How’re your technicals going?
The whole world looks at the same or similar technicals, you know.
For example, if there’s support, everyone knows there’s support.
If a Fibonacci level has been reached, it’s the identical story.
When a trendline is broken, yes, you guessed it, the story hasn’t changed.
Yeah, we’ve got a problem.
What do we do here?
We don’t have an option but to think a couple of steps ahead.
As in, when a support is reached, we’re still talking about support at minus let’s say 3%, ok? Decide whatever number you wish to for yourself here, but till support minus that number is not breached, in your book, support still hasn’t been broken.
Thinking around, that’s what we are doing here.
We don’t wish to be pushed into market behaviour till something is happening.
We wish to forgo noise.
When we act, we wish to do so in a more sure-shot fashion.
A thinking-around approach thus becomes inevitable.
Similary, it’s not a Fibonacci bounce-off till let’s say (Fib62 + x) has been surpassed. Decide what your x is.
Or, a trendline is not broken till the close says so, or till there are two simultaneous closes below or above it.
You get the drift.
Make your own bye-rules.
That way, for all you know, you could still end up using a potentially defunct technical machinery, which, because of your thinking-around exercise, has suddenly become a powerful and potent tool.
…is my happy space.
When I’m having a difficult market day,…
…I open my calculator…
My friend clears all doubts in a flash.
It’s easy to compound on the calc.
In German they’d say “Pippifax”.
The younger tribe in the English-speaking world would say easy peasy…
Let me run you through it.
Let’s say you wish to calculate an end amount after 25 years of compounding @ 9 % per annum.
Let z be the initial amount (invested).
The calculation is z * 1.09 ^25.
You don’t have to punch in 25 lines. It’s 1 line.
What if you went wrong on the 18th line?
So 1 line, ok? That’s all.
What’s ^ ?
This symbol stands for “to the power of”.
On your calculator, look for the y to power of x key, and then…
…punch in z * 1.09 (now press y to the power of x)[and then punch in 25].
What does such an exercise do for me?
Meaning, why does this exercise ooze endorphins?
Let’s say I’m investing in sound companies, with zero or very little debt, diligent and shareholder-friendly managements, and into a versatile product profile, looking like existing long into the future, basically meaning that I’m sound on fundamentals.
Let’s say that the stock is down owing to some TDH (TomDicK&Harry) reason, since that’s all it’s taking for a stock to plunge since the beginning of 2018.
I have no control over why this stock is falling.
Because of my small entry quantum strategy, I invest more as this fundamentally sound stock falls.
However, nth re-entry demands some reassurance, and that is given en-masse by the accompanying compounding exercise.
At the back of my mind I know that my money is safe, since fundamentals are crystal clear. At the front-end, Mr. Compounding’s reassurance allows me to pull the trigger.
Let’s run through a one-shot compounding exercise.
How much would a million invested be worth in thirty years, @ 11% per annum compounded.
That’s 1 * 1.11^30 = almost 23 million, that’s a 2300% return in 30 years, or 75%+ per annum non-compounded!
Now let’s say that my stock selection is above average. Let’s assume it is good enough to make 15% per annum compounded, over 30 years.
What’s the million worth now?
1 * 1.15^30 = about 66 million, whoahhh, a 6600% return in 30 years, or 220% per annum non-compounded.
Let’s say I’m really good, perhaps not in the RJ or the WB category, but let’s assume I’m in my own category, calling it the UN category. Let’s further assume that my investment strategy is good enough to yield 20% per annum compounded.
Ya. What’s happened to the million?
1 * 1.20^30 = about 237 million…!! 23700% in 30 years, or 790% per annum non-compounded…
…is out of most ballparks!!!
How can something like this be possible?
It’s called “The Power of Compounding”…,
…most famously so by Mr. Warren Buffett himself.
Try it out!
Pickle your surplus into investment with fundamentally sound strategy.
Lo, and behold.
…are the need of the hour.
What are the signs that we need to look out for, to know that a management is benevolent towards its co-owner?
Frugality in lifestyle and attitude is worth looking at.
What I’m trying to say is…
…that one hates to see a promoter living it up on company funds, at the cost of the company’s health.
Living it up is ok. Have the balance-sheet to justify it – first – please.
Are you debt-free? Quasi debt-free will do too.
Does your company ooze free cash-flow?
Are your employees well-paid and automatons for growth?
RoE in the 20s?
Live it up for all I care.
Take a high salary. Throw in a hefty commission.
God bless you.
I still want to co-own your company.
Any or most of these metrics not present & living it up on company money – well, nice knowing you, but no thanks.
We’re then looking for shareholder give-aways, you know,…
…dividends, bonuses, buybacks and stuff.
Again, the balance-sheet should show enough robustness to justify a giveaway.
If it doesn’t, it means that the management is trying to appease shareholders at the cost of the balance-sheet, and that’s an avoid in my book.
Look for simplicity in the annual report.
If one is getting lost in fancy words and hi-fi design, without being given the nitty-gritty at a glance, one is probably knocking on the wrong door.
Free cash-flow is a good thing. It allows for leverage to act upon opportunity and without incurring debt, among other things.
Look at deployment of net cash-flow generated from operating activities also. Deployment should be healthy. Shows growth.
Instead of looking for fad-stuff like synergy, let’s look to see if promoter action adds to the balance-sheet and makes it stronger.
These are just examples.
Sniff out shareholder-friendliness.
Put your own metrics together, to do so.
Yeah, who’s buying?
Sure. Tremendous pipeline, great bargains, of course they’re buying.
They buy and sell for a living.
They make the market for us to trade in.
Let’s forget about them for this discussion.
I mean, is there even a syndicate?
Let’s not go into conspiracy theories.
Whether or not there is a syndicate should not affect us.
…think of anyone else?
Lots of SIPs going in, a few NFOs doing the rounds, yeah, MFs are biting.
More like exiting.
Busy trading I guess, won’t count them as strong hands, they’ll book a profit and will be sellers, over the short to medium term.
What about retail guys?
Retail investors are scared.
They’re tired of bad news.
They’re tired of the markets.
Most have run away.
Most of those who haven’t, want to.
Is any retailer buying?
Well, the small entry quantum guys are.
Firstly, they’re liquid.
Their strategy leaves them liquid, … , like forever.
Till when are they going to buy?
As long as quality is selling cheap, they’ll continue to buy.
Are they scared?
Their strategy gives them the courage to work on full throttle at times just like these.
Times like what?
You know, bad news galore, whatsapps, lay-offs, scams, everything under the sky that can take place – is taking place.
And you know, bring it on. Gloom, doom, kaboom, and quality will start selling even cheaper.
We are loading up on quality and will continue to do so as long as it is cheap.
We’re happy that there’s a buying opportunity.
The correct market strategy for oneself…
…is like a holy grail.
It doesn’t come for free.
Some don’t attain it at all.
Mostly, one does get to it but is not able to maintain it.
It’s great if you can arrive at your correct strategy, and keep it alive, forever.
However, that’s a huge statement.
Lots of caveats will need to be addressed before this statement can be made achievable.
What works for me is lots of hit and trial.
One gets a feel for what is disturbing (to oneself).
Internalization gets our reflexes going on auto.
“Insiding” is a term that I’ve made up signifying the struggle one goes through recognizing whatever needs to be recognized and arriving at one’s correct strategy.
This act of recognition comes from taking hits, year after year, till one is street-ready to handle whatever the street can offer at its worst.
Market action is mostly about making mistakes.
One keeps these small.
Whatever you end up doing right for yourself, …
…, yeah, that’s what you’re scaling up.
Out of ten attempted ideas, one might work.
Out of a hundred, three might work exponentially.
These are the ones.
Stick to these.
Scale them up.
Whatever it has cost you to arrive at them, is mere tuition fees.
Yes, that’s how you’ll need to see things, to remain sane.
Be happy – at least you have something concrete in your hands – a strategy that works – that’s huge.
The moment you see it turning incorrect, leading to market mistakes, just tweak, tweak tweak till the strategy starts working again.
Tweaking will go on as long as markets exist.
What’s a market mistake?
A market mistake is anything that makes you lose money consistently.
A correct strategy is something that yields money consistently.
That’s why one needs to keep things small till major mistakes are out of the way.
Make mistakes, sure, they are bread and butter.
Just don’t repeat them.