocean.

That’s the deal with human capital. 

However, we are pretty capable of choosing that kind of human capital which aims for the sky. 

After weeding out the fraudsters, we go ahead and align ourselves with stellar managements. 

Choice of management is one of the top three criteria while selecting a stock. 

Why?

One doesn’t wish to be in a stock with a lack-lustre, dull and boring management which has stagnated and has no creativity.

One wants one’s management to be actively pursuing the prime goal of finding means to beat inflation. 

Equity is perhaps the only asset class that promises to beat inflation, in case a management uses its intelligence. 

That is what good human capital is doing for us all the time, i.e. finding means to beat inflation and maximise profits. 

Inflation is something that eats into our assets, and at a rather alarming rate too. 

Gold, cash, real-estate, fixed-deposits, bonds and other similar asset classes have no choice but to take the hit. The returns they give us in reality can well be negative, with the exception of real-estate and bonds sometimes. However, here, even the real positive returns are expressed after deducting the effects of inflation, and they don’t amount to much, and we’re not really looking at double digits at all after inflation has done its work.

Equity, on the other hand, tells a different story.

It suffices to to sum up the case of equity by saying that this asset class gives inflation adjusted returns.

How?

Managements tear their brains apart to find ways to circumvent the effects of new laws, tariffs, duties, levies, taxes, natural events, unexpected circumstances etc. and the like to try and achieve a commendable balance sheet by the end of the financial year. 

What is inflation?

Exactly this.

Inflation is the sum of all the effects of new laws, tariffs, duties, levies, taxes, natural events, unexpected circumstances etc. and the like on your asset class, and the result that it causes is the diminishing of the value of your asset class. 

Managements thus take inflation head-on, and are constantly devising ways to come out with a stellar performance despite the sum total that we refer to as inflation. 

Because we have chosen to align ourselves with stellar managements that already have a commendable track record in taking inflation head-on and beating it, our assets are ideally positioned to show inflation-adjusted positive returns, year upon year upon year, and perhaps even double digit ones. 

I’ll leave you with some hard cold facts. 

Adjusted for inflation, gold has yielded 1% per annum compounded since the history of its existence. 

Adjusted for inflation, bonds, cash and fixed deposits are yielding negative returns, and have been doing so for a long time now. 

Adjusted for inflation, and after taking the black money component out, real-estate has yielded single-digit returns, per annum compounded.

Adjusted for inflation, all-time equity, including all stocks that don’t exist anymore, has yielded 6% per annum compounded. 

Adjusted for inflation, all-time equity, not including stocks that don’t exist anymore, has yielded 11% per annum compounded. 

Adjusted for inflation, an intelligently chosen portfolio is extremely capable of yielding 15%+ per annum compounded over a period of 10 years or more.

What more can one want from an asset class?

Go for it, do super due diligence, choose wisely, enter in a proper manner, and build up your long-term portfolio. Master the art of sitting, and you will be in a great position to make double-digit returns, per annum compounded, adjusted for inflation. 

🙂

Standing Your Own Ground – 5 Things You Need To Do Now

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Long-term investing is a battle of nerves.

It is not for the faint-hearted. 

It can also be… very lucrative. 

To be successful at long-term investing, one must bury the nerve factor, to ultimately stand one’s ground and emerge victorious.

Let’s see how we’re going to do this. 

First up, let’s look at the quality of money going in. 

Only that money is going in which we don’t really need over the next ten years. No other kind of money is going in. No loan money, no breaking-an-FD-money, no kitty-party-money, no child-education-fund-money etc. etc. Only surplus money and that too a very small fraction of this surplus money – that’s what is going to go in each time. Period.

Why?

We’re reducing the pinch-factor bit by bit and bringing it down to zero.

What is the pinch factor?

Corrections pinch. We need to make the pinch go away. When it’s gone away, there is no pinch. That’s when our minds are clear to do what they are supposed to do during corrections. Yes, during corrections, we diligently buy more with a very clear head and after doing a lot of homework.

Second up, we are only buying with margin of safety. 

When there is no margin of safety, we don’t buy. Period. 

Why?

Margin of safety reduces the pinch factor of a correction even further, and greatly. We’ve bought cheap enough, such that the correcting stock barely makes it back to our entry level as the correction ends and a rally starts. The pain-causing element is thus mostly washed away due to the existence of margin of safety. 

Third up, our due diligence is rock solid. 

We have a check-list of the things we want to see in our stock. 

Are we seeing all of these sufficiently?

We also have a list of all the things we don’t want to see in our stock. 

Are we not seeing even a single factor on this particular list?

When our arduous due diligence gives us a go, this action is coupled with a tremendous confidence-boost in the stock. 

Confidence in an underlying is a very powerful elixir, and kills whatever pinch-factor and nerves that remain. 

We’re not done yet. 

Fourth up, we look for an opportune entry point. 

We’re looking for an inflection-point to enter, a pivot, a Fibonacci-level, an Elliott-wave correction-level or perhaps a rock-solid support, and if none of these are available, we even try and make do with a horizontal base, though a rising base is ok too. A suitable entry point is the icing on the cake for us. If the appropriate entry point is not available, we don’t enter just yet. Instead we wait for an opportunity, when such a point is available, and that’s when we enter. 

Our armour is now very strong indeed. The time has come to seal and sterilize ourselves. 

We block all tips. We don’t talk about the markets with people. We don’t discuss our investments or any rationale. We don’t watch financial TV. There’s absolutely no need to follow live quotes. Market action is limited to as and when the need arises. Index levels and stock prices are only looked at upon requirement. After getting the basics bang-on and putting our money on the line, we are now fully equipped to stand our own ground…

…and this we do with great aplomb!

🙂

 

 

 

 

 

 

From Park Mode to Flow

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Funds find their way …

… to where they want to be.

Thus, if you’re sitting on some surplus, let it sit.

Pressure will be there, to do something about the funds.

Park.

There’s a German saying.

Aus den Augen, aus dem Sinn.

Meaning, that what’s away from one’s eyes is also away from one’s mind, literally translated. However, you do get the drift.

Park your funds in such a manner, that you can’t immediately see them.

It can be something as simple as a savings account linked fixed deposit.

I prefer liquid funds, with my broker in between.

To call in the funds, I need to dial my broker. Then, a full working day needs to elapse before I have access to the funds in my savings account. I find this activation barrier slightly higher than logging in to net banking and nullifying a fixed deposit. That would give access in just two minutes. Too soon for me. I use my off-set day as a buffer, to perhaps contemplate about really going ahead with fund deployment or not. Access in two minutes would mean firing the gun without proper contemplation.

Yes, put an activation barrier between you and your funds. On purpose. Then they are truly parked. What do you do when you park your car? Handbrake on? Of course. So it is with parking of funds too. You put the handbrake on. Your activation barrier is the handbrake.

Now?

Now nothing.

Sit.

Do other stuff.

Lead a full life. Enjoy your life.

Time will pass.

Opportunities will come …

… and go.

Are they making you jump out of your seat?

No?

Right.

Keep park mode on.

Eventually, something will come along that will make you jump.

Homework gives a green signal.

You will want to be in. Every cell in your body will say so.

Kill park modus.

Let the funds flow to where they want to flow, into this opportunity that is making you jump.

Let it be has now turned into let it flow.

Focused Diversification : Mantra for all Times

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I’m more into focus.

One can focus on one thing at a time.

Agreed.

What if after that one thing starts running, it doesn’t require any more focus?

Wow.

Then I focus on another thing.

Get it running.

Then another.

Till my focus window is full.

Let me tell you about my focus window.

I focus on cash, debt, equity, forex, gold, real-estate, arbitrage, and options.

With that, my professional focus in finance is full full full.

I get something running.

That’s it.

Then I don’t need to be with it. Mostly.

Let me run you through.

1). Cash – Bind it in a worry-free and accessible manner. Done.

2). Debt – Study the underlying very thoroughly. Reject 10 underlyings. Take up the 11th which passes all criteria. Be happy with a slightly better than FD-return. Done.

3). Equity – Invest for life. Study till you drop the stock or take it up. Only invest in what meets all criteria and offers margin of safety at time of investing. On top of that – SIP (systematic investment plan). Done.

4). Forex – Get a software robot to trade it for you. Or some human-capital. All available online. Requires a bit of fine-tuning. Keep tuning till you start making a return. Done.

5). Gold – Buy physical gold. Research your source. Needs to be impeccable. Bullion. Coins. SIP. Accessible. No jewellery. Done.

6). Real-estate – Make your real-estate yield you an income. Regular income? Done.

7). Arbitrage – Understand what this is, and why it gives you a tax benefit. Get an online MF account going with Kotak MF or DWS. Divert some funds into their arbitrage MF, either or. I prefer Kotak. Monthly dividend payout option. Done.

8). Options – Get the option-strategy going. You don’t require a desktop. Mobile is sufficient. All you now need to do is take care of square-off. On mobile. This means a slightly higher level of engagement than the above avenues. Only slightly. Are you ok with that? Fine. Done.

In a flow, it’s all doable.

And, you remain focused.

Why all this?

Times demand it. You never know what might come in handy, and when.

Yeah, times are tough.

However, you are tougher.

To use Nassim Nicholas Taleb’s terminology, you are antifragile.

Let it come, then we’ll see…

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Looking around for an opportunity?

Or letting one come?

Does it matter?

Is there a difference?

You bet!

When you’re looking around, you could be in a hurry. You want to get it over and done with.

Big mistake.

You are vulnerable.

Entry price will be expensive.

Your adversary feels your anxiety and jacks up entry level.

Quality? What quality? You’re in a hurry, right?

Don’t be.

Hurry spoils the curry.

Let the investment come to you.

It will.

Brokers are restless. They want to sell. They’ll knock at your doorstep once they know your funds situation. And, believe me, they won’t ask you about your funds situation. They’ll ask your banker. In fact, your banker could well be on retainer. He’ll make sure that high quality info ups his retainer fee. That’s how it works today. Don’t believe me? How come so many people have your cell number? Did you give it to them? No? Information is a commodity. It can be bought for a price.

So, wait.

Block your surplus funds as fixed deposits.

Get an overdraft going for one fixed deposit.

Delve into your normal activities.

Now you’re sitting pretty.

An opportunity comes.

It’s cr*p. Broker’s hoping you’ll bite into the nonsense being sold.

You tell the broker to buzz off. Lack of hurry gives you the clarity required to act like this.

Something lucrative comes along. Price is right. You overdraft on your FD. Yeah, it’s ok to pay the price for quality with margin of safety.

You can always fill in the overdrafted amount as new funds accumulate. The nominal interest paid for ODing is called opportunity fees. It’s chicken-feed. Just forget about it.

The best investments in life are worth waiting for.

IUCS – Investing Under Controlled Stress

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Let’s assume there are funds waiting to be invested. 

In what form do you keep them?

Free?

Bound?

What?

Investors have the luxury of time. Traders don’t. 

I’m really telling you, an investor’s funds need not be kept in free form. 

Traders need to pounce, not investors. 

If you don’t need to pounce, don’t keep your funds in free form. 

Keep them bound. Semi-bound. Let’s call it stressed. Keep them stressed. Stress that is under your control. 

What are we talking about?

Also, why are we talking about whatever we are talking about?

Free funds are open to whims and fancies. 

Whose? 

Yours. Your bankers’. Anyone’s, who has an eye on the funds. 

Plush with free funds, you take liberties. Your defences are down. You are liable to make mistakes, perhaps big ones. 

Bound funds, on the other hand, are subject to activation barriers before release. 

You think twice before releasing them, or perhaps thrice, if the locking is tight. You win precious time. During the extra time, you can well scrap an investment with a faulty premise, or you can discover hidden agendas or angles which cause you not to follow through. You get saved because of controlled stress. 

Furthermore, bound funds don’t reflect on your banker’s system as funds waiting to be invested. He or she won’t bother you or incite you to make a mistake. You’ve knocked him or her out of the equation. Bravo!

Controlled stress can be of different degrees. When funds are irreversibly locked-in, then we cannot talk of control anymore. Anything below that is under our control with varying levels of effectivity. The stronger the (reversible) lock-in, the harder you’ll think about the new investment, because the activation barrier for making funds free again to invest is large. 

Let’s not get too carried away. We can just make simple fixed deposits. These are completely within our control. You can break them with a letter to the bank manager. The activation barrier to free them is relatively small. However, you do think twice before freeing them. The’ve disappeared from your banker’s horizon. They’ve also disappeared from any online fraudster’s horizon, who was perhaps looking to clean you out. 

Also, actually, you don’t really need to break these fixed deposits to get into a new investment, since breaking goes with a small interest-penalty. If you’ve got fresh funds coming in at a later date, but wish to invest now, you can borrow against a fixed deposit. This will again make you stop and think, because borrowing comes with a cost, i.e. interest. You will only get into the fresh investment if you really, really have to / want to. You will discard any half-baked investment idea. It’s still worth it, despite the interest. You might find this a bit crazy, bit I like to do it like this. For me, the biggest win here is that I am not breaking a former structure. Add to this the extra safety. Plus the extra thinking-time to ward-off bad investments. Add everything up, and you might also think that the borrowing cost is peanuts when compared to the benefits. Don’t forget, since you’ve got fresh funds coming in soon, you’ll soon be releasing the fixed deposits you are borrowing against from their overdraft mode. This is a meta-game strategy. 

Yeah, keep investible funds in fixed deposits. It is really as simple as that. 

The best things in life are really very simple. 

Complication and sophistication are facades used by humans to hide their mediocrity.

A successful person does not need to hide his or her simplicity. 

Simplicity is one of the biggest precursors to mega-success.