Happy Ninth Birthday, Magic Bull!

Hey,
 
Just turned nine!
 
🙂
 
We’ve seen stuff…
 
…in these nine years.
 
What is our endeavour?
 
We’re in the business of creating wealth.
 
What is wealth?
 
It is something that multiplies over a period of time, …
 
…, perhaps over a long period of time.
 
Wealth affords one things – comfort, medicare, education, luxury, and what have you. So does surplus income, but wealth has the capacity to do this whilst keeping its principle value intact, taking care of our need, and still retaining a large surplus.
 
On the grass-root level, wealth is an idea.
 
Look at it as a multiplication matrix.
 
When we’re looking at money through the spectacles of this multiplication matrix, we’re looking to create wealth.
 
When we’re looking at money without using such spectacle framework, well, then we’re looking at sheer liquidity, income, surplus income / funds etc.
 
In this form, funds are spent, or put into an instrument which returns less than inflation. Funds are burnt over time, and over the long-term, their buying power takes a huge hit.
 
Wealth, on the other hand, returns way beyond inflation. Over the very long-term, returns can even be triple-digit per annum (not using the word “compounded” yet). Double-digit returns, per annum compounded (ya, using it now), are normal. 26% per annum compounded gives a 1000%+ return over 10 years (triple-digit per year)!
 
Wealth kills inflation, and then some, actually, and then lots!
 
The assimilation of wealth doesn’t necessarily follow a linear mathematics.
 
It is better to not look at this mathematics on a day to day basis.
 
Wealth is best created out of sight, out of mind.
 
Why?
 
During the journey to wealth, one needs conviction in one’s rock-solid research.
 
Observing day to day trajectory deviation makes one lose such conviction.
 
Worst-case scenario can be to interrupt the wealth-creation process, or to stop it altogether.
 
One encounters many colleagues on the road towards wealth-creation.
 
Sure, everyone wants in.
 
Who ends up creating wealth?
 
In other words, what’s the wealth-creation mind-set?
 
Our basics have been put in place, by us, laboriously, in the beginning.
 
As in, we have a basic income going. Our needs for the next couple of years are taken care of.
 
We’ve been pickling any incoming surplus away.
 
We don’t need to draw on it for a while, for reasons explained above.
 
Our research is rock-solid.
 
Our small entry quantum strategy has been fine-tuned thoroughly.
 
However, we’ll keep at it, tuning further as per requirement.
 
We believe in ourselves, our research and our strategy.
 
WE are going to end up creating wealth.
 
Holding on to wealth and seeing it through to its logical conclusion will be the next challange.
 
Great year ahead, Magic Bull!
 
🙂 🙂
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My Buddy called Compounding

Compounding…

…is my happy space.

When I’m having a difficult market day,…

…I open my calculator…

…and start…

…compounding.

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…

…(lemon squeasy).

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.

That’s it.

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.

Sit tight.

Lo, and behold.

🙂

Nature of the Beast

Stocks…

…crash.

It’s the nature of the beast.

Stocks also multiply.

For stocks to multiply, one needs to do something.

What is that something?

One needs to buy stocks when they crash.

Let me give you an example. 

Let’s assume markets are on a high, and there’s euphoria.

Excel Propionics is cruising at a 1000.

The prevailing euphoria seeps into your brain, and you buy Propionics at a 1000.

For Propionics to multiply 10 times in your lifetime, it will now need to reach 10,000.

Likely? Wait.

Cut to now.

Stocks are crashing. 

The same stock, Excel Propionics, now crawls at 450.

You have studied it. 

It’s debt-free.

Positive cash-flow.

Ratios are good.

Numbers are double-digit.

Leverage is low.

Management is shareholder-friendly. 

You start buying at 450. 

By the time the crash is through, you have bought many times, and your buying average is 333.

For Propionics to multiply 10 times in your lifetime, it will now need to rise to 3330.

Which event is more likely to happen?

Just answer intuitively.

Of course, the second scenario is more likely to play out than the first one. In the second scenario, Propionics will need to peak 3 times lower.

Simple?

No!

Try buying in a crash.

You are shaken up. 

There’s so much pessimism going around.

Rumours, stories, whatsapps, opinions. The whole world has become an authority on where this market is going to go, and you are dying from inside.

What’s killing you?

The hiding that your existing portfolio is taking, that’s what’s killing you.

Are you liquid?

No?

Very bad. 

Why aren’t you liquid?

Create this circumstance for yourself.

Be liquid.

Optimally, be liquid for life. 

Then, you will look forward to a crash, because that’s when you will use your liquidity copiously, to buy quality stocks, or to improve the buying averages of the already existing quality stocks in your folio. 

How do you get liquid for life?

You employ the small entry quantum strategy.

Yes, that’s about right. 

We’ve been speaking about this strategy in this space for the last two years.

Read up!

🙂

Try retaining one-off Wealth

Easy come, easy go…

…am sure you heard that one before…!

When you come into something too easily, you sure do want to spend it, right?

Well, why not?

However, do take that one step back.

Let’s explore the possibilities here. 

You can spend it all. Have a blast. Blow it up. Yeah. We’ve touched upon that. Know many people like that. 

Or, you can save some and spend some. 

How about that?

Who’s asking you to save it all?

No one. 

You like spending?

Fine. Spend. A bit. Gratify your most burning desires without injuring anyone’s fundamental rights. 

Then, save the rest. Pickle it. Look away. Move on with your life. 

Why?

Lady Luck smiled. You got your one-off dose of wealth. Use some of it to make wealth a permanent feature in your life. 

For that to happen you’ll need to invest, be patient, compound, reinvest and what have you, till many many cash flows take care of all your needs. 

From which point did it start?

From the moment you decided to save some of your corpus and provide it with the necessary environment to grow.

It’s a basic decision…

…, yeah, a real simple one…

…that’s tough to implement. 

Try retaining wealth. 

You’ll then know exactly what I’m talking about. 

The One Basic Difference between Wealth and Income 

What’s with this wealth vs income series? 

It goes on and on. 

So what? 

Any problems? 

Thoughts are like threads. 

They can be pulled into infinite. 

Also, they are a realm in which one has unlimited freedom. 

The speed of thought is faster than the speed of light. 

Think about it. 

From here to there – anywhere – Jupiter – Uranus – some other universe – in a flash. 

Explore your thoughts. Pull them out into infinite threads. It pays. 

We are trying to understand the meaning of wealth. 

How is it different from income?

What’s the one elephant-in-the-room factor that sums up this difference? 

Is there even such a factor? 

Yes, I feel there is. 

Maybe someone’s come up with this before. I don’t care. We all stand upon the shoulders of giants, as do I. From there, we generate our two pennies. 

So, how is wealth intrinsically and basically different from income?

Income is something you take out of your flow, to finance your everyday environment, including shucking up for nitty-gritties in day to day lives of those who depend upon you. 

Wealth can be generated from that portion of your flow that has not been taken out for mundane use. This flow, which has not been taken out, has then been simultaneously allowed to coexist by you in a different form, over a long period of time. It accrues, compounds and multiplies – over the long period of time – into wealth.

The most lucrative things in life are also the most simple ones. 

Being simple doesn’t come easy to most of us. 

That is why the majority of humans are not wealthy. 

Is it just the Japanese?

No.

It’s us too.

We’re all whacky, at some level.

Humans have quirks.

Different ones to make the world go round.

Normal for me would be idiosyncratic elsewhere.

And vice-versa.

So there we are.

The other day someone was talking about panty-automats and strawberry-excretia. Way off the bell-curve, thought I. What was it about the Japanese?

Then, how were we perceived, as people?

We do have some ugly habits, us Indians.

Ever seen a guy doing an ayurvedic nasal-cleanse on the road? Sure.

Most leave the ayurvedic out.

Occupying someone else’s seat – we’re champions at that.

I’m sure you’ve heard of Indian Standard Time.

Cleaning house and throwing the dirt on the road outside our house – yeah, we’re geniuses.

However, one of our quirks is actually positive.

We SAVE.

It’s inborn. In our genes. Adding up. Compounding. All this comes naturally to us.

Yeah, silver lining. Does redeem us a bit, since this particular quality is in short supply, the world over.

Here’s hoping that we infect other nations with the savings bug.

Also, every nation has some positive quirks. Let’s look for these, to adopt.

Cheers!

🙂

Harnessing FD-Power within your Meta-Game

Everyone’s heard of fixed deposits (FDs). 

Are they so non-lucrative?

I believe that in some countries, you need to pay the bank to hold a fixed deposit for you. 

Why does our system shun savings? 

What are savings, actually?

On-call cash. Ready for you when an opportunity arises. 

That’s exactly it. The system doesn’t want you to have ready cash when an opportunity is there. 

Why?

Because finance people have already dibsed on your cash. They want it when opportunity is there. The cash should be available to their institution, not to you.

That’s why, your bankers generally try and get you to commit whatever spare cash floats in your account. They try for commitment towards non-access for a specific period of time.

I don’t know how things are in other parts of the world, but in India, a fixed deposit is still considered ready cash, because one can nullify one’s FD online, in a few seconds. Some banks charge a penalty for such nullification, but this penalty is charged on the interest generated, not on the principal. Therefore, in India, you have access to at least your FD principal (plus a part of the interest generated) when you really need it, all within a few seconds. 

What’s the meta-game here?

You “lock” your money in an FD for one year, for example. Let’s suppose that within that one year, no opportunity arises for you. You cash out with full interest. In India, as of now, if you’re in the top taxation bracket, and are a senior citizen, you’re still left with a return of between 6.6%-6.8% after tax, whereby we are not looking at the effects of inflation here, to keep the example simple, though I know, that we must look at inflation too. We’ll go into inflation some other day. 

Meanwhile, your FD has been on call, for you. Let’s assume that a lucrative investment opportunity does arise within the year, and your break your FD after 6 months, reducing earned interest to 4% annualised from 9.5-9.75% p.a. However, your investment yields you 20% after tax, because it was made at the most opportune moment.

You do the math.

Do you see the inherent power of ready money?

Your FD has thus worked for you in multiple ways. 

It has worked as an interest-generator, yielding a small return. Simultaneously, it has worked as ready cash, on-call in case of opportunity. Should the opportunity arise, and if the investment that follows works out well, a handsome return could be made. It’s all should/could/would in a meta-game. 

There is yet another way FDs are used. I use them this way. 

FDs are a safety-net. They allow you to take high risks elsewhere. You lose the fear of high risk once you know that your family is secured through your safety-net. In a safety-net, sums are large enough and deposits are regular enough to discount (actually effectively / realistically nullify) the power of inflation. With the haven of a safety-net going for your family, you can enter high-risk arenas fearlessly. Fearlessness is a perquisite to do well in high-risk arenas. If you’re afraid of loss, don’t enter such areas. Safety-nets make you lose your fear of loss elsewhere. 

People – SAVE! 

Create FDs. Don’t listen to your bankers. Commit your money to an uncompromisable lock-in only if you’re convinced that the investment is safe and really worth the lock-in for you. Harness the power of the FD for yourself. A safety-net of FDs is the first step towards the formulation of a profitable meta-game.

Did you also know that when you create an FD, the money used to create the FD doesn’t show up as ready cash in your account. Bank accounts with large amounts of ready cash over long periods of time are like red flags which online fraudsters look for. Creation of FDs gives extra online safety to your money. 

ONLY you are responsible for your money.

Start looking after it. 

Start making it grow.

Start saving. 

NOW.