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?

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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.

🙂