Tag Archives: #SkinInTheGame

About that Crash

Posted on by
Reply

Everybody…

…and their Uncles…

…have been yelling…

Crash. Crash. Crash. Crash.

We delved earlier. Ad nauseam. Last we spoke was about deception.

Crash always happens. Nature of markets. Inflation, then deflation, back to mean, first below mean, then to mean. Questions are : how much inflation first? How much deflation then? When does deflation begin? Does anybody know?

NO.

Model the answer?

Sure. It’s at best a…

…guesstimate…

…and please don’t pretend otherwise.

Champion modellers?

Many. TV’s brimming with champions. Some called dotcom. Others gold. Few called silver. Someone’s calling Nasdaq to -70% between 2 weeks and 2 years. Call, call, keep calling.

Meanwhile, we go about our business.

Rather than ruminate and drown in fear of a crash, we go about getting fully invested upon available opportunities.

What?

Why?

Isn’t it better to just save up for the bottom, and then pump it in.

Hmmm. Here, there’s been a shift in thinking at Magic Bull, over the years. At the bottom, here’s a numerically hypothetical scenario, your close one will be whispering in your ear something to the tune of oh-damnation-this-is-going-down-to-5000, and then the index bottoms out at 7749 or something, and reverses upwards like a F1 Red Bull Racing vehicle. Leaving all 5000ers and their bulk liquidity on hold. For re-reversal downwards. Doesn’t happen. At 10k, the 5000ers are losing it. At 15k, they can’t sleep. At 20k they go all in at an interim peak, after having spent half their liquid capital on vacations, splurging, expensive rubbish and whatdon’tyouhave.

Meanwhile, we’ve entered at select spots, and in select underlyings. Fundamentally sound. Zero debt or virtually debt-free. Free cashflow. Clean balance-sheets. Clean governmental audits. Skin in the game. Track record of navigating through disruption. Track record of shareholder-friendliness. Intelligent, diligent, industrious, vigilant people running sound businesses. This is the stuff multibaggers are made of.

Since we are in the game of bringing multibaggers into existence for us, what’s a few months of a good, hard crash to us? It will come and it will go. We are in a growth market in India. For the next three decades. Why are we getting paranoid of a few months when we will be notionally down, still going about our business, lapping up new opportunities which will have set up, not needing our invested funds for five years plus.

We’re not.

Ya, let the crash come.

Apart from the fact that segments across Indian markets are already down 50%+ after having been down 65%+ (crash in India has already happened to a noteworthy extent), a blowdown on the Nasdaq will probably knock Indian counterparts to their recent lows, perhaps another 10 to 15 to 20 % to boot, and then…

…watch the recovery baby.

It’ll leave you behind. You won’t be able to get in funds fast enough. You’ll be a combo of missed the bus and fomo and ruing it and damnation and sleepless nights because of your current fear of impending…

…crash…

…whenever it happens…

…as if 65% off from top for many, many stocks isn’t a crash already…

…and there you have it.

Crash? As in more crash? Fine. Let it come.

Meanwhile, we continue to go about our business. Till the crash. During the crash. After the few months of crash. Well into the V-shaped recovery. In our very own growth market. No need to look elsewhere.

Where do you want to be?

Posted on by
Reply

Where do I want to be?

Do I want to look at a stock price and know where things stand with the stock in question?

Yes.

That’s where I want to be.

It’s not going to come for free.

What will it take?

Looking at the stock…

…for an year or two.

That’s what it will take.

How boring, you say?

Sure.

When stock market investing seems boring…

…that’s when you’re doing it right.

Excitement and roller-coaster rides are for video-game pleasure, and for making losses.

Money is made when it’s outright boring out there.

Where do you want to be?

In the money?

I thought so.

Then, please get used to boring and don’t ever complain again that things are boring.

How does one position oneself in such a manner that one studies a stock for an year or two.

Hmmm.

Let’s put some skin in the game.

I know, this phrase is becoming more and more popular, what with Nicholas Taleb and all.

Yeah, we are picking up stock.

What stock?

The one we wish to observe for an year or two.

Why pick it up? Why not just observe it?

You won’t. You’ll let it go.

Why?

Because it’s not yours.

So we pick up the stock? What’s the point of observing if we’re picking it up now?

Well, we’re picking up a minute quantity – one quantum – now. That gets our skin into the game. Then we observe, and observe. Anytime there’s shareholder-friendly action by the management, we pick up more, another quantum. We keep picking up, quantum by quantum. Soon, while we’ve kept picking up, we’ve observed the stock for so long, that now, one look at the stock price tells us what kind of margin of safety we are getting in the stock at this point.

Wow.

Now, future entries become seamless. One look and we have a yes or no decision. Isn’t that wonderful?

Absolutely.

That’s where we want to be.

Busy Times

Posted on by
Reply

Market falls are busy times. 

No, we’re not busy whining. 

We’re busy buying.

Are we not afraid?

That the crack might deepen?

That it might go down to zero?

No.

We’re not afraid of this scenario. 

Meaning?

Meaning that even though such a scenario cannot be ruled out…

Huh!?

Yeah, it can’t be ruled out. With trade wars and back to back black swans waiting to strike, theoretically, the bottom is zero.

And you’re not afraid?

No.

Why?

Because I buy into fundamentally sound businesses…

…zero debt…

…great 5 year numbers…

…sometimes, great ten year numbers…

…and I buy with considerable margin of safety.

Still, one is normally always afraid, right?

Wrong. A small entry quantum strategy kicks out all remnant fear.

How?

This strategy leaves me liquid. Let it go down to zero. I’ll still have liquidity to buy.

And that which you’re buying…

…is sound, yes. If I buy something sound, it will yield returns. It’s like agriculture. Crops grow in good soil. They don’t grow well in bad soil. I make sure that I choose excellent soil.

How does one do that?

Due diligence. Period.

With all the scams and frauds going on…

Well, I look long and hard for shareholder-friendly managements. Representable salaries, willingness to share, largesse, debt-averseness, intelligence, business savvy, the list goes on.

What if you land up with a fraud management?

Solid research will make you avoid scamsters. I search the internet thoroughly for any kind of smoke. Crooks leave a trail, and one is able to catch their online trail pretty easily. 

Alone online?

Second recourse are annual reports. They reveal a lot. I don’t invest in a company without having a thorough look into its annual reports. I look at CSR, the director’s report, skin in the game, balance sheets, profit and loss statements, cash-flow, special items, what have you.

What if you still land up with a fraud?

After I know I’ve landed up with a fraud management, I would look to exit at the next market high. 

What if your holding is wiped out till then?

If it’s wiped out, I have many other holdings to lean on, and don’t forget the liquidity that is yet to flow into honest managements.

So you’re not afraid of the loss?

There is some risk one has to take. Here, it is the risk of being wrong. The good thing is, once I know that I’m wrong, I won’t double up on my wrong call. I’ll get busy elsewhere and look to exit from my wrong call with as little damage as possible, perhaps even in profit.

Profit?

You forget, I like to buy with margin of safety, and you’d be surprised at what people are willing to pay at market highs. 

I see, well then, happy investing!

Thanks! 🙂