Tag Archives: #Lumpsum

Lumpsum vs Piecemeal

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What’s a…

…better…

…market entry?

Lumpsum, or piecemeal?

Since I function in a growth market, …

…which can be seen as a microcap vis à vis the world, …

(you guessed it, India, currently exhibiting value, …

…but for our discussion please treat it as a growth market,) …

…and, because this discussion makes the most sense for a growth market exactly, …

…please, therefore, treat this comparison as a tool to help you decide…

…your growth market entry strategy.

You come into a lumpsum, let’s say.

What are your options? For the investible portion that is.

Pump in – one shot?

Average down, bit by bit, as and when opportunities arise?

Two ends of the spectrum. Where do you stand? Let’s break it down.

What’s your capacity for drawdowns?

Can you take a 50% notional drawdown, and not have a sleepless night?

Yes? Sure? Ok, pump it into the long-term growth market in one shot, provided you know your stocks well enough. In ten years time you’ll look like a star. In three months, a fool. One year, bigger fool. Perhaps. Slowly, growth will show, …

…and compound.

In two decades, you’ll rule.

Not able to take the big drawdown? Don’t like looking like a short-term fool?

That’s ok.

Very few people can handle big drawdowns.

Even lesser individuals like looking like fools, even if for a short time.

Then you can go in bit by bit.

Two strategies.

If you know your stocks well, you can average down.

If you want the market to throw you winners, you can average up.

Disadvantages?

Sure. You aren’t subjected to big drawdown pangs, and aren’t chastised by the masses for investing on interim highs. In lieu of that, not all of your money is in, and thus, not all of it is exposed to growth, or for that matter compounding. Also, your money hangs around to be…

…spent.

Don’t like the downsides of either extreme?

There’s a way out for you. You can take the middle path. You can also decide for yourself how ‘middle’ it is.

Decide for yourself a time-period that you want to be in by. 3 months? 6 months, 9 months, 12 months? Longer will take you towards full-on piecemeal.

Decide also, for yourself, about averaging down, up, or down till a level, and from that point onwards, only up. You can say that you are for example going in to a stock with margin of safety, up to a level, but then you would like the stock to prove itself, and from that point onwards, you now start averaging up as the growth story unfolds. You can then couple your averaging down and up combo to your total time-frame selected for going in.

Bottom-line : in X months your funds start getting full growth and compounding effects, as per the cost-averaging mix Y you have chosen.

Both X & Y should be a function of your risk profile.

Isn’t that the reason why you chose the middle path, because you didn’t want to be exposed to lumpsum drawdowns?

So, three choices, break it down, follow what suits.

On a personal front, if money needs to go into a growth market, for me its better sooner than later.

Took a long time to realize this though.

My pursuit for financial independence was impeding this understanding.

The moment financial independence was achieved, along with it came the realization…

…that we don’t wait on a long-term growth market.

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.