Are you Saying These are Small Losses, Mr. Nath?

No. 

Everything is taking a hit. 

Sure. 

Hit’s actually in the “Wealth” segment…

…and not as such in the “Income” segment.

Would you like to elaborate on this one, sounds pivotal?

Yes it is exactly that, pivotal. Because of this one fact, I’m talking to you with a straight face.

I see.

Auto-pilot income-creating avenues are still doing what they’re supposed to do, i.e. creating income. Nothing has changed there, yet.

You mean something could change there?

Sure, if companies start going bust, their bonds won’t create income. Instead, principal will take a hit. It’s not come to that yet, at least in India. You have an odd company going bust here and there now and then, but nothing major as of now. Income is intact, for now. If were done with CoVID in two months, this factor might not change. Let’s focus on this scenario. 

Right. 

Secondly, we’re highly liquid. We try and become as liquid as possible during good times, ideally aiming to be 80% in cash before a crisis appears. 

How do you know a crisis is going to appear?

This is the age of crises. A six sigma event has now become the norm. After Corona it will be something else. This has been going on from the time the stock market started. It’s nothing new. Come good times, we start liquidating all the stuff we don’t want. 

Don’t want?

Ya, one changes one’s mind about an underlying down the line. At this point, one shifts this underlying mentally into the “Don’t Want” category. Come good times, one makes the market exit oneself from this entity on a high.

Makes the market exit oneself?

Yes, through trigger-entry of sell order.

Why not just exit on limit?

Then you’ll just sell on the high of that particular day at best. However, through trigger-exit, your sell order will be triggered after a high has been made and the price starts to fall. It won’t be triggered if the underlying closes on a high. That way, if you’re closing on a high, you might get a good run the next day, and then you try the same strategy again, and again. In market frenzies, you might get a five to seven day run, bettering your exit by 15-20%, for example. Who wouldn’t like that?

You talk of market frenzies at a time like this, my dear Sir…

The market is like a rubber band. What were witnessing currently is the opposite pole of a market frenzy. Humans beings are bipolar. If they’re reacting like this, they sure as hell will react like the opposite pole when conditions reverse. Especially in India. We’re brimming with emotions. 

Which brings us back to the initial question…

Yes, these notional losses look huge. But, who’s translating them into actual losses? Not us. We’re busy enhancing our portfolios as multiples get more and more lucrative for purchase. That’s entirely where our focus is. We are numb to pain from the hit because our focus is so shifted. 

And there’s no worry?

With such high levels of liquidity, shift of focus, income tap on, dividend tap on – yeah, please don’t ignore the extra big incoming dividends, underlyings taking a hit currently are paying out stellar dividends, and these big amounts are entering our accounts, because we’ve bought such quality – – – we’re ok.

Stellar would be?

Many underlying have shared double digit dividend yields with their shareholders! That’s huge!

So no worries?

No! We’ll just keep doing what we’ve been doing, i.e. buying quality. We’ll keep getting extraordinary entries as the fall deepens. 

What if that takes a long-long time?

Well, the year is 2020. We’re all on speed-dial. 18 months in 2020 is like 15 years in 1929. Because we follow the small entry quantum strategy, our liquidity should hold out over such period, providing us entries through and through. 

And what if it’s a four digit bottom on the main benchmark, still no worries?

NO! Look at the STELLAR entry over there. A bluechip bought at that level of the benchmark can be held for life without worries. So yes, NO WORRIES.

Thanks Mr. Nath.

One more thing.

Yes, what’s that?

What’s my maximum downside in an underlying?

100%.

Correct. Now what’s my maximum upside in an underlying?

Ummm, don’t know exactly.

Unlimited. 

Unlimited?

Yes, unlimited. Entries at lucrative levels eventually translate into unreal multiples. Looking at things from this perspective, now, the size of these notional losses pales in comparison to potential return multiples. It’s a combination of psychology, fundamentals, mathematics and what have you. In comparison, these are still small losses. If we can’t take these swings in our side, we shouldn’t be in the markets in the first place, focusing our energies on avenues we’re good at instead.

Right, got it. 

Cheers, here’s wishing you safe and lucrative investing. 

🙂

What’s on your mind, Mr. Nath?

Any questions, Mr. Nath?

Ya, I did have something on my mind. 

Ask.

I want to ask someone else.

Who?

Mrs. Market.

How are you going to do that?

I’ll just imagine that I could.

And, what’s the question, for the sake of discussion?

It’s not so much a question, really…

What is it then?

An observation perhaps…

…or a regret, maybe…

… not able to pinpoint exactly.

Hmmm, why don’t you just say it in words.

It’s about rewiring. 

Rewiring?

Yes. The words coming out are “Couldn’t you rewire us earlier?”

Who’s the you?

Mrs. Market.

Doesn’t your rewiring depend upon you?

Yes, that’s why perhaps it’s more of a regret.

What is this rewiring?

We are taught to win in life, and to hide our losses, if any, under the rug. That’s how we grow up. And that doesn’t work in the markets.

True. That’s what needs to be rewired?

Yes, to win in the markets, we need to get accustomed to loss, small loss, as a way of life. Wins are few, but they are big. So big, that they nullify all losses and then some. We make these wins big by not nipping them in the bud.

How long did it take you to rewire?

Seven years.

What’s your regret? A shorter time-frame would have resulted in half-baked learning. 

You are right, it’s not a regret then. Let’s just call it an observation. 

It’s a very useful observation for someone starting out in the markets. 

Let’s pin-down the bottomline here.

And that would be?

Till one is rewired, one needs to tread lightly. No scaling up…

…till one is rewired. 

And how would one know that one’s rewired?

No sleepless nights despite many small losses in a row, because one has faith in one’s system. Resisting successfully the urge to take a small winner home…

…because it is this small winner that has the potential to grow into a multibagger…

…and a few multibaggers is all that one needs in one’s market-life. 

Secret Ingredients in Times like Corona

Hi,

It’s been a while.

Unprecedented times call for every iota of resilience that’s inherent.

Whatever we’ve learnt in the markets is being tested to beyond all levels. 

If our learning is solid, we will emerge victorious.

If there are vital chinks in our armour, we will be broken. 

Such are the market forces that are prevailing. 

Have we learn’t to sit?

Meaning, over all these years, when over-valuation ruled the roost, did we sit?

Did we accumulate funds?

Did we create a sizeable liquid corpus?

If we did, we are kings in this scenario. 

One of the main characteristics of a small entry quantum strategy is that it renders us liquidity, almost through and through. 

If we are amply liquid in the times of mayhem, there is absent from our armour the debilitating chink of illiquidity.

Illiquidity at the wrong time makes one make drastic mistakes by succumbing to panic. 

We’re not succumbing to any panic. 

Why?

Because our minds are focused on the bargains available.

The bargains are so mouth-watering, that they are entirely taking away our focus from existing panic.

To twist our psychology into the correct trajectory in a time like Corona, the secret ingredient that’s required is called (ample) liquidity. This secret ingredient is a direct result of the small entry quantum strategy, which we follow. 

Then, let’s address the other potential chink, and just sheer do away with it. 

Having access to ample liquidity, are we now greedy?

What does greed mean?

It’s not greedy to buy when there’s blood on the street, no, it’s actually outright courageous. 

Greed Is defined here as per the quantum of buying. 

Are we buying disproportionately vis-à-vis our liquidity-size and our risk-profile?

Yes?

Greedy.

No?

Not greedy.

How will we know the answer without any doubt in our mind that we have the correct answer to this question, since it is vital to our learning curve to answer this question correctly?

The answer will make itself felt.

Are we able to sit optimally even if markets crash another double-digit percentage from here?

50% from here?

No? Greedy. We have bought in a manner that doesn’t gel with our risk-profile. Our liquidity is exhausting, and focus shifts from bargains to panic. Ensuing tension amidst further fall will very probably cause us to commit a grave blunder, with this happening very probably at the bottom of the market. We are poised to lose in the markets like this. 

Yes? Not greedy. We have bought and continue to buy as per our risk-profile. We will win…

…in the markets.

The secret ingredient that locks in great prices and continues to do so as the market keeps falling, is called quantum-control as per the tolerance level of our risk-profile towards further fall. This secret ingredient ensures that liquidity outlasts a longish fall, keeping our focus on the bargains and not on the panic. This secret ingredient provides for the basic mechanism of our small entry quantum strategy.

 

Have the Guts?

Somebody did say …

… that Equity was not for the faint-hearted.

Oh, how true!

Everyday, my heart stands tested!

However, because of a small entry quantum strategy, I am able to stay in the game.

If I am able to stay in the game for multiple cycles, I will prosper.

Why?

Firstly, the strategy by default renders me liquid, such are its tenets.

Then, a good hard look at fundamentals is always called for.

To close, it is important is to enter with technicals to support you.

Now let’s say I make a mistake.

What is a mistake?

Ya, good question – in the markets, what is a mistake?

In the markets, when the price goes against you, you have made a mistake.

So let’s say that I’ve made a mistake.

Is the mistake big?

No.

Why?

Because of my small entry quantum.

What does it mean for my next entry?

Added margin of safety.

Is that good?

You bet.

Why?

Because fundamentals are intact.

What’s going to eventually happen?

Stock’s going to bottom out.

I’ll have a decent amount of entries to my name.

My buying average will be reasonably low.

The margin of safety my buying average allows me will let me sit on the stock forever, If I wish to.

Down the road, one day, I might be sitting on a big fat multiple.

Please do the math.

Happy and lucrative investing!

🙂

Where do you want to be?

Where do I want to be?

Do I want to look at a stock price and know where things stand with the stock in question?

Yes.

That’s where I want to be.

It’s not going to come for free.

What will it take?

Looking at the stock…

…for an year or two.

That’s what it will take.

How boring, you say?

Sure.

When stock market investing seems boring…

…that’s when you’re doing it right.

Excitement and roller-coaster rides are for video-game pleasure, and for making losses.

Money is made when it’s outright boring out there.

Where do you want to be?

In the money?

I thought so.

Then, please get used to boring and don’t ever complain again that things are boring.

How does one position oneself in such a manner that one studies a stock for an year or two.

Hmmm.

Let’s put some skin in the game.

I know, this phrase is becoming more and more popular, what with Nicholas Taleb and all.

Yeah, we are picking up stock.

What stock?

The one we wish to observe for an year or two.

Why pick it up? Why not just observe it?

You won’t. You’ll let it go.

Why?

Because it’s not yours.

So we pick up the stock? What’s the point of observing if we’re picking it up now?

Well, we’re picking up a minute quantity – one quantum – now. That gets our skin into the game. Then we observe, and observe. Anytime there’s shareholder-friendly action by the management, we pick up more, another quantum. We keep picking up, quantum by quantum. Soon, while we’ve kept picking up, we’ve observed the stock for so long, that now, one look at the stock price tells us what kind of margin of safety we are getting in the stock at this point.

Wow.

Now, future entries become seamless. One look and we have a yes or no decision. Isn’t that wonderful?

Absolutely.

That’s where we want to be.

Busy Times

Market falls are busy times. 

No, we’re not busy whining. 

We’re busy buying.

Are we not afraid?

That the crack might deepen?

That it might go down to zero?

No.

We’re not afraid of this scenario. 

Meaning?

Meaning that even though such a scenario cannot be ruled out…

Huh!?

Yeah, it can’t be ruled out. With trade wars and back to back black swans waiting to strike, theoretically, the bottom is zero.

And you’re not afraid?

No.

Why?

Because I buy into fundamentally sound businesses…

…zero debt…

…great 5 year numbers…

…sometimes, great ten year numbers…

…and I buy with considerable margin of safety.

Still, one is normally always afraid, right?

Wrong. A small entry quantum strategy kicks out all remnant fear.

How?

This strategy leaves me liquid. Let it go down to zero. I’ll still have liquidity to buy.

And that which you’re buying…

…is sound, yes. If I buy something sound, it will yield returns. It’s like agriculture. Crops grow in good soil. They don’t grow well in bad soil. I make sure that I choose excellent soil.

How does one do that?

Due diligence. Period.

With all the scams and frauds going on…

Well, I look long and hard for shareholder-friendly managements. Representable salaries, willingness to share, largesse, debt-averseness, intelligence, business savvy, the list goes on.

What if you land up with a fraud management?

Solid research will make you avoid scamsters. I search the internet thoroughly for any kind of smoke. Crooks leave a trail, and one is able to catch their online trail pretty easily. 

Alone online?

Second recourse are annual reports. They reveal a lot. I don’t invest in a company without having a thorough look into its annual reports. I look at CSR, the director’s report, skin in the game, balance sheets, profit and loss statements, cash-flow, special items, what have you.

What if you still land up with a fraud?

After I know I’ve landed up with a fraud management, I would look to exit at the next market high. 

What if your holding is wiped out till then?

If it’s wiped out, I have many other holdings to lean on, and don’t forget the liquidity that is yet to flow into honest managements.

So you’re not afraid of the loss?

There is some risk one has to take. Here, it is the risk of being wrong. The good thing is, once I know that I’m wrong, I won’t double up on my wrong call. I’ll get busy elsewhere and look to exit from my wrong call with as little damage as possible, perhaps even in profit.

Profit?

You forget, I like to buy with margin of safety, and you’d be surprised at what people are willing to pay at market highs. 

I see, well then, happy investing!

Thanks! 🙂

This is Why Your Blockbuster Gain Story is going to Happen

You’re learning to sit. 

You buy with margin of safety. 

You buy in small quanta,…

…and that’s why you’re always liquid,…

…to avail any opportunity that arises. 

Yeah, there’s nothing impeding your liquidity…

…because you’ve kept yourself virus-free, i.e. debt-free. 

You only buy quality…

…that’s going to be around for a long, long while,…

…because you don’t sell for a long, long while. 

You don’t listen to what the grapevine is saying…

…because of the conviction and strength of your own research and opinion.

Yes, you regularly go against the crowd. 

You either buy into debt-free-ness, or into managable debt that spurts growth. 

Your input into the market doesn’t affect your daily life, leaving you tension-free to address your non-market world and thrive in it,…

…and that is why,…

…for all the above reasons,…

…your blockbuster gain story is going to happen,…

…and what’s more,…

…you are also enjoying the ride leading up to it.