Liqui-Deity

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.

Fitting 2.0.2

What’s the most basic definition of an investment?

Buy low.

Sell high.

And how does one define a (successful) trade?

Buy high.

Sell higher.

Or…

…sell low…

…and buy back lower. 

As one might see, the ideologies of investing and trading are diametrically opposite to each other.

So, how do we fit one with the other.

Though this might not seem so, it’s a tough one.

One’s success at this hangs on finer points.

Is it even necessary to fit one with the other?

Why should a long-term investor also trade?

Then, why should a trader invest for the long term?

Long-term investing is a very hands-off affair.

There are prolonged bouts of doing nothing. 

Hardly anyone can handle that, and just to satisfy one’s urge to do something, one ends up fiddling unnecessarily with one’s long-term portfolio.

Trading fits in precisely to do away with the urge to unnecessarily fiddle. 

Finer points?

Low quantum.

Tension level becomes low.

Trading then becomes fun. 

Clear the platform of any long-term underlyings. 

When we see our long-term portfolio on the same platform on which we trade, we get mightily confused.

It’s like a short-circuit. 

Avoid.

Trade on a separate platform. Invest on another. 

Now let’s address the second question.

Who should invest?

Everyone.

Even the trader.

Why?

Power of compounding, for starters. 

Actively chancing upon margin of safety, since one is in the game all the time – another big one…

…as a trader, sometimes one comes upon great entry rates, where one can hold the underlying for a long time.

That’s a huge opportunity, so one can go for it. 

Furthermore, trading involves recirculating liquidity. After the trade is closed, one lands up back with liquidity. One doesn’t maintain an asset in hand for a longish period. It might be a good idea to do so, just sheer for the sake of diversification.

Some do only like to trade. They enjoy the lightness.

Others like to only invest for the long-term. They are able to handle long bouts of no activity well.

Suit yourself.

Judge if you need a B-game.

Then fit it to your A-game. 

Gauging the Crowd

What was it about winning?

Someone did observe, that 12% of market players win in Equity markets.

In Forex, the number is much lower, something like 5%, I believe. 

If these numbers are to be believed, what’s the obvious takeaway for us?

Behaving like the crowd will not make us…

…win.

Or, in other words, to win, we need to behave in a manner which is not exhibited by the crowd. 

This makes us gauge crowd behaviour…

…almost all the time. 

For example, what does everyone want to do just now?

What did everyone want to do in March?

Did we do the opposite?

If so, we are winning now.

It’s not that one can switch one’s buttons just like that.

It takes experience, solid research, conviction and will-power to go against normal market behaviour.

It doesn’t just come. 

One works towards it, and the only learning comes from mistakes made with one’s money on the line.

That’s the price of tuition in the markets. Unfortunately, books probably won’t teach you this one.

Those who don’t pay this tution-price early, when their ticket-size is still small, well, they can eventually end up doing so later, at a much larger ticket-size.

Just make your mistakes, as many as you can, as early as possible. 

Don’t repeat a mistake.

Great. You’re done already!

How does one gauge the crowd?

Let’s listen in. What are people saying? How many tips are circulating? What’s the quality of these tips? What’s the level of enthusiasm? Is the doorman talking stocks? Folks going all-in at the top?

Or, does no one want to have to do anything with the market? Are you getting calls asking whether one should stop one’s SIP? Is your close relative aghast that you have your money in stocks? Is he or she alerting you to the possibility of an absurd-looking bottom?

The human being is an emotional entity. Blessed be us Indians, we take the cake in being emotional. Not for nothing are our markets correspondingly volatile. And that’s great news for Equity players.

Why?

You’ll see wild swings in the playing fields.

Our indices roller-coast hugely, perhaps the most in the investable world.

We get fantastic bottoms to enter…

…and amazing tops to exit.

Question is, do we leave ourselves in a position to take advantage of this?

Are we continuously gauging the crowd?

Are we continuously behaving like the crowd?

Or, have we made it a habit…

…to win?

Triggers Ahead

Market moves require trigerrs.

In the absence of these, lack-lustre activity results…

…giving rise to illogical short-term trading ranges, for example.

Come a trigger, a move starts, or continues, or even ends, if the trigger is adverse.

What kind of triggers lie up ahead?

US election.

Yeah, Mr. President is going go keep US markets on a high till then, and that will translate over to world markets.

Corona cases receding?

Yes.

Trigger on the upside.

Corona recoveries increasing?

Yes. Reiterates the above.

Vaccine announcement for release expected till December ’20?

Upside trigger.

Vaccine starts showing good results?

Reiterates the above.

Small- and mid-cap buying by institutions to the tune of 28k Cr till the government deadline of January 31, ’20?

That’s a solid one.

This one is going to hold the back-end of the market (small- and mid-caps) perked up and reaching for January ’18 highs.

That’s five triggers back to back.

Any down-triggers in this time-frame?

Hmmm…

…let’s see…

…the picture till January 31, ’20 seems to be quite clear, actually.

Of course one might be wrong, and the model might break down.

That’s when we’ll just change the model.

However, till the model breaks down, one follows a charted roadmap which is already panning out.

Where does that leave you?

Assuming this model hits, there would be frenzied buying in small- and mid-caps just before the January 31, ’20 deadline.

Many MF Houses have announced their cautious and unpanicking approach towards picking up small- and mid-caps.

Come January, some players will not have picked up enough.

If the authorities don’t extend the deadline, these very institutions will make a beeline for such underlyings.

Government fellows will have a bit of a guilty conscience because of the mayhem they caused in this segment in January ’18, ordering the ad-hoc reshuffle of MFs.

To make things good again for affected parties, they might even allow such a frenzy to happen by not extending the deadline…

…and that’s exactly what we want.

Why?

We are waiting patiently for complete euphoria to set in, to sell those inhabitants of our folios, which we don’t wish to hold anymore.

As per this model, this could happen in January.

If It doesn’t, and if the model breaks down, that’s fine too, we’ll just wait for another time and high.

Winning in the markets is mainly about patience and discipline.

Money follows.