The At-Par Point

One grapples with this one, …

…always.

There’s something about the at-par point.

No matter how much logic we try, when the at-par point arrives, logic fails.

Carrying a loser?

Determined to carry it through till 3x?

Wait till the at-par point arrives.

See how psychology changes.

Watch yourself liquidating the stock, despite all previous planning.

Happens all the time.

Carrying a winner?

Letting your profit run?

Underlying then falls to at-par?

Watch yourself liquidating at the speed of light.

It’s ok.

We’re humans, and aversion to loss is a human trait.

This aversion to loss makes us follow the dictates of the at-par point.

How do we go around this, as traders or investors?

Meaning, as we advance in our professions, we don’t wish to be dictated terms to by a particular “non-technical” and “artificially” psychological price point.

So, let’s try and find a workaround.

Underlying is winning. Raise your stop in a defined fashion.

When underlying starts falling, it will hit your stop.

At-par won’t be touched, so it doesn’t even come into the equation.

Underlying is down. Hmmm. What do we do here?

We really want to meet the at-par point here.

We’re desperate.

Convinced about the stock?

Average down.

The at-par point lowers.

When market conditions change, it arrives early.

Don’t wish to average down?

Not convinced about the stock anymore?

Wait.

At-par might or might not arrive.

Arrives?

Well and good.

Doesn’t arrive?

Look to exit as best as possible, if you’re tired of holding.

As investors, one can think about only getting into stocks where one is confident of averaging down if the stock falls. (Traders are suppose to cut trades at or around their stop).

Tweaking (lowering) the level of at-par helps faster recovery in the markets greatly.

Urges

Market forces need to be understood…

…to win in the markets.

When do market forces start affecting us fully?

When we put our own money on the line.

That’s why…

…don’t…

…ever…

learn finance from someone who…

…doesn’t put his or her money regularly on the line.

When we put our money on the line, market forces start changing our psyche.

If we’re holding funds, we develop the urge to buy.

If we’re holding underlyings, we develop the urge to sell.

Early in our career, we give in to these urges at precisely the wrong time, resulting in loss-creation.

As we become more seasoned, we are able to resist such urges, till conditions provide profit.

As our market career continues, this is where fine-tuning matters the most.

How long are we able to resist the urge to sell as the market climbs?

How long are we able to resist the urge to buy as the market crashes?

These are pivotal questions.

One of them is playing out now.

As new highs are made, many have already sold out.

Some have sold partly.

Very few retailers are still holding on to whatever they might have left.

It’s institutions buying and selling.

New entry at these levels are a dizzy proposition.

I won’t hide that as markets climb higher, I experience a very strong urge to sell.

It’s…

…over-compelling.

How do I deal with it?

When such urge is too compelling, one does oblige.

One sells…

…little…

…and that’s the tough one.

One needs to oblige the urge lest some piston bursts, but simultaneously, one needs to hold on to as much as one can…

…since markets are on a roll.

One can’t learn this from a book, or in college.

After selling early many, many times, for more than a decade and a half, one finally learns to hold on to a chunk of one’s underlyings as markets go ballistic.

As heights get higher, this mechanism will make one sell, though, little by little…

…and that’s ok.

Let’s make sure that we do keep holding a chunk of the stuff we really like, though, after having taken the principal out.

Otherwise, how will we allow multibaggers to blossom?

Easier said than done, I know!