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!

🙂

Washing a Stock “Sin-Free” with Cost-Free-Ness

Each stock has sins on the balance-sheet.

Many sins don’t show up even, on the balance-sheet.

You see, they’ve been swiped under the rug.

One’ll never know the whole story, unless one is the promoter oneself.

Some stocks have nothing noteworthy to hide, though.

Others have a side they don’t want you to see.

Still others are brimming with skeletons in their cupboard.

It doesn’t matter what you’re holding, …

… when you make the stock cost-free, …

… for you, the stock just became sin-free.

Congratulations.

You’re done already.

That’s the beauty of cost-free-ness.

Yeah, in cost-free-ness, …

… one has a universal balsam…

…that rinses the underlying completely clean to hold, like, forever.

Cost-free-ness is like a magic potion that turns around the whole story, …

… any story.

So, …

… what’s the motivation…

—in making the wholesome effort…

…of creating cost-free-ness?

Multibaggers, developing within our high quality, and now cost-free, holdings.

And how could one classify our feat of cost-free-ness, in another, very meaningful and currently “hot, happening and insider” way?

Nothing’s happening to one if markets go down even to zero, as far as one’s cost-free holding is concerned, since one has pulled out all the principal. Since one is not incurring any loss whatsoever from the holding, even upon market-reversal, for one, this cost-free holding, if I’ve understood Mr. Taleb (coiner and first-user of the phrase “antifragile”) correctly, is antifragile in nature, also then because, price contraction in the cost-free holding is a good thing for us, in that more purchase of the high-quality holding can subsequently happen, with the goal of making more and more holding cost-free, as markets swing back upwards. Market reversal after cost-free-ness is setting us up for a larger cost-free holding in the future. Seen from our initial sweet-spot of cost-free-ness, since market reversal betters our poise and increases our potential to make our cost-free holding grow in units (and size), that would be the last tick mark, required and now ticked, which makes our cost-free and high-quality holding, also, antifragile.

Cost-Free-Ness doesn’t come for Free

Yes.

You read that right.

If you thought I was revealing some kind of holy grail secrets here, which you could copy-paste for yourself without having to do anything else, do please allow me to fine-tune your thinking.

First-up, true, cost-free-ness is a holy grail of sorts, I do feel.

However, it’s hot to handle.

As discussed previously, our greed comes in the way. We don’t unlearn our greed just by reading a blog-post.

Then, when I speak about cost-free-ness, I stand upon the shoulders of giants. I have always maintained that in all my writing. One struggles, and comes upon…

…gems.

Others have struggled and stumbled upon these gems before, similarly. Some have documented their experiences for us to learn from.

That’s the way of life. One builds upon the edifice that one’s peers have left standing.

As long as one gives freely of oneself, life moves on comfortable trajectories, and the Universe rushes to protect and encourage such giving.

Lastly, you’ll also have to struggle when you go about establishing cost-free-ness for yourself.

Make good causes, so that difficult Karma doesn’t spoil your party by forcing you to liquidate your cost-free-ness, in order for you to have to finance your way out of such Karma.

Then, complete market rewiring required by the brain takes about a decade and a half of putting one’s money on the line. That’s been my my experience. One needs to rewire one’s mentality to be able to create cost-free-ness in any market situation. Like I said, it’s going to cost you.

This freebie material here is just to get you started on your path.

Besides, I do owe a debt towards all the free material I myself use on the internet, so this is my giveback in lieu of that.

I wish for you happy, lucrative and cost-free investing!

🙂

Being Cost-Free is like having 100% Margin-of-Safety

What allows us to sit?

It’s margin-of-safety.

When we buy without margin-of-safety, we are not able to sit for the long term.

Long-term investing fails for us if we don’t know how to sit.

Extrapolating this logic further, what would allow us to sit on high-quality holdings, like, forever, allowing for multibaggers to develop in our portfolio?

It’s cost-free-ness.

Being cost-free in a stock is equivalent to having 100% margin-of-safety on the holding.

Such a state of being allows us to freely sit on the holding, like, forever.

A range of other benefits open up for us, and about these we have spoken in detail earlier.

For example, we become fearless with regard to our cost-free holding. Then, we experience full freedom of focus on future play, while simultaneously forgetting that we even have this other cost-free holding that we own! Like I said, we’ve discussed all this thoroughly in previous pieces.

Bottom-line is, that we understand explicitly following extrapolation : Buying with margin-of-safety translates into sitting-ability for us, leading to creation of cost-free-ness upon appropriate appreciation, and such cost-free-ness in turn equates to 100% margin of safety in the held underlying, which then allows us to sit indefinitely on our high quality holding.

We’ve thus set the stage for holding many multibaggers in our ‘folio, by the time we reach retirement age.

🙂

Unfortunately, Cost-Free-Ness doesn’t do away with Greed

So, one’s cost-free in the markets, and still gloating.

Let’s not gloat.

Much rather, let’s be watchful.

Watchful?

Yeah.

Why?

A still rising market is going to play tricks on our mind.

FOMO…

…missing-the-bus-syndrome…

…greed…

…call it what one will.

It is happening, or is going to happen, to us.

Without mincing any words, let’s have the lowdown laid out straight-up.

There are two things in our path that are now stopping us from the creation of multibaggers in our portfolio.

First-up, there’s the play-out of destiny.

Circumstances could occur that force us to reduce our cost-free-ness, or completely cash it out, to finance something immediate, if funds are not available elsewhere.

Please let’s create systems to avoid dipping into our cost-free-ness, if we can help it.

Cost-free-ness is a very hear-earned commodity.

One’s taken knocks to achieve it.

Yes, it’s cost sweat and toil.

We’re not letting go of it if we can help it.

Then…

…there’s greed.

This is the one thing which can cause us to cash out of our cost-free-ness, just like that, for nothing, except for the gratification…

…of itself (our own greed).

What’s the anti-dote of greed?

Practise giving.

Yes.

Do charity.

Everyday.

In some form or the other.

Cash, effort, emotion, support…

…give of yourself.

Give others joy.

Experience the joy of giving.

Greed will subside.

One’s hard-earned cost-free-ness will stay intact…

…and multibaggers will develop in our cost-free cum high-quality portfolio.

Happy Investing to you, and blissful cost-free-ness.

🙂

Cost-Free-Ness completely does away with Fear

When nothing from your end is invested, but you still have a holding in the markets,…

…you have created for yourself the state of cost-free-ness.

Cost-free-ness carries with itself a feeling of intense satisfaction…

…because of the sheer magnitude of the feat.

Well, congratulations.

With cost-free-ness comes absence of fear with regard to one’s cost-free holding.

When it’s not costing us, we’re not bothered.

Markets can go anywhere.

They can come down to zero, for all we care.

Fine.

Still unshaken?

Yes.

Why?

If markets comes down to zero, we can look to enter en-masse.

We’ve got principal, remember? Took it out, to create cost-free-ness, tu te souviens?

When markets come down to zero, owing to absence of fear, …

… our focus is not on our (cost-free) holding.

Instead, our focus is on the lucrative entries coming our way.

After markets come down to zero, if they do, they’ll soon reverse.

Then, our new entries will start becoming cost-free, as prices climb.

Soon, we’ll pull principal out again, and will have have new cost-free holdings, which we can transfer to our consolidated cost-free holding account.

Fear is nowhere in the equation.

From Cost-Free-Ness to a Unified, Singular, Comprehensive, 360° Market-Field-Strategy

So you’re cost-free in the markets…

…and are contemplating your further market-journey ahead.

Yeah, now what?

First-up, let’s grab a hold of what you have in your hands.

You are holding high-quality material which fits your risk- and long-term holding-profile, and, most importantly, this material has now been freed up of its investment-cost.

That’s (very) huge!

So, how does it go from here?

I’ve been here, and have always bungled it up.

This time, I won’t.

Why?

I’ve finally realized the supreme importance of being at this point, and, …

… I wish to keep coming back to this sweet-spot, …

… again, and again and again.

It’s a wonderful feeling.

One feels deep satisfaction, of achieving something big.

Yeah, at Magic Bull, we sheer achieve, write about it, and then achieve more.

We’ll just go on achieving.

We’re not stopping.

The writing part is only to keep a log and to help others on the path.

And of course, it clears one’s thoughts, making one arrive at gems of strategies…

…which all converge and unify into a singular market-approach.

Let’s talk about singular.

At this sweet-spot, the ghost of trading arrives.

One feels like riding the highs by video-gaming through the markets.

And, one falls flat.

It’s not familiar territory, because the approach till now has been one of investing, and investing and trading are diametrically opposite in nature. Meaning that it takes some time to rewire.

Before rewiring properly, …

… one’s already pressing buttons as if buttons are soon going to become extinct, since one is seeking thrills. It’s normal.

One’s achievement-vector points only towards falling flat, such is one’s behaviour.

How do we conquer this pitfall?

We’re going to exhaust this ghost’s potential to our benefit.

We are going to trade, …

… because otherwise, ghost’s not going away.

However, we are going to trade only those scrips that are already inhabiting our cost-free portfolio.

We trade these, as new units, in a different trading account.

Entry is worth one small quantum, whatever small entry-quantum one has defined for oneself.

The objective is to ride a quick run, and make, let’s say, 20% of the traded units cost-free.

That’s would be good, hard, tangible bang for our trading bucks.

Assuming we succeed, we then transfer the cost-free units to our long-term portfolio.

In the event we fail because markets start to reverse, it’s still ok.

It’s a holding we are comfortable holding, into the next market cycle, where we’ll again try and make it cost-free, and we’ll then have cost-averaging on our side, since we’ll have reversed to an investing approach.

It’s win-win everywhere.

Failure comes eventually, because markets ultimately reverse.

No one knows when.

Till them we keep trading and increasing our cost-free-ness.

When failure comes, it’s once, and eventually we hold and try to turn it around.

Because we’re holding quality, the probability of turning the situation around is high.

Before this one failure, we are poised for many possible trading wins, with each win adding to our cost-free-ness.

And there we have it…

…voilà…

… , yes, it’s a unified, singular, comprehensive, 360° Market-field-strategy…

…courtesy your friend and comrade-in-investing. …

… Magic Bull !

🙂

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.

🙂

Cost-Free-Ness

Why…
 
…do we play this game?
 
I play it to…
 
…win.
 
What’s one’s definition of a win?
 
It’s different for everyone.
 
I’ll tell you mine.
 
I want to be completely cost-free in the markets before the end of a bull-run. 
 
What does being cost-free mean?
 
It means that whatever one has in the market, has been completely freed up of its principal. 
 
That’s done by taking the principal out, over time, as markets climb. 
 
What purpose does cost-free-ness serve? 
 
Firstly, whatever’s in the market now, in a cost-free state, is all high quality material. 
 
It can’t be otherwise. 
 
What’s not high quality will be pulled out as markets persist in their climb. 
 
Why?
 
The impulse to book is very strong. 
 
In that state of mind, whatever is not worth holding anymore, will be automatically booked. 
 
It’s human nature. 
 
Secondly, what’s in the market now, can stay in, like, forever, without causing us any tension. 
 
That’s an ideal state of mind for the creation of multibaggers, and the underlyings in question are all multibagger material, being the essence of one’s entire market-play. 
 
Thirdly, one has gotten one’s soldiers home, to fight more battles, as valiantly as ever, in the times to come. 
 
Ya, cost-free-ness means that one has pulled one’s principal out. 
 
This very principal will now be utilized to make more and more shares cost-free.
 
Fourthly, we are not going to suffer any pangs about the markets climbing and climbing further. 
 
Further climb benefits our material in the market, immediately. 
 
More material, picked up at trading levels, is likely to yield a small chunk of cost-free shares, in the form of a winning trade. As one exits such trade, one leaves one’s profit in the market, in the form of cost-free shares. 
 
Sure, eventually the market will collapse, and we’ll be left with some material which is not only not cost-free, but is now losing, perhaps big.
 
That’s ok.
 
Why?
 
Because, quantities are relatively small. These are trading levels, remember? Thus, entries will be small.
 
Then, these are the same underlyings as already existing in our portfolio. 
 
We want to hold these. 
 
We are holding many cost-free units of these very underlyings. 
 
Current loss-making units of these underlyings can be averaged as markets sink further, because we are highly convinced about these holdings.
 
Eventually, the curve will turn, and a new cycle will start.
 
As markets climb in the new cycle, eventually these new units will start becoming cost-free.
 
Such positive loop outlined above is the market sweet-spot I always wish to be in.
 
It’s the essence of almost seventeen years of first-hand, in-the-field market learning, with personal funds on the line at all times, struggles, losses, beatings, the works and what have you. 
 
And now, there’s cost-free-ness.
 
That’s my win in the markets!
 
🙂
 
 
 
 

One-Way Bias

I know, I know…

…but am not getting cocky, please believe me. 

There is something about a one-way bias,…

…so let’s discuss this one today.

When we’re only focused in one direction,…

…we’re not second-guessing the market. 

We have a set strategy, whatever it might be.

We don’t abandon it, suddenly, to go reverse. 

That saves us a lot of trouble, time and money. 

How?

No looking over the shoulder, as to when the market is reversing, saves trouble and time. 

Reversing during a set trend fails, fails, fails, till it succeeds.

Thus, money is saved, since all these failures are avoided. 

Money is made by not reversing, if reversing is to be a failure many times. 

Brokerage is saved. 

Yeah, bucks are saved, and perhaps made, owing to a one-way bias, let’s face it.

One might argue, though. 

Here it comes.

What about the huge profits to be made when a market reverses fully and finally?

Ya, I knew this one would come.

Pipe-dream.

Firstly, how would one know when a market is fully and finally reversing, before the event has set in fully and finally?

The truth is, it’s not reversing, not reversing, not reversing, till it’s reversing fully and finally. 

Does one really want to keep going contra till one is proven right, breaking an arm and a leg on the path?

NO.

Canning the argument. It’s a fail. 

Let’s say the market has fully and finally reversed. 

Now what?

Does one change one’s bias?

Or what?

I knew this one one would come too!

Changing bias is detrimental to a long-term investor’s strategy.

No-brainer, right?

So what does the long-term investor do when the market reverses fully and finally?

As a market over-heats, the long-term investor has been busy. 

He or she has not been not buying, but selling, unwanted stuff at first, and then freeing up wanted underlyings, such that what remains in the markets is free of cost. Ideally.

Thus, when a market reverses fully and finally, such an investor is not afraid of letting underlyings be in the market, since they are “freed-up”.

Now comes the full and final reversal. 

For the long-term investor it’s a valuable time to pause, giving the nerves and the system much-needed rest.

Liquidity has been created and pickled.

It’s a time for research, reading and reflection. 

Activity will resume upon the next bust. 

For someone with a short bias, like for the “Bears” in the Harshad Mehta TV show, though, now is an active time. 

Positional traders change bias after long-term trend change. 

Personally, I find going both-ways pretty taxing, so mostly, I stick to a long-long bias.

I say mostly, because once a downtrend has set in, the punting-demon does emerge, and I might trade a few puts here or there for the heck of it, if there’s nothing better to do, but not to the extent of contaminating my long-long bias.

Living in a country showing growth, active in its markets, we will do well with an upwards bias.

Short-circuiting poison will emerge from time to time. 

Control it…

…till you can’t.

At that point, trade a few Puts, or a Put Butterfly, or what have you, just to see what the other side feels like.

It’s just recreational, you see, not enough to contaminate one’s main bias.

Breaking Free

[ “I want to break free
I want to break free
I want to break free from your lies
You’re so self satisfied I don’t need you
I’ve got to break free
God knows, God knows I want to break free… ” – Queen].

How does one stay invested in the markets…

…despite all its deceptions and mind-games?

As indices creep up and up, our minds start playing tricks on us.

We seek excuses to cash out.

And, mostly, we…

…cash out.

Done?

NO.

We don’t want to be done.

Why?

There might come a day, when we wish we hadn’t cashed out.

Markets can stay overbought for ages.

Or not.

We don’t know.

No one knows.

Appreciation that counts sets in upon staying invested for the long-term.

How does one resolve this…

…conflict of mind versus reality?

One…

…breaks free.

Meaning?

Free up whatever has gone in.

Meaning?

Cash out the principal.

Leave the profit in the market.

This profit has cost no money.

Leaving it on the table is not a biggie.

Or is it?

It is…

…for most.

Those, for whom it isn’t, will benefit properly from compounding.

Now, what’s the danger?

No danger.

What’s on the table hasn’t cost you, so no danger.

Still, what would one fear?

No fear. What’s in is free, so no fear.

Let me paraphrase.

What’s the worst-case scenario from here?

Well, U-turn, and a big-time correction.

So what?

Use the correction to buy low, with the idea of freeing up more and more underlying(s) upon the high.

This way, size of one’s freed-up corpus keeps growing, and so does one’s exposure to compounding.

Wishing all very lucrative investing! 🙂

Investors whine, and traders cry, when they try the other’s Art

In a breakaway bull market,…

…one starts to find faults with Trading in general…

since, to make money, one just needs to sit, rather than actively trade. 

Almost everyone is happy with their investing,…

…in a breakaway bull market. 

What kind of factors does one start pointing fingers at?

Timing.

One almost always gets this wrong, specifically with regard to futures and options, which are time-bound.

Not having enough on the table…,

…yeah, yeah, heard that one before. 

While trading, one doesn’t bet the farm. 

When one’s trades run, one makes a bit,…

…which is not, by far, as much as any odd investment portfolio would be appreciating.

Second-guessing.

While investing, one is focused in one direction. 

While trading, one looks at both directions, to initiate trades, and the market-neutral trade is another trade in a category of its own. 

Hence, one is always second-guessing the market, and when one is off, it results in opportunity loss and brokerage generation. 

Time consumed.

Trading consumes almost all of one’s time. 

When markets are closed, one’s mind is not detached. 

It’s exhausting. 

Has many side-effects too. 

One doesn’t have time for many other things, because of trading. 

Whatever one does try to participate in, consists of half-baked efforts, because essentially, one’s mind is on the market simultaneously. 

Leads to a loss in quality of life.

Now, let’s reverse the situation. 

When markets slide downwards, the trader feels light. 

He or she cuts longs and initiates shorts.

It’s a superior feeling versus the investor, who is stuck with large holdings on the table. 

Feel-good factor is huge, and quality of life gets enhanced.

Good traders don’t have a liquidity problem. 

Also, they can shut operations and switch off from the market any time, if they are able to do so, in practice. 

Tappable markets are many for the trader. 

Trading leads to income generation. 

Investing leads to wealth creation.

What do you want from your life?

Both – is a valid answer, but confuses. 

If one wants to dabble in trading, but is basically an investor, one can think about initiating positional trades, which have a investing-like feel, and one’s time is less bound to the market.

If one wants to dabble in investing as a trader, hmm, this one will be markedly tougher, I think.

Don’t know what to say here, since I’m an investor who dabbles in trading…

…, but intuitively, I feel, that this one would take a lot of effort.

Bookability

Booking?

Understandable. 

Don’t book your basics though.

What are these basics?

Stuff you’re convinced about.

We’re long beyond due diligence here.

These underlyings are running. These are your right calls. 

They are not to be booked – as long as your conviction persists.

Any price?

Hmmm – this question brings in the concept of “Bookability”.

Save the booking angle here – for now. 

We’ll just try and answer above question about price. 

Sell everything else, as in any low-conviction holdings,…

…bit by bit,…

as markets tread higher and higher. 

Ultimately, it’ll all be gone. 

You’ll have done very well, and will have made good profits. 

You’re also left with your high-conviction holdings. 

As a bull market persists, these will start quoting at…

…ridiculous prices.

Is something a hold at…

…any price?

If you wish to be holding a multi-multi-bagger, well, then, yes, with a caveat.

When you can’t hold your trigger-fingers any longer, take your principal off the table. 

There.

Happy?

Now, what’s on the table for you, are high-conviction holdings, with principal off the table – aha – so these holding are free of cost for you.

When these high-conviction holdings are free of cost for you, the urge to sell can only persist because of two things. 

You could need the money. 

Fine.

Or,…

…because of an unfounded urge to book, as in “Score!”… .

Not fine. 

Tell your urge to sell that you want to make much, much more, by allowing an underlying to grow to 100x, for example. 

Urge to sell will subside.

What’s causing such urge?

Fear of a correction. 

When you’re holding free stuff, fear of a correction is unfounded. 

This needs to be instilled into our DNA.

With that, we’re done already!

Dynamics of a Right Call

India is in a long-term bull market.

Sure, there will be corrections.

We can easily have a big-time correction, but still be in the long-term bull market.

Putting things in a twenty year perspective, 2008 hasn’t done away with direction.

Sure, ideally one needed to be equity – light by Jan 14, 2008, which most of us weren’t.

Question is, will be be relatively equity-lighter on Jan 14, 2021?

Yeah, I will be.

Lighter.

That’s about it.

Won’t be selling a single share of my core-portfolio.

However, hopefully, will have sold everything else before an interim market peak.

You see, for every right call, we make umpteen wrong calls.

These are the ones that we discard on interim market highs.

We don’t discard core-portfolio inhabitants.

These we allow to compound into multi-baggers.

It’s OK to make wrong calls.

Without these, we won’t get to make the right ones.

We won’t make the next mistakes though.

We won’t discard wrong calls without it being an interim market high.

Also, we won’t discard a right call as long as we keep feeling it’s a right call.

The best calls remain right…

… like…

… almost forever.

We’re talking Buffet and Coke.

Or, for example, RJ and Titan.

List goes on.

Point is, when we’ve made the right call, we need to follow up with right actions that allow maximum mileage.

Allowance for compounding.

Increase of position upon interim lows.

Patience.

No trigger-fingers.

You get the drift.

Over time, then, we are left with right calls which have developed into multi-baggers. Wrong calls have been discarded over many interim cycles.

The multi-baggers in our folio are, at this time, generating enough dividend to sustain us.

This is where we want to be.

It’s OK to dream.

Without the right dreams, we won’t arrive at the sweet-spot mentioned above.

Happy long-term investing! 🙂

Giving In

I’ve been guilty of giving in…

…to the urge to sell.

However, having kept basic tenets alive, vital underlyings are still a hold…

…for me…

…for as long as they remain vital.

Have been getting rid of stuff I don’t want.

Restructuring / reorganizing.

Consolidating.

These are the activities of choice, when markets are on a roll.

Sure, one’s been buying too, but not in the investing account.

Trading accounts are very active.

These are trading prices.

What’s the definition of a (successful) trade?

Buy high, and sell higher. Or, sell low, and buy back lower.

As opposed to an investment, where one buys low, to sell higher, later.

Are these low prices?

No.

How long has the index remained, percentage-wise, in its History, at 30+ PEs?

Very low single (%age) digits, of the time under consideration.

Thus, times will change.

Nobody knows when.

However, who cares?

Let it roll.

We’ll just go on consolidating, till we can’t consolidate anymore.

That’s the sweet spot we want to be in, before conditions change, where one can’t consolidate anymore.

And, we’ll just sheer go on trading.

That’s what we do with trading prices.

The At-Par Point

One grapples with this one, …

…always.

There’s something about the at-par point.

No matter how much logic we try, when the at-par point arrives, logic fails.

Carrying a loser?

Determined to carry it through till 3x?

Wait till the at-par point arrives.

See how psychology changes.

Watch yourself liquidating the stock, despite all previous planning.

Happens all the time.

Carrying a winner?

Letting your profit run?

Underlying then falls to at-par?

Watch yourself liquidating at the speed of light.

It’s ok.

We’re humans, and aversion to loss is a human trait.

This aversion to loss makes us follow the dictates of the at-par point.

How do we go around this, as traders or investors?

Meaning, as we advance in our professions, we don’t wish to be dictated terms to by a particular “non-technical” and “artificially” psychological price point.

So, let’s try and find a workaround.

Underlying is winning. Raise your stop in a defined fashion.

When underlying starts falling, it will hit your stop.

At-par won’t be touched, so it doesn’t even come into the equation.

Underlying is down. Hmmm. What do we do here?

We really want to meet the at-par point here.

We’re desperate.

Convinced about the stock?

Average down.

The at-par point lowers.

When market conditions change, it arrives early.

Don’t wish to average down?

Not convinced about the stock anymore?

Wait.

At-par might or might not arrive.

Arrives?

Well and good.

Doesn’t arrive?

Look to exit as best as possible, if you’re tired of holding.

As investors, one can think about only getting into stocks where one is confident of averaging down if the stock falls. (Traders are suppose to cut trades at or around their stop).

Tweaking (lowering) the level of at-par helps faster recovery in the markets greatly.

Liqui-Deity

Ammunition. 

Ask the soldier about it.

Running out of it on the battlefield is the soldier’s worst nightmare. 

We’re soldiers too, in our respective fields of work. 

Our liquidity is our ammunition. 

What counts when an opportunity comes is how liquid we are.

When there is a market bottom, most of us are fully invested.

Is that sound strategy?

Putting together ammunition in one place is where it starts.

Holding on to ammunition and using it when most required – that’s sound strategy. 

Saving habits lead to accumulation.

Barriers hold the accumulated liquidity in one place. 

What are barriers?

Welcome to the world of self-created restrictions in an effort to have liquidity ready when one most needs it.

A dedicated bank account is what one requires first. 

Trading?

Link a bank account to your trading account, and use this one for nothing else.

Next, whatever accumulates in this account – take it away from your direct vision.

Meaning?

Block it as a fixed deposit. 

This is a barrier. One don’t see the funds as available. Thus one don’t feel the urge to use them.

When a trade motivates one enough to be taken, one then most need the funds. 

Break the FD.

Transfer the funds. 

Trade.

Has a trade just culminated?

Nothing else coming up?

Again, take the funds away from your direct vision.

Block them, either directly in your trading account, by putting them in overnight funds, or transfer them back to your bank account, if you know that you are not going to be trading for another week plus. 

Both options are valid. Do either. Bottomline is, the funds should not show up as available until you need them.

Investing?

Link a different bank account to your investing-only trading account.

Make multiple fixed deposits in this bank account, each one being one exact entry quantum in value.

Upon identifying an entry opportunity, whenever that happens, break one quantum’s FD, move the funds, and enter into the investment. 

Liquidity needs to be revered.

Unless we don’t give it proper respect, we will not have it at our beck and call when the next opportunity arises, whether we are trading or investing. 

Let’s go, let’s get our ammunition together, and let’s put it to great use.

Fitting 2.0.2

What’s the most basic definition of an investment?

Buy low.

Sell high.

And how does one define a (successful) trade?

Buy high.

Sell higher.

Or…

…sell low…

…and buy back lower. 

As one might see, the ideologies of investing and trading are diametrically opposite to each other.

So, how do we fit one with the other.

Though this might not seem so, it’s a tough one.

One’s success at this hangs on finer points.

Is it even necessary to fit one with the other?

Why should a long-term investor also trade?

Then, why should a trader invest for the long term?

Long-term investing is a very hands-off affair.

There are prolonged bouts of doing nothing. 

Hardly anyone can handle that, and just to satisfy one’s urge to do something, one ends up fiddling unnecessarily with one’s long-term portfolio.

Trading fits in precisely to do away with the urge to unnecessarily fiddle. 

Finer points?

Low quantum.

Tension level becomes low.

Trading then becomes fun. 

Clear the platform of any long-term underlyings. 

When we see our long-term portfolio on the same platform on which we trade, we get mightily confused.

It’s like a short-circuit. 

Avoid.

Trade on a separate platform. Invest on another. 

Now let’s address the second question.

Who should invest?

Everyone.

Even the trader.

Why?

Power of compounding, for starters. 

Actively chancing upon margin of safety, since one is in the game all the time – another big one…

…as a trader, sometimes one comes upon great entry rates, where one can hold the underlying for a long time.

That’s a huge opportunity, so one can go for it. 

Furthermore, trading involves recirculating liquidity. After the trade is closed, one lands up back with liquidity. One doesn’t maintain an asset in hand for a longish period. It might be a good idea to do so, just sheer for the sake of diversification.

Some do only like to trade. They enjoy the lightness.

Others like to only invest for the long-term. They are able to handle long bouts of no activity well.

Suit yourself.

Judge if you need a B-game.

Then fit it to your A-game. 

Triggers Ahead

Market moves require trigerrs.

In the absence of these, lack-lustre activity results…

…giving rise to illogical short-term trading ranges, for example.

Come a trigger, a move starts, or continues, or even ends, if the trigger is adverse.

What kind of triggers lie up ahead?

US election.

Yeah, Mr. President is going go keep US markets on a high till then, and that will translate over to world markets.

Corona cases receding?

Yes.

Trigger on the upside.

Corona recoveries increasing?

Yes. Reiterates the above.

Vaccine announcement for release expected till December ’20?

Upside trigger.

Vaccine starts showing good results?

Reiterates the above.

Small- and mid-cap buying by institutions to the tune of 28k Cr till the government deadline of January 31, ’20?

That’s a solid one.

This one is going to hold the back-end of the market (small- and mid-caps) perked up and reaching for January ’18 highs.

That’s five triggers back to back.

Any down-triggers in this time-frame?

Hmmm…

…let’s see…

…the picture till January 31, ’20 seems to be quite clear, actually.

Of course one might be wrong, and the model might break down.

That’s when we’ll just change the model.

However, till the model breaks down, one follows a charted roadmap which is already panning out.

Where does that leave you?

Assuming this model hits, there would be frenzied buying in small- and mid-caps just before the January 31, ’20 deadline.

Many MF Houses have announced their cautious and unpanicking approach towards picking up small- and mid-caps.

Come January, some players will not have picked up enough.

If the authorities don’t extend the deadline, these very institutions will make a beeline for such underlyings.

Government fellows will have a bit of a guilty conscience because of the mayhem they caused in this segment in January ’18, ordering the ad-hoc reshuffle of MFs.

To make things good again for affected parties, they might even allow such a frenzy to happen by not extending the deadline…

…and that’s exactly what we want.

Why?

We are waiting patiently for complete euphoria to set in, to sell those inhabitants of our folios, which we don’t wish to hold anymore.

As per this model, this could happen in January.

If It doesn’t, and if the model breaks down, that’s fine too, we’ll just wait for another time and high.

Winning in the markets is mainly about patience and discipline.

Money follows.