Bonding

As Equity players…

…we enter the bond segment to…

conserve capital.

There is no other reason.

Return?

We do make a slightly better return than a fixed deposit.

We’re not in bonds to make a killing.

That is outlined for the Equity segment.

We’re Equity players, remember. 

I was just going through the top ten holdings of each of FT India’s now “discontinued” (new word for mini-insolvency?) debt funds. (I’m uncertain just now what word they’ve used, was it “stopped”? Or “halted”?) [Just looked up the internet, the words used are “winding up”].

My goodness! 

The fund managers in question wanted to outperform all other funds at the cost of asset-quality. 

Many of these top ten holdings (for six funds, one is looking at six top ten holdings) one would not even have heard of. 

A top ten holding constitutes the backbone of the mutual fund being studied. 

If the backbone is wobbly, the whole structure trembles upon wind exposure. 

This corona black swan is not a wind. It’s a long-drawn out cyclone, to fit the analogy. 

This particular structure has crumbled. 

Fund managers concerned have acted out of greed – that’s the only explanation for above top ten holdings. 

No other explanation comes to my mind. 

That they are also holding large chunks of Yes Bank and Vodafone is more an error in judgement, albeit a grave one. 

People commit errors in judgement.

Could one still overlook the a large chunk’s (10%?) segregation in FT India’s Debt folios, where Yes and Voda bonds have been marked down to zero?

Such a hit is huge in the debt segment.

Why are we in debt?

To conserve capital. 

10% hit in debt?

NO.

Wobbly top ten holdings?

NNOO!

Had no idea that the FT India debt portfolio had so many red-flags. 

Till they dropped the bombshell that they were discontinuing their six debt-funds, from last evening, one had no idea. 

Now that it’s dropped, one digs deep to understand their mistakes.

Why?

One doesn’t want to make the same mistakes. 

One doesn’t want to be invested in any funds in the debt segment which are making the same mistakes.

However, another look at their holdings reassures one that one won’t be making such mistakes, of greed, and of comprehensive failure to read managements and road conditions – in a hurry.

Nevertheless, one wishes to be aware.

Now that one is, all measures will be enhanced to prevent even an inkling of such an outcome for oneself. 

Wait up. 

Such measures were already in place. 

Greed? In bonds? 

We’re in bonds to conserve capital. 

No greed there. 

Top ten holdings?

Rock-solid. 

That’s the fundamental tenet one looks for while entering any mutual fund, whether in the debt or in the equity segment. 

We’re good. 

What is an Antifragile approach to Equity?

Taleb’s term “antifragile” is here to stay.

If my understanding is correct, an asset class that shows more upside than downside upon the onset of shock in this age of shocks – is termed as antifragile.

So what’s going to happen to us Equity people?

Is Equity a fragile asset class?

Let’s turn above question upon its head.

What about our approach?

Yes, our approach can make Equity antifragile for us.

We don’t need to pack our bags and switch to another asset class.

We just approach Equity in an antifragile fashion. Period.

Well, aren’t we already? Margin of safety and all that.

Sure. We’ll just refine what we’ve already got, add a bit of stuff, and come out with the antifragile strategy.

So, quality.

Management.

Applicability to the times.

Scalability.

Value.

Fundamentals.

Blah blah blah.

You’ve done all your research.

You’ve found a plum stock.

You’re getting margin of safety.

Lovely.

What’s missing?

Entry.

Right.

You don’t enter with a bang.

You enter at various times, again and again, in small quanta.

What are these times?

You enter in the aftermath of shocks.

There will be many shocks.

This is the age of shocks.

You enter when the stock is at its antifragile-most. For that time period. It is showing maximal upside. Minimal downside. Fundamentals are plum. Shock’s beaten it down. You enter, slightly. Put yourself in a position to enter many, many times, over many years, upon shock after shock. This automatically means that entry quantum is small. This also means you’re doing an SIP where the S stands for your own system (with the I being for investment and the P for plan).

Now let’s fine-fine-tune.

Don’t put more than 0.5% of your networth into any one stock, ever. Adjust this figure for yourself. Then adjust entry quantum for yourself.

Don’t enter into more than 20-30 stocks. Again, adjust to comfort level.

Remain doable.

If you’re full up, and something comes along which you need to enter at all costs, discard a stock you’re liking the least.

Have your focus-diversified portfolio (FDP) going on the side, apart from Equity.

Congratulations, you just made Equity antifragile for yourself.

🙂

What’s the Intrinsic Value of Inflation – FOR YOU?

Pundits taught about Inflation.

It ate into you.

Did it discriminate?

Nope?

Did life discriminate?

Or was it your Karma?

So you made it to HNI, without perhaps knowing what HNI stands for.

You’re a high networth investor, bully for you.

Here’s a secret. You’re not really bothered too much about Inflation.

What?

Yeah. Don’t bother too much about it. 

Why?

It’s eating into you, given, right. 

By default, you need to look into something that’s eating into you, right?

Well, right, and then, well, wrong. 

You had a hawk-eye on inflation till you made it to HNI. Well done, correct approach.

Now, you’re gonna just use your energies for other purposes, for example for asset allocation, fund-parking patience, opportunity scouting, due diligence – to name just a few avenues. 

Why aren’t you using even a minuscule portion of your energies to bother about the effects of inflation?

Well, simply because it’s not worth the effort – FOR YOU – now that you’re an HNI. 

Sure, inflation will eat into you. However, the way you handle your surplus funds will defeat its effects and then some, many times over. Use your energies to maximise this particular truth. 

What makes you an HNI? Surplus funds to invest, right?

Surplus sits. 

It waits for opportunities. 

An entry at an opportune moment gives maximum returns.

You’ve sifted through the Ponzis. You’ve isolated multi-bagger investments. You’re waiting for the right entry. 

Meanwhile, old Infleee is eating a few droplets of your wad. Let it. Focus on what we’ve discussed. A multi-bagger investment entered into at the sweet-spot could well make ten times of what old Infleee eats up. 

Go for it.