Banking on Infinity

In a market…

…that promises decent…

…long-term growth, …

… we are able to…

…bank on infinity.

In such a market, the concept of cost-free-ness proves successful …

… in that it is able to generate multibagger outcomes, …

… over the very long-term. 

In such a market, the power of compounding makes itself felt in its full glory.

Also, in such a market, fear goes out the window for the clued-in player, since one is able to…

…bank on infinity.

We are fortunate to be playing in one such market. 

Yes, one such market is our very own. 

Having said that, India has idiosyncrasies, as does every market, and the Indian angle on these is definitely unique. 

The main one is that we’re an emotional lot. 

That is automatically then reflected in our market too. 

High beta. 

Meaning, in normal English, that there will abound huge entry opportunities, and huge exit opportunities, on a regular basis. 

And that, if I may underline, is worth Gold for us in the pursuit of cost-free-ness.

In other words, we will be able to create cost-free-ness year upon year, month upon month, and, at times, like now…

…week upon week.

Is that not…

…wonderful!

Once cost-free-ness is created, we transfer it out of sight, and, banking on infinity, we can just sheer forget about it, focusing our attention on the next round of cost-free-ness-creation.

We can do that because we are in the right type of market for this particular model. 

In fact, this model has been conceptualised for exactly…

…this market. 

Maybe someone has done it before me. Perhaps a lot of people. More successful. Big players. Famous. And that’s huge. I’m happy for them.

However, that’s not the point. 

We’re not in this for the glory of who got there first.

We’re in this for generating long-term wealth by using the concept to the hilt, because it’s working, and promises to do so till into the far-foreseeable future.

Before I sign off for now, there’s one more thing to remember. 

When we bank on infinity, we most hold before our eyes, that the translation of long-term growth into long-term wealth…

…is not linear.

Growth is perceived in spurts of optimism spilling into over-optimism, and these become our exit opportunities, where we exit with our principals, and are left with stacks of cost-free-ness. 

During spurts of pessimism, spilling into sheer depression, prices dip low enough, such that we, once again, get representable entries. 

It’s a neat little cycle that has been playing out since markets started. 

In our own market, this cycle allows us to generate cost-free-ness, again and again, while banking on infinity. 

 

 

 

 

Is it just me?

Is it just me or does anybody
feel the way that I feel?
they’re just not being real
tell me, is it just me or is anybody
thinking all the same shit?
they’re just not saying it
or is it just me?
– Sasha Sloan (also quoted below)

Waiting for…

…the rock to fall…

…is tiring.

One moves beyond.

Things happening around…

…are enough

…to make one…

…throw up.

Is it just me…

…who’s becoming numb…

…to the apathy…

…prevailing?

Does such apathy…

…deserve investment adulation?

Are we…

…even worth it?

Do those coming in…

…with funds…

…feel the way…

…that I feel…

…and are not saying it…

…because they are…

…making money?

Tell me…

…you don’t know…

…that markets can stay over-inflated…

…long enough to bankrupt nay-sayers.

Am I…

…just high…

…or am I…

…kinda right…

…?

Is it…

…just me?

Are you Positioned?

What’s our biggest enemy in the markets?

This one’s invariably…

…our Self.

Cut to ’07.

Fancy hotel banquet room, snacks and drinks, chief investment officer of JP Morgan is talking…

…and we’re listening.

My friend and I…

…sitting on profits…

…feeling smug about ourselves…

…young guns…

…ready to conquer the world…

…nothing can stop us now.

Or can it?

“There will always be a correction…”. These words catch my ear.

I raise my hand.

“Yes? The gentleman with the lime-green tie has a question?”

I stand up, and before I know it, I ask the deadly question.

“Don’t you think there’s been a paradigm-shift with regard to India, and that India has decoupled from the rest of the world?”

“How old are you, Sir?”

“37”.

This was ’07, remember?

“I’m going to excuse your question, because you’re young, and have probably experienced the markets for…?”

“3 years”.

“Exactly. That’s why I’ll only answer your question with a smile.”

How controlled.

“You see, globalization is a reality, and decoupling is a myth”.

Myth, really?

“It’s fancy phrases like “paradigm-shift” that catch the inexperienced investor’s imagination, leading to huge market mistakes”.

In these few sentences, my entire comprehension of markets was blown up and thrown out the window.

And that would have been a good thing…

…had I listened.

Such is the arrogance of “youth”, that “youth” doesn’t listen.

Soon, the ’08 crash happened.

I lost big time.

Was humbled.

Took me a long time to get back and stabilize.

I remember my stomach churning and my unwillingness to meet people as markets crashed to lower and lower levels.

I almost couldn’t take it.

We are our worst enemies.

What’s it going to be this market high?

We’ve learnt, and are positioned.

However, there will be newbies (like we were) who are going to go through this chain of events.

What buzz-words or phrases will catch their imagination?

BitCoin?

Liquidity?

Vaccine?

Quantitative Easing?

FIIs?

Pending rally in small-caps?

There’s a new cocktail doing the rounds this time around.

This cocktail will ensnare.

Even the topmost analysts are beginning to feel that a correction could take some time coming.

Some weeks ago, most felt that a correction could happen anytime now.

Player psychology is set for the cocktail to do its work.

Then one needs a pinprick.

In ’08 this was perhaps Lehman on the world scale and the Reliance Power IPO in India.

What’s it going to be this time?

It doesn’t matter.

Remember? There will always be a correction.

Are you positioned?

Supremacy of Cost-Free-Ness makes itself felt in Equity alone

The impact of cost-free-ness stretches across all asset-classes…

… that are long-term-holdable.

Equity, Gold, Real-Estate, etc., …

… with perhaps bonds being a question mark with regard to applicability.

Why is cost-free-ness not that valid a concept for short-term-holds?

That’s because multibagger appreciation of a short-term-hold is not realistically expectable.

Then, with gold and real-estate, there are certain nuances, which need to be mentioned.

Gold doesn’t adjust itself for inflation. The 100-year appreciation in Gold is 1% per annum compounded, adjusted for inflation. We can make some Gold cost-free, and then hold the cost-free Gold for the long-term. However, to expect it to burgeon into a multibagger is too much. There’s no human capital behind Gold, no intelligently thinking minds. Also, Gold is commodity-cyclic in nature. Forget about all these technical arguments. Sheer 100-year History has taught us not to think in multibagger terms with regard to Gold. Let’s say we held it for the touted 100 years. Well, then, 1 x 1.01 ^ 100 = 2.70. We’re then holding a 2.7 bagger after 100 years. Safety risk too. Naehhh, not interested.

What’s the deal with real-estate? No human capital behind it, again. Thus, the asset-class doesn’t auto-adjust for inflation. Also, we’re not taking any cash-component into consideration. What does that make real-estate behave like, in the long-term, in a regime like now? Perhaps like a glorified fixed-deposit. Or, even, perhaps, like a high single-digit yielding bond. Now minus inflation. Hmmm, after the math, real-estate becomes an asset-class that yields 2-3% per annum compounded, adjusted for inflation, let’s say 2.5%. Minus the half percent for its management (which is a hassle, btw). Well, then, 1 x 1.02 ^ 100 = 7.24. We’re left holding a 7-bagger after 100 years. With hassle in the equation, 100 years is too much effort for a 7-bagger. Not interested either.

Now let’s look at Equity. Human capital is behind it. Equity is hassle-free with regard to its management. Equity auto-adjusts for inflation. All Equity that ever existed, including companies that have gone bust, has shown a return of 6% per annum compounded, adjusted for inflation. Taking companies out that don’t exist anymore, Equity has given a return of 11% per annum compounded, adjusted for inflation, over the long-term. Intelligently chosen Equity, with proper due diligence, is extremely capable of giving a return in the range of 15% per annum compounded, adjusted for inflation, in the long-term. Let’s do the numbers. 1 x 1.06 ^ 100 = 339.30; 1 x 1.11 ^ 100 = 34,064.28; 1 x 1.15 ^ 100 = 11,74,313.45.

These numbers don’t need crunching.

It’s pretty clear, that the supremacy of cost-free-ness makes itself felt in long-term held, cost-free Equity.

I wish for you happy, long-term cost-free-ness!

🙂

How Big is your Win?

Assuming you cruise…

…cost-free in the markets now…,

…how big exactly is your win?

Have you stopped to ponder over this fundamental point.

Let’s go over it together.

The question you need to be asking is, …

… “What will happen to my cost-free-ness from this point onwards?”

Well, what’s going to happen solely depends upon your behaviour.

We’ll just study a best-case scenario.

Let’s assume you leave your hard-earned cost-free-ness be, in the markets, for the next 25 years.

What would become of it?

First-up, let’s understand the very nature of your cost-free-ness.

It’s high-quality.

It urges you to hold onto itself, forever.

The fact that you can’t let go of it despite such highs speaks of it as being the essence of your struggle, in terms of quality, if you know what I mean.

High quality material would typically compound at 15% per annum, over the long run, adjusted for inflation.

The figure of 15% per annum compounded, adjusted for inflation, is very achievable for your high-quality material – let’s put it like that – in a market like India’s.

Let’s do the math.

1 * (1.15) ^ 25 = 32.91

There you have it.

Your cost-free portfolio is slated to increase almost 33-fold in the 25 years to come.

That’s 3300% in 25 years when seen as pure appreciation, making 132% per year simple appreciation (not compounded).

That’s how big your win is.

Yes, staying invested with your cost-free-ness will make your cost-free-ness typically burgeon almost 33-fold over the next 25 years.

Go figure.

🙂

Gauging the Crowd

What was it about winning?

Someone did observe, that 12% of market players win in Equity markets.

In Forex, the number is much lower, something like 5%, I believe. 

If these numbers are to be believed, what’s the obvious takeaway for us?

Behaving like the crowd will not make us…

…win.

Or, in other words, to win, we need to behave in a manner which is not exhibited by the crowd. 

This makes us gauge crowd behaviour…

…almost all the time. 

For example, what does everyone want to do just now?

What did everyone want to do in March?

Did we do the opposite?

If so, we are winning now.

It’s not that one can switch one’s buttons just like that.

It takes experience, solid research, conviction and will-power to go against normal market behaviour.

It doesn’t just come. 

One works towards it, and the only learning comes from mistakes made with one’s money on the line.

That’s the price of tuition in the markets. Unfortunately, books probably won’t teach you this one.

Those who don’t pay this tution-price early, when their ticket-size is still small, well, they can eventually end up doing so later, at a much larger ticket-size.

Just make your mistakes, as many as you can, as early as possible. 

Don’t repeat a mistake.

Great. You’re done already!

How does one gauge the crowd?

Let’s listen in. What are people saying? How many tips are circulating? What’s the quality of these tips? What’s the level of enthusiasm? Is the doorman talking stocks? Folks going all-in at the top?

Or, does no one want to have to do anything with the market? Are you getting calls asking whether one should stop one’s SIP? Is your close relative aghast that you have your money in stocks? Is he or she alerting you to the possibility of an absurd-looking bottom?

The human being is an emotional entity. Blessed be us Indians, we take the cake in being emotional. Not for nothing are our markets correspondingly volatile. And that’s great news for Equity players.

Why?

You’ll see wild swings in the playing fields.

Our indices roller-coast hugely, perhaps the most in the investable world.

We get fantastic bottoms to enter…

…and amazing tops to exit.

Question is, do we leave ourselves in a position to take advantage of this?

Are we continuously gauging the crowd?

Are we continuously behaving like the crowd?

Or, have we made it a habit…

…to win?

FOMO anyone?

Sure, buy…

Where were you some days back?

Buying was a breeze, for quite a while. 

Lately, as in, since Tuesday, it’s not so much a breeze. 

Pharmaceuticals are already up to their pre-crisis prices, and IT needs to recover another 10 – 15% and it’s there. 

If this trend continues for another week, we could be talking about an interim recovery. 

Prices haven’t recovered fully, you would argue, right?

Fine. That’s a valid perspective, in the event that you are a long-term investor.

What’s your compromise?

You won’t be getting full margin of safety at these prices. 

Also, on these up days, there’s so much upwards pressure that the bid-ask spread squeezes you generously to the upside. 

A few days back both these avenues were reversed. 

Still want to buy?

Wait for a big down day.

Margin of safety will be slightly better, and downward pressure will let you buy on limit, lucratively set to harness the downward momentum. 

How do we know that a big down day is coming, in the first place?

We don’t.

What if there aren’t any more big down days in the near future?

Wonderful.

Lock your spare funds away safely, and wait patiently for the next shock. 

Waves operate in shocks. 

This is the age of shocks. 

Buy in the aftermath of a shock. 

What if one isn’t able to buy anymore?

Even better.

Lock in whatever you’ve bought, and divert your attention to other activities.

Like?

Trade.

What?

Currency.

Oil.

Bullion.

Energy.

Industrial metals. 

Do something that takes away your attention from your locked in equity.

Why?

That way you will be able to sit without spoiling your compounding that will happen while you sit. 

Just forget about FOMO. Live in the now. Have your job cut out. Wait for the right conditions to appear. Then act.

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. 

🙂

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.

🙂

Nadir Non-Focus

Scared to enter?

Things look gloomy?

Forever?

NO.

Look at History.

Markets are where they are despite what’s happened. 

Governments, scams, frauds, bribes, wars, disasters – the list is endless. 

In the end, we are still where we are.

Is that good news?

YES.

What does it mean?

Growth – reflects in the corresponding market – eventually. 

Sure – we might not be growing at 7%+.

We definitely are growing at 5%+, perhaps at 5.5%+.

In a few years, growth could well accelerate.

Why?

Earning hands are growing.

So are aspirations. 

The consumption story in India is alive and kicking. 

What we’re seeing currently is a result of eighteen months of bad news. 

Such a long spate of negative stuff churning out gets the morale down. 

People start letting go of their holdings in despair. 

Maybe there’s another eighteen months of negativity left – who knows. 

That’s not the right question.

Don’t worry yourself about the bottom and when and where it is going to come. 

Why?

Please answer something far more fundamental first.

If you don’t have the courage to go in at this level (with small quanta of course, we do follow the small entry quantum strategy)…

…do you really thing…

…that you will muster up…

…anything remotely resembling courage…

…at a number that is let’s say 20% below current levels?

Gotcha there?

Sometimes, you don’t like it

Sure.

Like now.

Bloodbath in small-caps.

Alleged suicide.

NPAs.

Witch-hunt.

Did you choose Equity as an area of expertise?

Ok, then deal with it.

First up, India’s History is laden with scams.

We are where we are despite these.

Secondly, there’s growth. In other parts of the world, there is not much growth.

India is an emotionally volatile nation.

So are its markets.

Since this is where we act, let’s get used to things.

If you’ve been following the small entry quantum strategy, well, then you’ve got ammunition…

…at a time, when the value of this ammunition is immense…

…because lots of stuff has started to go for a song.

You do feel the pinch though…

… because whatever’s already in, is bleeding.

You don’t like it.

It’s normal.

Going in at a time like this, you will feel pathetic.

However, for your money, you are getting quality at cheap multiples. This will translate into immense long term wealth. Quality at cheap multiples multiplies fast.

Here are a few reasons you should feel ok about going in.

The small entry quantum strategy has rendered you liquid…

…after sorting out your basic family life, income-planning and what have you.

You are going in with money you don’t require for a longish time.

Muster up the courage.

Get over your pinch.

Engage.

Buy quality.

Debt-free-ness.

Shareholder-friendliness.

Generated free cashflow.

Transparency.

Diligent managements.

Product-profile that’s going to be around.

Less dependency on water.

Versatility.

Adaptibility.

Make your own list.

Use the stuff above.

Wishing you lucrative investing with no tears and with lots of smiles.

It Boils Down to Good Governance 

India’s at the Olympics and all. 

We’ve had near misses. 

Sure. 

Athletes qualified fair and square. 

Not a word against India’s squad. 

They’re really trying very hard. One of our gymnasts has even risked her life by vaulting a successful Produnova. Rio-presence is achievement-based, not nepotism-based. It’s tough. It’s incorruptibly monitored. Footfall is highest ever. Indians have made the international cut in many events, like never before. Finishes are all decent. A few finishes are very, very decent, missing the podium by decimals. Our athletes deserve some podium finishes. 

However, what are 80 Indian officials doing in Rio, accompanying a squad of 119? Only a few of these 80 are allowed arena access. The rest are what? Long live the exchequer? We build up the exchequer by paying our taxes. We’d like to see its contents used judiciously. 

Let’s cast a glance at how our officials are conducting themselves at Rio. Actually, we’ll leave it at the official warning they’ve just received to behave themselves. SHAME SHAME. 

Is this good governance? 

NO. 

Do our officials deserve a podium finish?  

No. 

We’ll have to spend where it counts, on facilities, proper diets and trained physios. We’ll have to save on useless paraphernalia. Red-tape be damned. We’ll have to embrace good governance. We do want podium finishes, don’t we?

One looks up to one’s peers. If they’re corrupt, out of shape and / or out of whack, even the best athlete suffers a psychological downer. Our officials will need to trim down and get their acts together. All of them will need to behave like exemplary ambassadors of the country. They will need to give their wards that psychological boost. Coaches will themselves need to be in shape, to set good examples. Podium finishes will then be around the corner. 

Cut to stock-selection. 

The biggest and first thing to look for is good governance. 

Just cut all the nonsense out of the way, first up, because where you find good governance, you won’t find nonsense. 

It all boils down to good governance. 

When Push Comes to Shove 

Genetically… 

… we’re savers. 

Indians. 

Save. 

That’s a good thing. 

Since the ’00s though, our banks have started pushing loans as if there’s no tomorrow.

The motto seems to be : we don’t care who you are, just borrow. If we know who you are, here, borrow some more

That is dangerous policy. 

It sets the stage for a push comes to shove scenario. Savings are being lent further, and they might not come back. 

What counts when push comes to shove? 

Deposits in the bank? No. Gone. 

Real Estate? No. No buyers. No renters. Illiquid stuff just won’t move. 

Equities? No. Dumps. Good entry levels though. No resale value for a while. 

Bonds? Perhaps. Short duration ones, provided underlying doesn’t go under. 

Gold? Yes. Big. 

Trading? Yes. Options, forex, commodities, what have you. 

Cash? Yes. Provided there’s no hyperinflation. Use it for day to day life. Use surplus to acquire great bargains. 

Farmland? Yes. You’re then sorted as far as food and water are concerned. 

Use your imagination. 

Prepare for a push and shove scenario. 

It probably won’t happen. 

However, you’re prepared, just in case. 

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.

Charting Charting Charting

Why don’t you just…

… trade what you see?

Trade the chart, dammit.

Not the level.

Not the expectancy of a turnaround.

And, although I still do this because it gives me a kick, why do we even trade corrections?

Why can’t we just trade the sheer chart?

Every chart is either going up, down or nowhere.

So it’s pretty obvio, that the first step would be to…

… to what?

… to decide where the chart is going.

Again, it should be pretty obvio, that if a chart is going nowhere, then you are doing… what?

Are you trading such a chart?

NO!

Wait for such a chart to break out in one particular direction.

Wait for the LTT to turn in this direction.

Then trade this chart. Not before.

Yeah, LTT stands for long-term trend.

Yeah, we’ve befriended the LTT so much, that we have an abbreviation going for it…

Once you’ve sorted out the direction, look for an entry setup.

Be patient.

If the entry setup hasn’t formed yet, wait for it. If you can’t stop your twiddling fingers from doing something, feed in a trigger entry in case of a hypothetical setup formation within the next few hours / days, if your trading station allows this.

There’s no up or down anymore, to be honest. You are going where the chart is going, period.

You are also not asking the stooopidest question of them all…

… you guessed it… “Did the sensory index go up, or down?”

Just forget about the sensory index, ok?

I mean, we’re so done with sensory indices in this space.

Why?

DLF could tank 20 bucks on a day the Sensex goes up. Dow Jones could be down 50 points, but Pfizer could just spring into a stellar upwards move. Why should we have lost the short-side opportunity that DLF hypothetically gave, or the long-side opportunity that Pfizer could present, for example? We will do exactly that, i.e. lose the opportunity, if our focus is on the sensory index.

Focus on the underlying.

To be more precise, focus on the chart of the underlying.

Happy trading.

🙂

That Thing about High Growth

Panipat, India, 2004…

The Asia-Pacific Head’s speech was intriguing. I still remember it, even though it was delivered a decade ago. 

He’d come to inaugurate his bank’s branch in our town. He said that he loved opening new branches in the middle of chaos, where he can barely manage to park his car, and where there is just about an iota of order amidst disorder. 

We were puzzled, and I believe one of the invitee’s even ventured asking why. “That’s where 8%+ growth exists” replied he, or something to that effect, and his words stamped themselves in my memory. 

Cut to 2014.

Look around you.

Can you find any corner in the world, where high growth is linear?

Very low single digit growth can be linear, yes. In such countries, there are systems, that check short-cuts and mal-practices. Governments are overall honest. Social security systems are up and running. 

There is some element or the other of a banana republic to any really high-growth economy you find today. You don’t really know what’s cooking in China’s soup, do you, behind the media-ban? Brazil’s let so many starve to host a successfully organised world cup. How much of Russia is about mafia, and crime? And, India might be a democracy, but you just need to look at the inflation and deficit numbers to figure out that something’s off. We’ve just gone through the BRIC nations, prime examples of high non-linear growth. 

Let’s not grieve about what all is wrong with high-growth nations. Let’s look at what we do have going in our favour. What’s common to such nations?

 

– The fact that growth comes in spurts, when some conducive event occurs, like a sound governance stretch.

– The fact that these economies are all highly volatile. 

– The fact that we don’t need anything else – to trade them. 


Yes, we are going to trade such economies. Regular volatility, both ways, is what a trader wants. 

You can invest in such economies if you want to, sure. In that case, you’ll need to use your common-sense and not believe every balance-sheet that is being presented to you. You’ll need to read between the lines at every step. Some people are good at that. 

I’m more comfortable trading a volatile market. 

Thus, I really don’t care why a Ranbaxy might be poised to go down. I’ll just be looking to purchase a cheap Put upon noticing that a key support level has broken down. 

At the same time, I couldn’t care less if an Infosys is just about to disclose stupendous numbers. I’ll just be looking to purchase a cheap call based on a technical level being pierced towards the up-side. 

That’s the thing I love about trading. You don’t need to ask more than a few basic questions before taking the plunge. Also, with avenues like options now being liquid both ways, risk is exactly defined and relatively low. 

The thing about high-growth economies is that you can play them well enough with options. 

Wishing for you happy and safe trading.

🙂

Who’s Responsible for that Last Technical Bit?

Planning a technical trade?

You’ve got your chart open. Scrip’s been falling.

You plan to initiate a buy on that last support. Still a few percentage points to go. 

Your buy point seems a bit off, right? 

Scrip might not reach it, huh?

It might just take off before reaching your buy point, hmmm?

What you need to understand is this – for nothing comes nothing.

You don’t want to risk a buy at current market price. That’s a fact. An acceptable one. Fine … as long as you are willing to pay the price for this fact. 

The price is that you might not be in the trade as the scrip might take off without your stop-type trigger entry price being hit. 

The up-side is that the scrip might correct to your buy price, triggering your entry, and thereby giving you a perfect technical entry point, along with a great margin of safety, since you’ll then have bought low as compared to current market price. 

Yeah, that’s the trade-off.

Is this trade-off acceptable to you?

Yes?

Fine. In my opinion, you would not be doing anything wrong in going ahead with your planned course of action, as long as you have mentally accepted the trade-off. 

What’s the other guy at? You know, the fellow who’s entering at current market price. Well, he’s taking a risk. He’s buying a little high, without margin of safety. What’s his trade-off? For starters, he’s in the trade. Scrip can take off immediately for all he cares, leaving you behind. He’ll be most happy. What’s his down-side? Scrip can correct to technical support, your buy-point. He’ll already be in a losing trade, and you’ll be just entering. In his worst-case scenario, his stop will already be hit as you are just entering. If the scrip takes off on him now, he’ll probably be puking. Yeah, that’s his trade-off. He’s accepted it mentally. After such acceptance, in my opinion, he’s doing nothing wrong by entering at current market price. 

What’s going to happen?

No one knows. Either of the outlined scenarios can play out.

Who’s that last technical correction left for? Yeah, who or what exactly will be responsible for that last technical correction?

An event. A negative one.

At this point, a negative event can happen. On the other hand, it may not happen. 

If it happens, the scrip will very probably open at the technical buy point the next day, and your buy will be triggered. 

If there’s no negative event, and buying pressure goes up, the scrip will take off without you.

Why is that last bit left to an event?

Events give prices a push or a pull, depending upon their positivity or negativity. 

That last support was made a bit low, right? You were wondering how the scrip reached so low, huh? In high probability, an event pushed it low for a few hours, and a low was made. If this low coincided with a past low, one started to speak of a lowish support, which was a little low considering current market price, and for which the scrip needed a pull-back to reach. 

Like this morning’s pull-back. The US decides to allow air-strikes in Iraq. Japan opens 3% down. India opens 1% down. 

A lot of scrips open really down this morning. 

Some of them even open at lowish supports they were not (at all) intending to touch yesterday. 

Taking the Pan out of Panic

Panic – Pan = ic = i see = I SEE.

Times are unprecedented.

We’re breaking new lows of evil everyday.

Ours looks to be a hopeless nation.
Is it over for us?

Shall we pack up our bags and migrate?

Just take a deep breath. Bear with me for a moment. Try and cast your panic aside. Try and think clearly.

I’ll share with you an observation. Take any Indian. Doesn’t have to be an outperformer. Take an under-averagely performing Indian, for all I care. Weed him or her out of our pathetic system, and place him or her in a nation with good governance.

Lo and behold, our candidate will start performing. Not only that, soon, he or she will be outperforming. After a decade or so, he or she will probably have mastered the system and punctuated it with innovative short-cuts.

Get my point?

We are a resilient race. We might look fickle, frail and harmless superficially, but we can struggle, bear, survive, and finally break out. Just give us good governance.
Don’t panic. We’re not going down that easily.

What’s happening currently is a purge. Yeah, it’s a catharsis with a big C. While it continues, asset classes across the board will probably get hammered.

What does that mean for you?

Only one thing.

Stay in cash. Accumulate it. Learn to sit on cash. Sit on it as long as the purge lasts. Let its value depreciate, doesn’t matter. Park it safely with a conservative private bank. Fixed deposits would be the instruments of choice. Yeah, you don’t want to leave unattached cash lying around. Potentially, unattached cash could be susceptible to online fraud. Attach your cash, safely, and keep it before your eyes. Put some watch-dogs in place, as in sms and email alerts. Password-change attempt? You are immediately alerted. New payee added? You are immediately alerted. Watch-dogs bark.

As per my instinct, though we probably won’t go bankrupt as a nation, we might just go a long way down before the purge is over. After the purge, there will be tremendous bargains on offer, across the board, in all asset-classes. Cash will be king. Save your cash and sit on it – for that day.

Meanwhile, your wealth-manager will try to push you into panic purchases with your cash. As in, buying gold at 32k, and the USD at 65. Don’t listen. These are crazy levels. One doesn’t invest at crazy levels. These are not even normal trading levels. Yes, they are institutional trading levels. One does not invest at institutional trading levels.

It’s time to use your common-sense and maintain a cool head.

You can only do that by refusing to panic.

What’s your Answer to Dictatorial Legislature?

Cyprus almost bust…

Money from savings accounts being used to pay off debt…

Five European nations going down the same road…

US economy managing to function for now, but without any security moat (they’ve used up all their moats)…

Our own fiscal deficit at dangerous levels…

Scams in every dustbin…

Mid- & small-caps have already bled badly…

Let’s not even talk about micro-caps…

Large-caps have just started to fall big…

Just how far could this go?

Let’s just say that it’s not inconceivable to think… that this could go far.

Large-caps have a long way to fall. I’m not saying they will fall. All I’m saying is that the safety nets are way below.

I see one big, big net at PE 9, and another large one at PE 12. Getting to either will mean bloodshed.

Inflation figures are not helping.

In a last-ditch attempt to get reelected, the government recently announced a budget for which it’ll need to borrow through its nose.

Oops, I forgot, it doesn’t have a nose.

The whole world is aware about work-culture ground-truths in India.

Things are out of control, and this could go far, unless a miracle occurs and Mr. Modi gets elected. Before such an eventuality, though, things could go far.

When large-caps fall, everything else falls further.

How prepared are you?

Hats off to those with zero exposure.

Those with exposure have hopefully bought with large margins of safety.

Those who are bleeding need a plan B.

In fact, a plan B should have been formulated during good times.

Anyways, how prepared is one for a Cyprus-scenario, where dictatorial last-minute legislature allows the government to whack money from savings accounts?

In future, you might need to find a solution for loose cash in savings accounts. It needs to be kept in a form where government doesn’t have access to it.

As of now, what’s serving the purpose is an online mutual fund platform, through which loose cash can be moved and parked into liquid mutual fund schemes. For government to exercise full control over mutual fund money, it’ll probably need to be more than a bankruptcy scenario.

That’s just for now. Adaptability is the name of the game. It’s always good to be aware of one’s plans B, C & D.

Where to, Mr. Nath?

Last month, I scrapped my market-play system.

Happens.

Systems are made to be scrapped later.

One can always come up with a new system.

I love working on a new system.

It’s challenging.

What I want to talk to you about is why I scrapped my last system.

I found four accounting frauds, as I did my market research, all online.

You see, my last system worked well with honest accounting.

It had no answer to accounting frauds.

Also, I got disillusioned.

Are we a nation of frauds?

How does one deal with a nation of frauds?

More importantly, how does one play such a nation?

Does one invest in it? Or, does one sheer trade it?

Questions, questions and more questions. These encircle my mind as I work to put my new system together.

I am in no hurry to come up with an answer. A country like India deserves a befitting answer, and that it will get, even if the sky comes down on me while I put my system together.

Slowly, I started to think. How many systems had I scrapped before?

Hmmm, four or five, give or take one or two.

I have an uncompromising market rule of going fully liquid when I scrap a system.

Full liquidity is a tension-tree state. It allows one to think freely and in an unbiased manner. Being invested during volatility impedes one’s ability to think clearly and put a new system together.

Ok, so what answer would my new system have towards fraud?

All along, it was very clear to me that future market activity would be in India itself. Where else does one get such volatility? I am learning to embrace volatility. It is the trader’s best friend.

Right, so, what’s the answer to fraud?

Trading oriented market play – good. Not much investing, really. First thoughts that come to mind.

Buying above supports. Selling below resistances. Only buying above highs in rare cases, and trailing such buys with strict stops. Similarly , only selling below lows in even rarer cases, and again, trailing such sells with strict stops.

Trading light at all times.

Fully deploying the bulk of one’s corpus into secure market avenues like bonds and arbitrage. You see, bonds in India are not toxic. Well, not yet, and with hawks like the RBI and SEBI watching over us, it might take a while before they turn toxic. If and when they do start turning toxic, we’ll be getting out of them, there’s no doubt about that. Till they’re clean, we want their excellent returns, especially as interest rates head downwards. In India, one can get out of bond mutual funds within 24 hrs, with a penalty of a maximum of 1 % of the amount invested. Bearable. The top bond funds have yielded about 13 – 15% over the last 12 months. So, that 1% penalty is fully digestible, believe me.

With the bulk of one’s returns coming from secure avenues, small amounts can be traded. Trade entries are to be made when the odds are really in one’s favour. When risk is high, entry is to be refrained from. A pure and simple answer to fraud? Yes!

You see, after a certain drop, the price has discounted all fraud and then some. That’s one’s entry price for the long side. On the short side, after a phenomenal rise, there comes a price which no amount of goodness in a company can justify and then some. That’s the price we short the company at.

Of course it’s all easier said than done, but at least one thing’s sorted. My outlook has changed. Earlier, I used to fearlessly buy above highs and short below lows. I am going to be more cautious about that now. With fraud in the equation, I want the odds in my favour at all times.

These are the thoughts going on in my mind just now. Talking about them helps them get organized.

You don’t have to listen to my stuff.

I’m quite happy talking to the wall.

Once these words leave me, there’s more space in my system – a kind of a vacuum.

A vacuum attracts flow from elsewhere.

What kind of a flow will my vacuum attract?

Answers will flow in from the ether.

Answers to my burning questions.