Going for the Jugular

It’s time.

Why…is it time?

And, time for what?

It’s time to go for the jugular.

Meaning?

There comes a time, when, after working hard, struggling, doing the whole jig, the rigmarole, you achieve your basics. 

Well done. Pat on your back. 

Then you secure these basics. 

Forever. 

If you can. 

Wonderful. More pats.

Worry factor is now out of the equation. 

Your family is secure. 

Food, safety, education, all basics intact.

Fantastic. You deserve an award. Not that anyone’s going to give you one. Frankly, nobody could care less. Never mind. You know in your mind that you’ve achieved a milestone, and that’s enough for you. 

Whats the next step…

…for you?

Jugular. 

What is this jugular?

Multiplier.

X-factor.

Call it what you will.

What does this mysterious thing do?

Better question is, what is it capable of?

You’re looking to multiply your networth. 

Isn’t everyone?

This is different.

Why?

Because it is coming as a logical conclusion, and not as a first-step with no experience and no secure basics. 

You’re keeping your head-earned basics secure. 

Nothing is touching these. You’ll be surprised at the kind of courage secure basics give you to act further. 

Next, you’ve identified an area where your skill-set can be leveraged into huge profits with minimal risk. 

Specifically in the market, these areas are abundant. 

So what exactly will you be doing?

Playing on a minuscule portion of your net worth. Let’s say not more than 2 %.

Leverage.

Stoploss.

Profit-run.

Position-sizing. Scaling up upon profits. Scaling down upon losses. 

Overcoming your demons. 

Fear.

Worry.

Hypertension.

Exuberance.

Hubris.

Complaecency. 

Going beyond. 

Multiplying.

Going for the jugular. 

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Sheer Moat Investing is not Antifragile 

There we go again. 

That word. 

It’s not going to leave us. 

Nicholas Nassim Taleb has coined together what is possibly the market-word of the century. 

Antifragile. 

We’re equity-people. 

We want to remain so. 

We don’t wish to desert equity just because it is a fragile asset-class by itself. 

No. 

We wish to make our equity-foray as antifragile as possible. 

First-up, we need to understand, that when panic sets in, everything falls. 

The fearful weak hand doesn’t differentiate between a gem and a donkey-stock. He or she just sells and sells alike. 

Second-up, we need to comprehend that this is the age of shocks. There will be shocks. Shock after shock after shock. Such are the times. Please acknowledge this, and digest it. 

To make our equity-play antifragile, we’ll need to incorporate solid strategies to account for above two facts. 

We love moats, right? 

No problem. 

We’ll keep our moats. 

Just wait for moat-stocks to show value. Then, we’ll pick them up. 

We go in during the aftermath of a shock. Otherwise, we don’t. 

We go in with small quanta. Time after time after time. 

Voila. 

We’re  already sufficiently antifragile. 

No magic. 

Just sheer common sense. 

We’re still buying quality stocks. 

We’re buying them when they’re not fragile, or lesser fragile. 

We’re going in each time with minute quanta such that the absence of these quanta (after they’ve gone in) doesn’t alter our financial lives. We’re saving the rest of our pickled corpus for the next shock, after which the gem-stock will be yet lesser fragile. 

Yes, we’re averaging down, only because we’re dealing with gems. We’ll never average down with donkey-stocks. We might trade these, averaging up. We won’t be investing in them. 

Thus, we asymptotically approach antifragility in a gem-stock. 

Over time, after many cycles, the antifragile bottom-level of the gem-stock should be moving significantly upwards. 

Gem-stock upon gem-stock upon gem-stock. 

We’re done already. 

Wisdom of the Lull

It’s awfully quiet.

Are you enjoying the silence?

Or are you fretting and fuming, that there’s no action?

There’s a buzz to silence. It’s charged.

And you can harness that charge.

What for?

For the storm of course. Which is to follow. Don’t you want to be ready for it?

Cycles, people. Finance moves in cycles.

In the ’00s, I used to move from market to market. Action here, action there, action everywhere. Result was, well, I became a “Jack of all trades”, and a master of none.

Well, that’s changed now. With time, I’ve zeroed in on the markets I wish to master. I stay with these markets. No abandoning.

Tell you a secret – every market has idiosyncrasies. These four words take long to find out. Lots of hits. And then one learns these magic words.

Nuances, markets have nuances. Market A will have nuance Z, and market B will have nuance Y.

To master a market , you need to stay with it. Don’t abandon it when it is quiet. You do want to master it, right? So stay. Watch. Don’t do anything if you don’t wish to, but watch. Recognize the idiosyncrasies and their patterns.

Welcome to the wisdom of the lull.

A lull gives you time to consolidate and get your action-plan ready. It allows your nervous system to recharge. You can catch up with stuff you’ve missed out on. Financially, you’re not worried, even if you’re not trading.

Why?

Because your trading corpus is giving you fixed income when its units are not being utilized for trading, silly. And, this fixed income is large enough to support you and your family and then some, remember? That was a basic tenet we had carved out for ourselves before we got into serious trading. Don’t forget the basics. Keep reminding yourself. Financially, a lull needs to give you enough income to support your family and then some, such that you are not required to pull a single trade. Trading 1.0.1. If that’s not the case, first muster up a large enough corpus that fulfills this condition, before you get into serious trading.

Why?

A lull should not have you jumping in your pants, eager to implement dozens of trades in an effort to get basic income going. When Mrs. Market goes nowhere, your trades will eventually keep getting stopped out, because of money stops or time-stops. That’s how you recognize a lull. Now you can shut shop, recharge, watch, and your corpus is still generating basic fixed income, allowing you to harness the full wisdom of the lull.

This is also a time to go over previous trading errors. Let me tell you a story. Remember Jesse Livermore? Well, Jesse was eccentric. Geniuses are eccentric. Jesse was a genius trader. Since there would be no trading action around the end of December and the beginning of January, Jesse used to lock himself up in a bank-vault during this period, stocked with ample food and drink supplies . He would then go over all his trades implemented in the previous year, trying to understand the mistakes he had made. He would come out of the vault when the previous year’s trading had been fully digested by his system. When he emerged from the vault, he was ready to take on the new year.

Why a bank-vault, you ask?

Jesse said he wanted to get a physical feel for money. He wanted to be with it for a while. Trading was too abstract, and one lost touch with reality. By living with real money in a closed space for a few days, Jesse’s system was acknowledging that trading has to do with real money, real losses, real profits.

Yeah, I’m sure the vault had a washroom. Jesse Livermore could pull any stunt with his bankers.

Jesse Livermore was the first trader to realize and harness the wisdom of the lull.

Thanks, Jesse.

Survival Basics – Building a Baseline

Who are you?

Do you really know that?

What’s your core reaction to stuff, let’s say market stuff?

How do you react to a crisis? Do you freak out? How much do you plan to avoid a crisis? How do you feel after hitting a home run? Do you get over-confident and start doing irresponsible things?

What happens to you when the scenario is dull? Do you get depressed? Can you take it?

If you’ve dealt with these and more of such questions, well, bully for you, because you’ve already gone about building your market baseline. And that’s a really proper / solid approach to Mrs. Market.

A baseline is a basic point of reference. It tells you how you normally react to a particular situation. It also lists the emotions you went through, and the consequences you had to suffer owing to your actions. As experience piles up, the number of situations you can refer for also increases.

So, let’s say something unusual happens in the markets. Hmmm, let’s say Greece officially goes bankrupt, and let’s say that you are net-net long, and have been caught unawares. What do you do with your positions? With all the mayhem around you, right, what do you do?

Basics of survival in the markets – in a crisis, refer to your baseline.

Your baseline takes you back to the Lehman default. You remember being net-net long, being caught unawares. You remember ignoring your stops, waiting for a rally. Futures wiped out your principal, didn’t they, because you answered margin calls and waited? You remember the long period of depression after that. Worth it? Naehhh.

So, after referring to your baseline, you don’t ignore your stops. Taking the immediate loss, you bail out of your positions. A large portion of your principal is still intact, living to fight another day.

What about euphoria? How do you deal with euphoria? A position turns into a winner, and you are sitting on a 25% profit in a few days. You are feeling really kicked, and are walking with a swagger. What do you do next?

Basics of prosperity in the markets – at the onset of euphoria, refer to your baseline.

Your baseline tells you, that your behaviour during your last big-winning trade was far from exemplary. In your euphoric state of mind, you were already imagining all the things you would buy with your notional profits. Then, you panicked at the thought of losing any of those notional profits, and you squared-off the trade, taking those profits home, only to see the scrip soar another 80%.

Right! You snap out of your euphoria because of your baseline memory. Then, you install a trigger-stop 8% below the scrip’s current market price. Good. In an effort to capture even more profits, you have put a small part of your existing profits at stake. That’s exemplary behaviour, because now there’s a good chance of capturing a part of the scrip’s further rise.

And boredom? What do you do when Mrs. Market bores you? As in, stops being hit both ways, going nowhere, no market strategy yielding profits? Happens, sometimes for many months in a row.

Basics of maturity in the markets – when Mrs. Market goes nowhere, refer to your baseline.

Oh how you wished you hadn’t ruined that family holiday, right, by continuing to take pot-shots at Mrs. Market the last time she went nowhere. That’s what your baseline is saying.

You switch off, go on another (this time enjoyable) family holiday, and come back refreshed to see that Mrs. Market is now trending, ready to take you for a drive in one set direction.

There’s no limit to baseline referrals.

Systematic players build a baseline, and keep referring to it.

Later, we remember them as successful players.