Equity – The New Normal for Parking

Who’s the biggest…

…Ponzi…

…of them all?

Insurance companies?

There’s someone bigger.

The government. 

Legit.

Probably not going to go bust…

…at least in a hurry. 

Moves money from A to B…

…with minimum accountability. 

Resurrects skeletons and gives them infinite leases of life…

…with good, clean and fresh funds…

…that flow out of the pockets of helpless citizens. 

So, what about the government’s bond?

Sovereign debt.

The herd is flowing to sovereign debt, and to some extent to 100% AAA max 3 month paper duration liquid funds. 

This is after the johnnies at FT India miscalculated big-time, and had to wind-up six debt mutual fund schemes in their repertoire.

Should one do what the herd is doing?

Let’s break this down. 

First up, the herd exited credit-risk funds en-masse, post FT India’s announcement. Logical? Maybe. Safety and all that. Took a hit on the NAV, due to massive redemptions. I’m guesstimating something to the tune of 3%+. 

This seems fine, given the circumstances. Would have done the same thing, had I been in credit-risk. Perhaps earlier than the herd. Hopefully. No one likes a 3%+ hit on the NAV within a day or two.

Let’s look at the next step.

Sovereign debt is not everyone’s cup of tea. 

Especially the long-term papers, oh, they can move. 3% moves in a day are not unknown. 13-17% moves in a year are also not unknown. A commoner from the herd would go into shock, were he or she to encounter a big move day to the downside in the GILT (Government of India Long Term) bond segment. Then he or she would commit the blunder of cashing out of GILT when 10% down in 6 months, should such a situation arise. This is absolutely conceivable. Has happened. Will happen. Again.

There are a lot of experts advocating GILT smugly, at this time. They’re experts. They can probably deal with the nuances of GILT. The herd individual – very probably – CAN’T. The expert announces. Herd follows. There comes a crisis that affects GILT. Expert has probably exited GILT shortly before the onset of crisis. Herd is left hanging. Let’s say GILT tanks big time. Herd starts exiting GILT, making it fall further. Expert enters GILT, yeah – huge buying opportunity generated for expert.

More savvy and cautious investors who don’t wish to be saddled with the day to day tension of GILT, and who were earlier in credit-risk, are switching to liquid funds holding 100% AAA rated papers.

Sure. 

This is probably not a herd. Or is it?

Returns in the 100% AAA liquid fund category are lesser. Safety is more. How much are the returns lesser by? Around 1.5 to 2% lesser than ultra-short, floating-rate and low-duration funds. 

Ultra-short, floating-rate and low-duration funds all fall under a category of short-term debt which people are simply ignoring and jumping over, because apart from their large size of AAA holdings, a chunk of their holdings are still AA, and a small portion could be only A rated (sometimes along with another smallish portion allocated in – yes – even sovereign debt – for some of the mutual funds in this category).

The question that needs to be asked is this – Are quality funds in the category of ultra-short, floating-rate and low-duration funds carrying dicey papers that could default – to the tune of more than 2%?

There’s been a rejuggling of portfolios. Whatever this number was, it has lessened.

The next question is, if push comes to shove, how differently are 100% AAA holdings going to be treated in comparison to compositions of – let’s say – 60% AAA, 30% AA and 10% A?

I do believe that a shock wave would throw both categories out of whack, since corporate AAA is still not sovereign debt, and the herd is not going to give it the same adulation. 

The impact of such shock wave to 100 % AAA will still be sizeable (though lesser) when compared to its cousin category with some AA and a slice of A. Does the 2% difference in returns now nullify the safety edge of 100% AAA?

Also, not all corporate AAA is “safe”. 

Then, if nobody’s lending to the lower rung in the ratings ladder, should such industry just pack up its bags? If the Government allows this to happen, it probably won’t get re-elected.

The decision to remain in this category encompassing ultra-short, floating-rate and low-duration bond mutual funds, or to switch to 100% AAA short-term liquid funds, is separated by a very thin line

Those who follow holdings and developments on a day to day basis, themselves or through their advisors, can still venture to stay in the former category. The day one feels uncomfortable enough, one can switch to 100% AAA. 

This brings us to the last questions in this piece. 

Why go through the whole rigmarole?

Pack up the bond segment for oneself?

Move completely to fixed deposits?

Fine.

Just a sec.

What happens if the government issues a writ disallowing breaking of FDs above a certain amount, in the future, at a time when you need your money the most?

Please don’t say that such a thing can’t happen.

Remember Yes bank?

What if FD breakage is disallowed for all banks, and you don’t have access to your funds, right when you need them?

Sure, of course it won’t happen. But what if it does?

You could flip the same kind of question towards me. What happens if the debt fund I’m in – whether ultra-short, or floating-rate, or low-duration, or liquid – what happens if the fund packs up?

My answer is – I’ve chosen quality. If quality packs up 100%, it’ll be a doomsday scenario, on which FDs will also be frozen dear (how do you know they won’t be?), and GILTs could well have a 10%+ down-day, and, such doomsday scenario could very probably bring a freeze on further redemptions from GILT too. When the sky is falling, no one’s a VIP.

Parked money needs to be safe-guarded as you would a child,…

…and,…

…there spring up question marks in all debt-market categories,…

…so,…

…as Equity players, where do we stand?

Keep traversing the jungle, avoiding pitfalls to the best of one’s ability. 

How long?

Till one is fully invested in Equity. 

Keep moving on. A few daggers will hit a portion of one’s parked funds. Think of this as slippage, or as opportunity-cost. 

Let’s try and limit the hit to as small a portion of one’s parked funds as possible. Let’s ignore what the herd is doing, make up our own mind, and be comfortable with whatever decision we are taking, before we implement the decision. Let’s use our common-sense. Let’s watch Debt. Watch it more than one would watch one’s Equity. Defeats the purpose of parking in this segment, I know. That’s why we wish to be 100% in Equity, parked or what have you, eventually. 

As we keep dodging and moving ahead, over time, the job will be done already.

We’re comfortable with the concept of being fully parked in Equity. 

Whereas the fear of losing even a very small portion of our principal in the segment of Debt might appear overwhelming to us, the idea of losing all of one’s capital in some stocks is not new for us Equity players. We have experienced it. We can deal with it. Why? Because in other stocks, we are going to make multiples, many multiples, over the long-term.

Equity seems to be the new normal for parking

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. 

Inflammation Anyone? 

Inflammation… 

… needs a reason to be… 

… and a reason to go. 

Let’s talk about the most common inflammation afflicting mankind. 

Sugar induced obesity. 

Human body recognizes Glucose and metabolizes it. 

However, the same human body treats isolated Fructose as poison. 

HFCS, short for high fructose corn syrup, is therefore full of poison. 

HFCS is much cheaper than table sugar. 

HFCS is used in big volumes by the food industry. It’s replacing normal sugar. Everywhere. It’s sheer… poison. And it’s cheap. Very cheap. 

It’s in cola, it’s in ketchup, it’s in almost all processed foods.

What happens to it in the body? 

Well, what happens to poison?

It goes straight to the liver. This wonderful and magnanimous organ tries to break it down. 

One big side-effect of the breakdown mechanism is the triggering of inflammatory enzymes. Body cells then start to swell up to protect themselves from poison. To and fro is impaired. They don’t want poison coming in. Unfortunately, good stuff, like insulin that throws out excess sugar, is also not allowed to enter.  Mankind is poisoning itself to obesity. 

Cut out the HFCS. 

Exercise to shake out inflammatory mechanism. 

See how your inflammation vanishes. 

Now let’s talk about the most common financial ailment afflicting mankind. 

Debt. 

We are in debt. 

We take more debt. 

We surround ourselves with useless paraphernalia, to ward off reality. 

Inflammation, again, disguised, but inflammation. 

Ultimately,  the mountain of due interest buries us under it. It chokes off our air-supply, just as obese cells produce “bad” lipids that deposit as mountains of plaque in our arteries, and choke off our blood supply. 

Let’s nip the problem in the bud. 

Like no HFCS – no debt. 

Craving for sugar? Fine. Control. To a point. Still craving. Fine. Have. But have normal sugar, along with fibre. Don’t have anything that contains HFCS. Shake off the relatively minor inflammation caused by normal sugar with exercise. You’re good. 

Longing to spend money? Control. To a point. Still longing to possess that something? Fine. Save. Consolidate. Accumulate cashflow. Only use debt when upcoming cashflow nullifies it in very foreseeable future. You’ve gotten your something, and you’re either debt-free already, or are going to be debt-free very soon. 

You’re good. 

🙂 

Happy Sixth Birthday, Magic Bull!

Phews…

…game’s getting interesting…

…as we turn six. 

We’re thinking of endgame scenarios. 

We don’t consider endgame-discussion to be silly anymore. 

We’re not treating an endgame as far-off. 

We’re financial-health-conscious. 

We’re learning to detest debt. 

We understand that debt is a virus. 

It starts to eat us up from inside. 

The only avenue when we do consider debt as a tool is when cashflow fills up any void soon enough, annihilating whatever debt that’s been incurred. 

Debt-free-ness is our goal. 

Maintenance of debt-free-ness becomes our natural endeavour. 

Why?

Such a condition leads to burgeoning financial health,…

… ultimately culminating in full financial freedom. 

We take “two minutes of freedom” to think about what financial freedom means. 

Not needing to worry about repayment of any bill, whenever, whatever, however much…wow!

That’s where we want to be. 

If we’re not there yet, we’re defining conditions that’ll get us there. 

If we’re there, we’re ultimately starting to realize, that one can’t eat money. 

Money is a force. It’s physical existence is in the form of paper. However, the force nature of money is what we’re in the process of understanding. 

Force can be used to do the highest good, but also its opposite. 

A part of our excess force is diverted towards doing good. 

Charity. 

Upliftment.

Legacy. 

What are we if we don’t leave behind a legacy?

What will we have lived for?

This is our one shot, and it’s a big one. 

We’re making it count.

Slowly, realization is taking over. 

We’re evolving. That’s one side-effect of financial freedom, but one needs to want to evolve too. 

Our evolution is making us divert more and more funds towards the greater good. 

We’ll take that. That’s fantastic. No further discussion required. 

Happy reading!

🙂

From Strength to Strength 

Baby steps… 

… into freedom. 

What kind of freedom are we talking about? 

Universal freedom? 

If you insist, smarty, but first things first.

Financial freedom. 

That’s the kind of freedom that sparks off every other kind of freedom. 

Our first and foremost goal is to achieve financial freedom. 

What is the one big nemesis of financial freedom? 

Debt. 

Tear off debt. 

Detest it with every cell of your body. 

If it comes towards you, move in the other direction.

Don’t allow it’s tentacles to engulf and then strangle you. 

You do all that by nipping it in the bud. 

A new world order in being defined. 

The debt-free… 

… and the in-debt-ones. 

Where do you wish to belong?

The former category calls the shots. 

That’s where you belong. 

Your every move… 

… takes you from strength to strength… 

… towards debt-free-ness. 

Full financial freedom is a short walk from there. 

Story doesn’t stop there, sure, your strength-momentum sees to that.

However, it’s the first debt-free million that’s always the hardest-fought, and the most-fondly remembered.  

Nath on Equity – Yardsticks, Measures and Rules

Peeps, these are my rules, measures and yardsticks. 

They might or might not work for you. 

If they do, it makes me happy, and please do feel free to use them. 

Ok, here goes. 

I like to do my homework well. 1). DUE DILIGENCE. 

I like to write out my rationale for entry. 2). DIARY entry.

I do not enter if I don’t see 3). VALUE.

I like to see 4). MOAT also. 

I don’t commit in one shot. 5). Staggered entry.

I can afford to 6). average down, because my fundamentals are clear. 

My 7). defined entry quantum unit per shot is minuscule compared to networth. 

I only enter 8). one underlying on a day, max. If a second underlying awaits entry, it will not be entered into on the same day something else has been purchased. 

I’ve left 9). reentry options open to unlimited. 

I enter for 10). ten years plus. 

Funds committed are classified as 11). lockable for ten years plus. 

For reentry, 12). stock must give me a reason to rebuy. 

If the reason is good enough, I don’t mind 13). averaging up. 

Exits are 14). overshadowed by lack of repurchase. 

I love 15). honest managements. 

I detest 16). debt. 

I like 17). free cashflow. 

My margin of safety 18). allows me to sit. 

I pray for 19). patience for a pick to turn into a multibagger.

I keep my long-term portfolio 20). well cordoned off from bias, discussion, opinion, or review by any other person. 

There’s more, but it’ll come another day. 

🙂

Market-maker

Manipulation. 

Recognition. 

Alignment. 

Trade. 

Spike. 

Out. 

How does one recognize manipulation? 

On the charts. 

After eyeballing many many charts, one gets a feel for it. 

Manipulated strike-points become pivot points. 

It’s a push from a fund-heavy conglomerate. Push becomes a cascade as traders join in. 

After the spike, the market-maker pulls out funds so cleverly that rates don’t fall. 

Funds are now ready for the next push. The same funds. 

Repeat. Same loop. 

Till strategy fails. 

Then, maker starts manipulating in opposite direction. 

Life’s busy for the maker. 

There’s trouble with the authorities. Ends on a compromise. Maker will step in when authorities need to prop the market. 

No maker – no market. 

Why do you think there’s always a quote to your underlying? 

Because of the maker. 

After a market has crossed critical mass, makers sit on their spikes. They roll-over on expiries, and enjoy the ride. 

Ride is not always smooth. 

Makers often get greedy and break their own rules. Functioning with no safeties, many makers get wiped out. To add to their woes, a large percentage functions on borrowed money. 

Makers have an electronic life, which loops from cellphone to terminal and back. It’s a life that’s punctuated by headaches, physical and mental. 

Don’t envy a maker. 

He or she is just doing his or her job. That’s all. 

Trade the maker. 

The Thing with Sugar and Dairy

It’s common knowledge now. 

Cancer cells love sugar and dairy. 

In fact, they love them so much, that they grow ten (?) times faster in their presence. 

Just act as if the question mark isn’t there. 

I’ve put it there because I’m not sure whether the number should be eleven, or nine, or what have you. 

However, the numbers are deadly. 

Shocker, right?

Spent my childhood gobbling sugar and gulping dairy. Didn’t know any better. 

Now, only dairy going in (hopefully) is the good dairy. Yoghurt. 

Only sugar in diet is the good sugar. Honey. 

At least, that’s the goal. 

What makes these two “good”?

There’s something bio in them. 

Yoghurt’s got bacteria. They’re the good bacteria. They cleanse one’s system. Cancer cells don’t like them, because probiotic bacteria probably break them down. 

Honey’s got the saliva of bees, containing vital enzymes. These catalyse various biochemical and metabolic processes. Cancer cells don’t like them either. They like the sweetness of honey, but not these enzymes. So, honey’s a tad less dangerous.

The bio-portion saves the day. It’s for a good cause. It’s purpose is friendly, and positive. 

Cut to equity. 

Where does one look for terminal disease?

In balance-sheets and annual reports. 

Debt. 

Promoter ego.

Fraud. Scam. Manipulation. 

Creative accounting.

These are some of the things that can cause terminal disease. 

All of them might exist, at some level, in any given balance-sheet and / or annual report. 

What we need to gauge in our minds are the levels. 

Is any level alarming enough to cause terminal disease, or for that matter just disease?

Bearable debt leading to growth is even a good thing. It’s like a tonic. Unbearable debt leads to terminal disease. We need to stay away from a stock with unbearable debt on its balance-sheet.

Nothing functions without ego. I am. Therefore I do. However, an overbearing and overambitious ego leads to disastrous decisions that can cause terminal disease. We need to stay away from companies whose promoters have overbearing, self-promoting and overambitious egos. Such promoters don’t even realize when they’re functioning in self-destruct mode. Am not going to take any names here, but you get the gist. 

Frauds, scams and manipulations come under the category of “sheer disease that’s already terminal or just one step away from going terminal”. Upon finding them, needless to say, avoid the stock.  

Accounting. Sure, everyone’s busy getting creative here. We need to separate positive accounting from its negative counterpart. 

Accounting that leads to fund-availability at the time of need and results in value-creation for the shareholder is to be welcomed. This kind of accounting does not cause terminal disease. It creates a detour that strengthens the company overall in the long run. 

Such accounting whose sole purpose is to deceive the shareholder and benefit the promoter is a very big red flag. This kind of accounting leads to terminal disease.

While zeroing in on a quality stock, you’re simultaneously ensuring longevity-enhancing conditions. 

In the process, you’re automatically ensuring that your portfolio accumulates one gem after another. 

Wishing for you happy and successful investing. 

🙂

Additive Connectivity

What’s your market footprint like?

Meaning, where do you tread?

How do you tread?

Are you making a hash of it?

Do you connect the dots?

Are you organized?

Does your one action span across multiple goals?

What exactly are we talking about?

Chaos. 

You are your own light. 

Nobody can help you, except you, ultimately. 

Therefore, gear yourself up, to win the game for yourself. 

It possibly won’t come to exist, that you do one market thing. 

Market activity is multi-faceted. 

Even if you’re trading one single entity, there are many actions that go along with this one single activity. 

Yes, we’re talking about market actions. 

The sum total of your market actions is your market footprint. 

Make your actions additive. 

Meaning?

Each action should add to you. 

If an action is not adding to you, don’t do it. 

Even an action that stops further loss adds to you, for example. 

Also, make your actions connect across segments. 

Meaning?

Let’s say I’m eyeing a stock for a possible purchase, or a repurchase. Stock gaps down next morning, before my action. Aha. Hold. 60-70% of all gap-downs play out further. There’s a solid reason for gap-downs. So… hold. Yeah, action on hold. Why? I will possibly get a better price for reentry later, there’s a 60-70% chance of that. Thus, an action now won’t add to me. Action postponed. What do I do with the money set aside for the repurchase? Liquid mutual fund purchase. Online. Seamless. Connecting across? Absolutely. I’m simultaneously accumulating liquid funds to later go in for a private-placement NCD. Therefore, my one action from the equity segment has connected across to the debt segment. Yeah, connectivity. Additive. Stopped me from possible high entry. Made upcoming NCD purchase more possible by adding to its intended corpus. Additive Connectivity. 

Yeah, make yours a winning footprint. 

Before signing off, I’d like to share with you that i’ve just decided to take additive connectivity to the nth level for myself. 

Sure, I’ll be sharing more examples. 

Sharing brings joy to everyone, even to the person who is sharing. 

Focused Diversification : Mantra for all Times

I’m more into focus.

One can focus on one thing at a time.

Agreed.

What if after that one thing starts running, it doesn’t require any more focus?

Wow.

Then I focus on another thing.

Get it running.

Then another.

Till my focus window is full.

Let me tell you about my focus window.

I focus on cash, debt, equity, forex, gold, real-estate, arbitrage, and options.

With that, my professional focus in finance is full full full.

I get something running.

That’s it.

Then I don’t need to be with it. Mostly.

Let me run you through.

1). Cash – Bind it in a worry-free and accessible manner. Done.

2). Debt – Study the underlying very thoroughly. Reject 10 underlyings. Take up the 11th which passes all criteria. Be happy with a slightly better than FD-return. Done.

3). Equity – Invest for life. Study till you drop the stock or take it up. Only invest in what meets all criteria and offers margin of safety at time of investing. On top of that – SIP (systematic investment plan). Done.

4). Forex – Get a software robot to trade it for you. Or some human-capital. All available online. Requires a bit of fine-tuning. Keep tuning till you start making a return. Done.

5). Gold – Buy physical gold. Research your source. Needs to be impeccable. Bullion. Coins. SIP. Accessible. No jewellery. Done.

6). Real-estate – Make your real-estate yield you an income. Regular income? Done.

7). Arbitrage – Understand what this is, and why it gives you a tax benefit. Get an online MF account going with Kotak MF or DWS. Divert some funds into their arbitrage MF, either or. I prefer Kotak. Monthly dividend payout option. Done.

8). Options – Get the option-strategy going. You don’t require a desktop. Mobile is sufficient. All you now need to do is take care of square-off. On mobile. This means a slightly higher level of engagement than the above avenues. Only slightly. Are you ok with that? Fine. Done.

In a flow, it’s all doable.

And, you remain focused.

Why all this?

Times demand it. You never know what might come in handy, and when.

Yeah, times are tough.

However, you are tougher.

To use Nassim Nicholas Taleb’s terminology, you are antifragile.

Let it come, then we’ll see…

Looking around for an opportunity?

Or letting one come?

Does it matter?

Is there a difference?

You bet!

When you’re looking around, you could be in a hurry. You want to get it over and done with.

Big mistake.

You are vulnerable.

Entry price will be expensive.

Your adversary feels your anxiety and jacks up entry level.

Quality? What quality? You’re in a hurry, right?

Don’t be.

Hurry spoils the curry.

Let the investment come to you.

It will.

Brokers are restless. They want to sell. They’ll knock at your doorstep once they know your funds situation. And, believe me, they won’t ask you about your funds situation. They’ll ask your banker. In fact, your banker could well be on retainer. He’ll make sure that high quality info ups his retainer fee. That’s how it works today. Don’t believe me? How come so many people have your cell number? Did you give it to them? No? Information is a commodity. It can be bought for a price.

So, wait.

Block your surplus funds as fixed deposits.

Get an overdraft going for one fixed deposit.

Delve into your normal activities.

Now you’re sitting pretty.

An opportunity comes.

It’s cr*p. Broker’s hoping you’ll bite into the nonsense being sold.

You tell the broker to buzz off. Lack of hurry gives you the clarity required to act like this.

Something lucrative comes along. Price is right. You overdraft on your FD. Yeah, it’s ok to pay the price for quality with margin of safety.

You can always fill in the overdrafted amount as new funds accumulate. The nominal interest paid for ODing is called opportunity fees. It’s chicken-feed. Just forget about it.

The best investments in life are worth waiting for.

What is it about Vacuums?

I borrow often.

Shocked?

You won’t be, after you hear my borrowing ideology.

You see, I only borrow against a solid structure I’ve already created. Free and idle cash makes me take grossly irresponsible and wrong decisions with itself. I’ve learnt to first bind my free and idle cash in a structure, and then to borrow against this structure to create another new and ultimately free-standing structure. I’ve been amazed at the quality of investment decisions coming through for me with this methodology.

Also, I try to only borrow for the purpose of creating this new (solid) structure. Because I’m creating this new structure with borrowed money, this makes me work that much harder during due diligence.

Furthermore, I borrow to create vacuum.

As you understand already, vacuum attracts flow.

On top of that, and this is the icing on the cake, when I’ve borrowed, there’s pressure on me to save, and to nullify the borrowing as soon as I possibly can. Believe it or not, this fact, coupled with the principle of attracted flow, leads to the borrowed amount being filled up (paid back) very, very fast indeed.

What I then have left standing is my original solid structure.

Oh, yeah, I also have my new structure, which I have just created, and which will serve me.

So worth it.

The Market Aha Moment

What is an Aha moment?

Any ideas?

Simple. It’s when you go “Aha, so that’s what it’s like!”

Or “Aha, so that’s what it’s supposed to be!”

You’ve understood something big. Finally. You see light. That’s an Aha moment. 

The human being likes to be happy. 

Professional happiness adds to our well-being. 

To be professionally happy, you need to be doing something during which you forget about time. 

What is this something for you?

Wait for your Aha moment. 

Let’s assume you’ve decided upon a profession in the markets. The next question is… which market?

Which market draws you out fully? Which market consumes you? In which market do you perform the best? In which market are you happy?

Why isn’t your Aha moment coming here too?

Well, Aha moments aren’t for free. You have to struggle for them. 

Start trying out different markets. 

See what gives you a kick.

See where you have a natural flair.

See what lingers.

Discard what you can’t stand.

Hit and try.

Try everything if you must.

Eventually, something will speak to you.

You’ll want to be in one particular market, perhaps two.  

It’ll be your calling. 

Aha. 

I’ll tell you how it went with me. 

I started with Equity. 

Fluked a few. Made some money. Bet bigger. Thought I was good. Won some more. Bet really big. Lost huge. Thought to myself – no more Equity. 

Then came Gold and Silver. Did ok. Found it boring. No more Gold and silver. 

Tried Private equity. Did ok. Boring. 

Arbitrage. Boring. But, an avenue for parking.  

Real estate. Corrupt.

Commodities…didn’t get a kick. The delivery option always loomed over my head. What if I forgot to square off?

Stock futures. Got hammered. No more. 

Foreign stocks. Time difference killed my evenings. Out. 

Foreign mutual funds. Expense ratios were sky-high. Slugged it out for a while, but then finished it off. Lost. 

Structures – broke even, then won a bit. Got bored. 

Debentures. Only do short term ones, to park funds. No kicks. Debt is boring by default.

Mutual funds. Yeah, well, did my fair bit of them. Did excite me, since they were connected to Equity. As of now, there’s just light MF activity. 

Stock options. Lost a bit, but didn’t actually get hammered. Gave me a bit of a kick. Well, it was Equity related, so no wonder. Started interfering with my second Equity stint. I let options go. 

Second Equity stint. Did ok…ok…ok…lost a bit, won a bit, was enjoying it, when suddenly…came Forex. 

Forex…whoaahh…I loved it. Swept me away. Technology, charting, skill-set, I wanted to be here. Aha. Huge leverage, though. Risk. This had to be my second game, not my first. Yeah, safety first, always. Alright, what would be my first game? Yeah, what would be my bulk game? 

Equity of course. I understood it and enjoyed it. I’d done ok. Had leant lessons. Knew how to handle it. Infrastructure was in place. Aha. Nailed it in the third attempt.

So and thus, I found my games upon my Aha moments. That’s where I am. Don’t plan to do anything else.

When’s your Aha moment coming?

Work towards it. 

What’s the Frequency, Flipkart?

Hmmm, a zero-profit company…

In fact, a loss making company…

Do you get the logic?

People are probably seeing an Amazon.com in the making.

Amazon exists in a highly infrastructure-laden country with systems.

Can we say the same about us?

As of now – no.

Are we on the trajectory?

Sometimes yes, sometimes no. It’s been five steps forward and then three back till now.

What’s all the hype about?

Institutions want to make money during the ride.

Whether the ride culminates into an Amazon.com is irrelevant for institutions.

Public opinion acknowledges the ride.

That’s enough for institutions.

They’ll ride to a height and exit, irrespective of any MAT or what have you.

While exiting, they’ll hive off the hot potato to pig-investors in the secondary market, post IPO.

Hopefully, a valuation is calculable by then. Even the PE ratio needs earnings to spit out a valuation. No earnings means no divisor, and anything divided by zero is not defined.

Keep your wits about you. Follow performance. Follow earnings. Follow bearable debt. If you see all three, a sound management will already be in place. Then, look for value. Lastly, seek a technical entry.

Don’t follow hype blindly.

Cheers! 🙂

And What’s so Special about Forex?

Imagine in your mind …

… the freedom to trade exactly like you want to.

Is there any market in the world which allows you complete freedom?

Equity? Naehhh. Lots of issues. Liquidity. Closes late-afternoon, leaving you hanging till the next open, unless you’re day-trading. Who wants to watch the terminal all day? Next open is without your stop. Then there’s rigging. Syndicates. Inside info. Tips. Equity comes with lot of baggage. I still like it, and am in it. It doesn’t give me complete freedom, though. I live with what I get, because equity does give me is a kick.

Debt market? A little boring, perhaps. Lock-ins.

Commodities? You wanna take delivery? What if you forget to square-off a contract? Will you be buying the kilo of Gold? Ha, ha, ha…

Arbitrage? Glued to screen all day. No like. Same goes for any other form of day-trading.

Mutual Funds. Issues. Fees. Sometimes, lock-ins. MFs can’t hold on to investments if investors want to cash out. Similarly, MFs can’t exit properly if investors want to hang on. And, you know how the public is. It wants to enter at the peak and cash out at the bottom. 

Private Equity? Do you like black boxes? You drive your car? Do you know how it functions? You still drive it, right? So why can’t you play PE? Some can. Those who are uncomfortable with black boxes can’t. 

CDOs? @#$!*()_&&%##@.

Real Estate? Hassles. Slimy market. Sleaze. Black money. Government officials. Bribery. No like.

Venture Cap? Extreme due diligence required. Visits. Traveling. The need to dig very deep. Deep pockets. Extreme risk. No. 

Forex? 24 hr market. Order feed is good till cancelled. Stops don’t vanish over weekends. Stops can be pin-pointedly defined, and you can even get them to move up or down with the underlying, in tandem or in spurts. You can feed in profit-booking mechanisms too, and that too pin-pointedly. You watch about 10-11 currency pairs; you can watch more if you want to. 10-11 is good, though. You can watch 4, or even 2 or 1, up to you. Platforms are stupendous, versatile, malleable, and absolutely free of charge. You can trade off the chart. Liquidity? So much liquidity, that you’ll redefine the word. No rigging – market’s just too large. The large numbers make natural algorithms like Fibonacci work. Technicals? Man, paradise for technicals. Spreads? So wafer thin, that you barely lose anything on commissions. Oh, btw, spreads are treated as commissions in forex; there’s no other commission. Money management? As defined as you want it to be. Magnitude? As small or as large as you want to play? Comfort? You make your morning tea, sip it, open your platform, feed in orders with trigger-entry, stop and limit, and then forget about the forex market for the rest of the day, or till you want to see what’s happening. Yeah, comfort. Challenge? You’re playing with the biggest institutions in the world. What could be more challenging? I could go on. You’re getting the gist. 

Yeah.

Forex is a very special market. 

Also, the forex market is absolutely accessible to you, online. 

If you decide to enter it one day, play on a practice account till you feel you’re ready for a real account. 

If and when you do start with a real account, for heaven’s sake start with a micro account, where 1 pip is equal to 0.1 USD. 

🙂

 

 

 

Am I Taking Bitcoin Seriously?

Yeah.

Bitcoin is a serious new kid on the block.

Am I getting into it? That’s the more important question, isn’t it?

Well, not yet.

First up, I know very little about it. I’m not going to get into something because of the smoke. Gone are the days.

So, I’m educating myself.

The Web tells me that Bitcoin is not alone. Numerous Crypto-currencies have emerged. Confusing.

Many of these have their main servers or their secondary addresses located in ex-Soviet / ex-iron-curtain nations. Intimidating. I’m afraid.

Then I look at the bid-ask spread for Bitcoin. There’s typically a 1% difference between buying and selling price. That is huge. In fact, it’s outrageous.

After that I look at the Bitcoin price vs time chart.  I can see the panic in the chart. I don’t like panic. I generally stay away from panic markets. If I’m entering a long-term market, I like entering on a solid base foundation. The panic dust hasn’t settled yet. Technical bases build after panic settles, and only if the underlying has long-term mettle. They’re visible on the chart as horizontal stretches. Not happening as yet on the Bitcoin price vs time chart. Means I’m not entering yet.

Then there’s this mining stuff. Like, virtual mining. I don’t understand it. Yet. Looks silly, off-hand. Could this be connected to currency-backing? Or, is this just a hype-creating gimmick that doesn’t make economic sense? I’m not sure, I tell myself.

Last point I’m making against current Bitcoin entry – theft and loss. If I store Bitcoin on my computer, it becomes a potential target. I don’t wish to have the 5 million odd extremely sharp ex-Soviet ex-chess wizard brains targeting my computer. Period.

So, where do we stand?

Meaning, why am I taking Bitcoin seriously?

The USD has nothing backing it. The US seems to be following a fiscal policy with high risk of implosion due to escalating debt. They’ve got no reserves left. Savings are nil. The USD will probably maintain its hierarchy till the world has another alternative.

A few years ago, I thought that Gold could be this alternative. Today, I think Bitcoin is a more serious contender.

First, I need to convince myself that Bitcoin is backed. Meanwhile, the noise will even out, and only the most solid crypto-currencies shall live on. I’d like Bitcoin to still be at the top of all crypto-charts once the noise settles. By then, there’ll be someone reliable in my own country offering Bitcoin investment and trading, someone I know, like an HDFC Bank, or a Kotak Securities. Volumes will escalate. Slippage will be down to a bearable 0.1% or less. Bitcoin’s chart will show a base foundation. I’ll have understood the virtual mining stuff, and hopefully it’ll be connected to currency-backing. Banks will store Bitcoin as an e-holding, which will reflect in one’s Netbanking.

That’s when I’ll enter Bitcoin.

Stock-Picking for Dummies – Welcome to the Triangle of Safety

Growth is not uniform – it is hap-hazard.

We need to accept this anomaly. It is a signature of the times we live in.

Growth happens in spurts, at unexpected times, in unexpected sectors.

What our economic studies do is that they pinpoint a large area where growth is happening. That’s all.

Inside that area – you got it – growth is hap-hazard.

To take advantage of growth, one can do many things. One such activity is to pick stocks.

For some, stock-picking is a science. For others. it is an art. Another part of the stock-picking population believes that it is a combination of both. There are people who write PhD theses on the subject, or even reference manuals. One can delve into the subject, and take it to the nth-level. On the other hand, one can (safely) approach the subject casually, using just one indicator (for example the price to earnings ratio [PE]) to pick stocks. Question is, how do we approach this topic in a safe cum lucrative manner in today’s times, especially when we are newbies, or dummies?

Before we plunge into the stock-picking formula for dummies that I’m just about to delineate, let me clarify that it’s absolutely normal to be a dummy at some stage and some field in life. There is nothing humiliating about it. Albert Einstein wasn’t at his Nobel-winning best in his early schooldays. It is rumoured that he lost a large chunk of his 1921 Nobel Prize money in the crash of ’29. Abraham Lincoln had huge problems getting elected, and lost several elections before finally becoming president of the US. Did Bill Gates complete college? Did Sachin Tendulkar finish school? Weren’t some of Steve Jobs’ other launches total losses? What about Sir Issac Newton? Didn’t I read somewhere that he lost really big in the markets, and subsequently prohibited anyone from mentioning the markets in his presence? On a personal note, I flunked a Physical Chemistry exam in college, and if you read some of my initial posts at Traderji.com, when I’d just entered the markets, you would realize what a dummy I was at investing. At that stage, I even thought that the National Stock Exchange was in Delhi!

Thing is, people – we don’t have to remain dummies. The human brain is the most sophisticated super-computer known to mankind. All of us are easily able to rise above the dummy stage in topics of our choice.

Enough said. If you’ve identified yourself as a dummy stock-picker, read on. Even if you are not a dummy stock-picker, please still read on. Words can be very powerful. You don’t know which word, phrase or sentence might trigger off what kind of catharsis inside of you. So please, read on.

We are going to take three vital pieces of information about a stock, and are going to imagine that these three pieces of information form a triangle. We are going to call this triangle the triangle of safety. At all given times, we want to remain inside this triangle. When we are inside the triangle, we can consider ourselves (relatively) safe. The moment we find ourselves outside the triangle, we are going to try and get back in. If we can’t, then the picked stock needs to go. Once it exits our portfolio, we look for another stock that functions from within the triangle of safety.

The first vital stat that we are going to work with is – you guessed it – the ubiquitous price to earnings ratio, or the PE ratio. If we’re buying into a stock, the PE ratio needs to be well under the sector average. Period. Let’s say that we’ve bought into a stock, and after a while the price increases, or the earnings decrease. Both these events will cause the PE ratio to rise, perhaps to a level where it is then above sector average. We are now positioned outside of our triangle of safety with regards to the stock. We’re happy with a price rise, because that gives us a profit. What we won’t be happy with is an earnings decrease. Earnings now need to increase to lower the PE ratio to well below sector average, and back into the triangle. If this doesn’t happen for a few quarters, we get rid of the stock, because it is delaying its entry back into our safety zone. We are not comfortable outside of our safety zone for too long, and we thus boot the stock out of our portfolio.

The second vital stat that we are going to work with is the debt to equity ratio (DER). We want to pick stocks that are poised to take maximum advantage of growth, whenever it happens. If a company’s debt is manageable, then interest payouts don’t wipe off a chunk of the profits, and the same profits can get directly translated into earnings per share. We want to pick companies that are able to keep their total debt at a manageable level, so that whenever growth occurs, the company is able to benefit from it fully. We would like the DER to be smaller than 1.0. Personally, I like to pick stocks where it is smaller than 0.5. In the bargain, I do lose out on some outperformers, since they have a higher DER than the level I maximally want to see in a stock. You can decide for yourself whether you want to function closer to 0.5 or to 1.0. Sometimes, we pick a stock, and all goes well for a while, and then suddenly the management decides to borrow big. The DER shoots up to outside of our triangle of safety. What is the management saying? By when are they going to repay their debt? Is it a matter of 4 to 6 quarters? Can you wait outside your safety zone for that long? If you can, then you need to see the DER most definitely decreasing after the stipulated period. If it doesn’t, for example because the company’s gone in for a debt-restructuring, then we can no longer bear to exist outside our triangle of safety any more, and we boot the stock out of our portfolio. If, on the other hand, the management stays true to its word, and manages to reduce the DER to below 1.0 (or 0.5) within the stipulated period, simultaneously pushing us back into our safety zone, well, then, we remain invested in the stock, provided that our two other vital stats are inside the triangle too.

The third vital stat that we are going to work with is the dividend yield (DY). We want to pick companies that pay out a dividend yield that is more than 2% per annum. Willingness to share substantial profits with the shareholder – that is a trait we want to see in the management we’re buying into. Let’s say we’ve picked a stock, and that in the first year the management pays out 3% per annum as dividend. In the second year, we are surprised to see no dividends coming our way, and the financial year ends with the stock yielding a paltry 0.5% as dividend. Well, then, we give the stock another year to get its DY back to 2% plus. If it does, putting us back into our triangle of safety, we stay invested, provided the other two vital stats are also positioned inside our safety zone. If the DY is not getting back to above 2%, we need to seriously have a look as to why the management is sharing less profits with the shareholders. If we don’t see excessive value being created for the shareholder in lieu of the missing dividend payout, we need to exit the stock, because we are getting uncomfortable outside our safety zone.

When we go about picking a stock for the long term as newbies, we want to buy into managements that are benevolent and shareholder-friendly, and perhaps a little risk-averse / conservative too. Managements that like to play on their own money practise this conservatism we are looking for. Let’s say that the company we are invested in hits a heavy growth phase. If there’s no debt to service, then it’ll grow much more than if there is debt to service. Do you see what’s happening here? Our vital stat number 2 is automatically making us buy into risk-averse managements heading companies that are poised to take maximum advantage of growth, whenever it occurs. We are also automatically buying into managements with largesse. Our third vital stat is ensuring that. This stat insinuates, that if the management creates extra value, a proportional extra value will be shared with the shareholder. That is exactly the kind of management we want – benevolent and shareholder-friendly. Our first vital stat ensures that we pick up the company at a time when others are ignoring the value at hand. Discovery has not happened yet, and when it does, the share price shall zoom. We are getting in well before discovery happens, because we buy when the PE is well below sector average.

Another point you need to take away from all this is the automation of our stop-loss. When we are outside our safety zone, our eyes are peeled. We are looking for signs that will confirm to us that we are poised to re-enter our triangle of safety. If these signs are not coming for a time-frame that is not bearable, we sell the stock. If we’ve sold at a loss, then this is an automatic stop-loss mechanism. Also, please note, that no matter how much profit we are making in a stock – if the stock still manages to stay within our triangle of safety, we don’t sell it. Thus, our system allows us to even capture multibaggers – safely. One more thing – we don’t need to bother with targets here either. If our heavily in-the-money stock doesn’t come back into our safety zone within our stipulated and bearable time-frame, we book full profits in that stock.

PHEW!

There we have it – the triangle of safety – a connection of the dots between our troika PE…DER…DY.

As you move beyond the dummy stage, you can discard this simplistic formula, and use something that suits your level of evolution in the field.

Till then, your triangle of safety will keep you safe. You might even make good money.

PE details are available in financial newspapers. DER and DY can be found on all leading equity websites, for all stocks that are listed.

Here’s wishing you peaceful and lucrative investing in 2013 and always!

Be safe! Money will follow! 🙂

So, … … , When’s Judgement Day?

The “fiscal cliff” thingie has come and gone…

Gone?

People, nothing’s gone.

If something is ailing, it needs to heal, right?

What is required for healing?

Remedial medicine, and time.

Let’s say we take the medicine out of the equation.

Now, what’s left is time.

Would the ailing entity heal, given lots of time, but no medicine?

If disease is not so widespread, and can be expunged over time, then yes, there would be healing, provided all disease-instigating factors are abstained from.

Hey, what exactly are we talking about?

It is no secret that most first-world economies are ailing.

Specifically, the US economy was supposed to be injected with healing measures, which were to take effect from the 1st of Jan., ’13. Financial healing would have meant austerity and a more subdued lifestyle. None of that seems to be happening now. The healing process has been deferred to another time in the future, or so it seems.

You see, people, no one wants austerity. The consumption story must go on…

So now, since the medicine’s been taken out of the equation, is there going to be any healing?

No. Disease-instigating lifestyles are still being followed. Savings are low. Debt with the objective of consumption is still high. How can there be any healing?

Under the circumstances, there can’t.

So, what’re we building up to?

We’re all clear about the fact that consumption makes the world go round. What is the hub of the world’s consumption story? The US. That part of the world which does save, and where there is real growth, well, that part rushes to be a part of the consumption story. It produces cheaply, to sell where there’s consumption, and it sells there expensively. Yeah, like this, healthy economies get dragged into an equation with ailing economies. Soon, the entanglement is so deep, that there’s no turning back for the healthy economy. It catches part of the ailment from the diseased economy. Slowly, non-performing assets of banks in such healthy economies start to grow. The disease is spreading.

Hold on, stay with me, we’re not there yet. Yeah, what are we building up to?

Healthy economies take time to get fully diseased. Here, savings are big, domestic manufacturing is on the rise, and there a healthy demographic dividend too. Buffers galore, the immune system of a healthy economy tries to fight the contagion for the longest time. As entanglement increases, though, buffers deplete, and health staggers. Non-performing assets of banks grow to disturbing levels.

That’s what we are looking out for, when we are invested in a healthy economy which has just started to ail. Needless to say, we pulled out our funds from all ailing economies long back. Our funds are definitely not going back to economies which refuse to take medicine, i.e. which don’t want to be healed. Now, the million dollar question is …

… what’s to be done with our funds in a healthy economy which has just started to become diseased due to unavoidable contagion?

Nothing for now. Watch your investments grow. Eventually, since no one is doing enough to stop the damage and the spread, big-time ailment signs will invariably appear in the currently “healthy” economy, signs that appeared a while back in currently ailing economies. Savings will be disappearing, manufacturing will start to go down, and bad-debt will increase. Define your own threshold level, and go into cash once this is crossed. You might not need to take such a step for many years in a row. Then again, you might need to take such a step sooner than you think, because the ailing mother-consumer economy is capable of pulling everyone down with it, if and when it collapses. And it just stopped taking its medicine…

Let’s get back to your funds. In the scenario that you’ve gone into cash because you weren’t confident about the economy you were invested in, well, what then?

Option 1 is to look for an emerging economy that gains your confidence, and to invest your funds there.

Not everyone is comfortable investing abroad. What if you want to remain in your own economy, which you have now classified as diseased. There’s good news for you. Even in a diseased economy, there are pockets of health. You need to become a part of such pockets, just after a bust. So, remain in cash after a high and till after a bust. Then, when there’s blood on the streets, put your money into companies with zero-debt, a healthy dividend-payout record and a sound, diligent and honest management. Yeah, at a time like that, Equity is an instrument of choice that, over time, will pull your funds out of the gloom and doom.

You’ve put your funds with honest and diligent human capital. The human capital element alone will fight the circumstances, and will rise above them. Then, you’ve entered at throwaway prices, when there was blood on the streets. Congrats, you’ve just set yourself up for huge profit-multiples in the future. And, the companies you’ve put your money with, well, every now and then, they shower a dividend upon you. This is your option 2. Just to share with you, this is my option of choice. I like being near my funds. This way, I can observe them more closely, and manage them properly. I suffer from a case of out of sight, out of mind, as far as funds are concerned. Besides, when funds are overseas, time-differences turn one’s life upside down. This is just a personal choice. You need to take your own decision.

At times like this, bonds are not an option, because many companies can cease to exist in the mayhem, taking your investment principal out with them.

Bullion will give a return as long as there is uncertainty and chaos. Let there be prolonged stability, and you’ll see bullion tanking. Yeah, bullion could be option 3 at such a time. You’ll need to pull out when you see signs of prolonged stability approaching, though.

One can use a bust to pick up cheap real-estate in prime localities. Option 4.

You see, you’ve got options as long as you’re sitting on cash. Thus, first, learn to sit on cash.

Before that, learn to come into cash when you see widespread signs of disease.

Best part is, widespread disease will be accompanied by a big boom before the bust, so you’ll have time to go into cash, and will be ready to pick up quality bargains.

You don’t really care when judgement day is, because your investment strategy has already prepared you for it. You know what to do, and are not afraid. If and when it does come, you are going to take full advantage of it.

Bring it on.

A Critical Look at Debt on the Balance-Sheet

Borrowed money needs to be paid back.

Pray where is a company going to pay it back from?

From current reserves and /or earnings, of course.

Unless you do a Suzlon and restructure your 2 billion dollar debt.

When I hear the word “restructure”, I feel like puking.

By the way, one can even do a “Mallya”, and expect the government to pay off chunks of one’s almost 1.5 billion dollar debt.

By now, I’m really throwing up.

I mean, first, some people borrow. Then comes a spending frenzy. Then these people don’t want to pay back what they borrowed. Oh, sorry, some don’t even want to pay the interest back, let alone the principal.

Frankly, I don’t wish to invest in companies run by people who delay paying back their debt through maneuvering and manipulation.

I detest manipulation. Prefer it straight-forward.

You guessed it – I’m a debt-averse human-being. What pleases me most in a company is a debt-free balance-sheet. It is challenging to find debt-free companies that are able to grow freely and fast, and when one runs into such a company, it’s like a home-run. After that one waits for the right price, but that’s another story.

Most companies borrow. They wish to grow, and funds are not there, while opportunity is.

Fine. Borrow.

Then, show me that you want to pay back. On time. ( = integrity ).

Show me that you haven’t lost your marbles while borrowing, and have borrowed an amount which by no means risks the existence of your company. ( = balance ).

Furthermore, show me that you are creating value with the borrowed amount. ( = shareholder-friendliness ).

Show me, that after payment of interest on borrowings, you can still generate a reasonable earning per share. ( = diligence ).

That would make me want to invest in your company, despite your debt.

Oh, one more thing, I would only stay invested long-term in your company, if I see you decreasing your debt-burden year upon year. ( = like-mindedness, i.e. debt-aversion ).

Also, if any new debt taken on doesn’t fit the above criteria, I would look to exit. ( = over-confidence because of earlier successes ).

Once invested, keep rechecking the story every few months. Times are bad. If you don’t look, it is likely that a CEO will pull a stunt right under your nose. Yes, it’s totally possible that your investment doesn’t meet your criteria anymore, and that you are still invested. Don’t let that happen.

At least with regards to debt, have an exact check-list. If a company doesn’t meet your standards regarding debt, discard the company. During times of high interest-rates, large debt on the balance-sheet is like a raging fire which refuses to be stilled, and which can well terminate the existence of a company.

Your success as a long-term investor depends much on how you react to debt.

Here’s wishing you wary and successful investing!

Cheers!   🙂

A Tool By The Name of “Barrier”

Come into some money?

Just don’t say you’re going to spend it all.

Have the decency to at least save something.

And all of a sudden, our focus turns to the portion you’ve managed to save.

If you don’t fetch out your rule-book now, you’ll probably bungle up with whatever’s left too.

Have some discipline in life, pal.

The first thing you want to do is to set a barrier.

Barrier? Huh? What kind of barrier?

And why?

The barrier will cut off immediate and direct access to your saved funds. You’ll get time to think, when hit by the whim and fancy to spend your funds.

For example, a barrier can be constructed by simply putting your funds in a money-market scheme. With that, you’ll have put 18 hours between you and access, because even the best of money market schemes take at least 18 hours to transfer your funds back into your bank account.

Why am I so against spending, you ask?

Well, I’m not.

Here, we are focusing on the portion that you’ve managed to save.

Without savings, there’s nothing. There can be no talk about an investment corpus, if there are no savings. Something cannot grow out of nothing. For your money to grow, a base corpus needs to exist first.

Then, your basic corpus needs a growth strategy.

If you’ve chalked out your strategy already, great, go ahead and implement it.

You might find, that the implemetation opportunities you thought about are not there yet.

Appropriately, your corpus will wait for these opportunities in a safe money market fund. Here, it is totally fine to accept a low return as long as you are liquid when the opportunity comes. There is no point blocking your money in lieu of a slightly higher return, only to be illiquid when your investment opportunity comes along. Thus, you’ve used your barrier to park your funds. Well done!

Primarily, this barrier analogy is for these who don’t have a strategy. These individuals leave themselves open to be swept away into spending all their money. That’s why such individuals need a barrier.

An online 7-day lock-in fixed deposit can be a barrier.

A stingy spouse can be a barrier.

Use your imagination, people, and you’ll come up with a (safe) barrier. All the best! 🙂