Tag Archives: #Win-Win

Thanks, Mrs. Wonderland

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One must note that…

…Mrs. Wonderland…

…has grace.

Impeccably clothed. Hairdo.

She’s really done her homework.

Fitting in.

After all, it’s a very big occasion.

Something Europe and India sat on for almost two decades…

…has now come to pass.

Such was the enormity of the event, that Mrs. Wonderland’s every move and mood has been subject to intense scrutiny.

There was that snipe directed at the former ally.

Ya, at the one that stabbed Europe in the back.

It would have been a wonder had Mrs. Wonderland not thrown that javelin…

…now that she and Europe are in stable hands. I mean, who could resist throwing the verbal spear at the former ally, especially after the humiliating betrayal which took eight decades to decipher and speak out against.

It’s ok, Mrs. Wonderland, we understand you. And now that we have committed to you, we stand by you. Slates are clean. We have discarded any baggage, and are prepared to do big business with you.

However, we don’t do it with an I’ll show them attitude. We’re not throwing any jibes at your betrayer. He or she is still another business partner for us, whenever he or she comes to the table, in a mood to do business. All interactions, with all business partners, are…

…transactional. Period. No emotions. No nostalgic overhang. Pure business. As you so beautifully put it, win-win. Business doesn’t get larger than win-win. The green traffic-light doesn’t get any greener, as they say in Germany.

Nobody understands it better than you, Mrs. Wonderland, that it’s just business. And it will prosper when left alone. Gone are the days of racism, unnecessary visa harassment, double standards, disrespect and what have you.

Right?

You tell us.

Switched on, these are bad for business. Everything that’s happened is because these are switched off. But you already know all this.

Before we part, one small observation about the title of your interaction with India, “mother of all interactions“, or the like, this one was meant to make your ex-ally wilt, we know, we know, and that’s between you and them. When you deal with us, it’s Europe and India for you, and India and Europe for us; we’re looking at each other straight in the face, not left and right.

Thanks Mrs. Wonderland, one appreciates your affirmative smile, and…

…your style.

Price Based Margin of Safety

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You might laugh at this one.

However, it is need based. 

We have been talking so much about small entry quanta. 

A small entry quantum allows for smaller mistakes.

It allows you to enter many times. 

It is small enough to make your capacity for entry outlast the number of margin of safety market days in a year. 

You take your savings. You define what you want to invest in equity for the year. 

You divide it by an estimate for the margin of safety days you might be getting for the year. You arrive at this number by estimating over a ten year average. 

Upon this division, you get your daily entry quantum, for the whole year, on margin of safety days. 

I go one step further to keep a constant small entry quantum defined for longer periods, for any particular entry day. 

As we said, small entry quanta should also mean many entries. 

We won’t be getting the same margin of safety every day.

On many days, we won’t be getting margin of safety at all, in the purist sense of its definition.

We will need to tweak the definition of margin of safety a bit, to have access to many entries. 

We are doing this because we are already on safe grounds. 

First up, we are playing with money we won’t be requiring for the next ten years, or so we estimate. 

Then, this is the money that is coming from our savings and is going into equity. It is for no other purpose. If it eventually doesn’t go into equity, we will end up finding some other use for it, such is human nature, and such is the nature of these multi-tasking times. 

Thus, if we see even a smallish entry possibility, we take it, because of the nature of the small entry quantum approach. 

How do we propose to tweak margin of safety?

We watch the price of a scrip we are unable to enter in. 

We watch, and we watch. 

Still too high. High, too, are fundamental entry allowers (FEAs), like price to earnings, price to book value, price to cash-flow, price to sales, etc., and we don’t enter. 

Then, one day, price starts to drop, for whatever reason. 

It continues to drop to a level, where we feel that for this particular scrip, that’s a pretty decent correction. 

It’s all feeling. 

You can look at charts, but then you tend to look once a month, and the feeling element fails to develop properly. 

So, we’re feeling pretty good about the level of correction, and we cast a glance at the FEAs. 

These are still a tad high, albeit much lower than before. 

For the FEAs to become lower than classic margin of safety levels, there could be a longer wait, or this event might not even happen, especially if we are looking at growth scrips.

If the event does not happen, it means no entry, and with our approach of small entry quanta, this leaves us high and dry with respect to the scrip. 

Are we going to let that happen?

Because of our safe small entry quantum approach, we are not going to let that happen if we can help it. 

When price offers margin of safety but FEAs are still a tad high, we enter with one quantum. 

Then we wait.

Scrip quotes some percentage points (2%, 3%, 5%, you choose) lower than our last entry. We enter with one more quantum, and so on. 

Now, two things can happen. 

The scrip can start zooming from here, and you are going to feel good about your entries. 

Or, the scrip falls further, and quotes lower than classical FEA definitions for margin of safety. 

Are you going to feel bad about your previous entries, which were small mistakes?

No.

Why?

You are too busy undertaking further entries into the scrip, quantum by quantum, for as long as the scrip quotes at levels below classical FEA definitions for margin of safety. 

Soon, you have a lot of entries done, at these safe levels, and you have more than made up for your few small mistakes. 

You’re good. 

In the other scenario, you were good anyways. 

Thanks to your small entry quantum strategy, it’s been a win-win for you all around.