High-Conviction Diaries

Sometimes, we’re convinced. 

Every nerve in our body is rooting for a particular thing.

It’s a go. 

Do one thing – 

– don’t hold back. 

Listen to yourself. 

High conviction doesn’t just dawn just like that. 

We’ve worked our whole lives to arrive at this high-conviction moment. 

On the way, we’ve made many, many bad calls. 

Actually, they weren’t bad calls, because…

…if it weren’t for them,…

…how would we learn?

Is some college professor going to teach us the markets?

Is there a recognised university teaching successful market play?

It pays more to depend on one’s own self, and on one’s common-sense – this being my opinion, of course. 

We learn the ropes – OURSELVES – by making mistakes and learning from these.

Here we are. 

We’ve survived so far. 

Now, our sensors are on full. We’re on high alert. We’ve arrived at a high-conviction moment. 

We know this is the right call. 

It’s going to make money. 

All entry parameters are showing a tick-mark. 

What’s stopping us?

We’re human.

There’s always doubt. 

Negative experiences in the past enhance such feelings. 

What if we’re wrong?

Well, if we never get going, how are we ever going to find out?

Enter. 

With a small quantum. 

Keep entering with small quanta as the opportunity exists, along with high-conviction. 

Assuming that high-conviction continues, but opportunity stops existing – 

– Stop.

Wait for next opportunity. 

Assuming that opportunity continues to exist, but high-conviction wavers –

– Stop.

Wait for high conviction to develop again. 

If it does so, see if opportunity still exists. 

If high conviction doesn’t develop again, discontinue going in any further. 

Revaluate the investment upon a market high.

Who Breathes Easier – The Investor or the Trader?

Sure…

…asset-light…

…going with the flow…

…can strike both ways…

…care-free almost…

…that’s the image that lures one to the trading world.

Especially when the investor’s world has turned upside down, the investor starts wishing that he or she were a trader instead.

Stop.

Get your investing basics right. Your world will not turn upside down once you invest small quanta into quality coupled with margin of safety, again and again and again.

Let’s dig a little deeper into the trader’s world.

No baggage?

Sure baggage.

Emotional baggage for starters.

Cash baggage.

This one will always be there.

The trader will always have one eye on the cash component.

It needs to be safe.

It is a cause of…

…tension.

Reason is, the safest of havens for this cash component, i.e. sovereign debt, is volatile enough to disturb those who are averse to volatility when it comes to one’s cash component.

So, not asset-light.

Cash component is also an asset. It’s not light.

Sure, go with the flow. Strike both ways.

Can one say that this is a recipe for making higher returns?

NO.

Investors strike in one direction.

Investors are perennial bulls.

At least they know where they are going.

Small entry quanta make market falls work in favour of investors, over many, many entries into an underlying, over the long-term.

Do the math. You’ll see.

When one is focused on one direction, i.e. upwards here, chances of capitalising on runs are higher. The trader’s mind is always bi-polar in this regard, and game-changing runs are missed out on, upon corrections larger than the concerned stop-loss.

Care-free?

Who’s watching the screen all day?

The trader.

The investor watches the screen only upon requirement. There are investors who don’t watch the screen at all.

Images are deceptive.

Don’t go by images.

Whatever one chooses, it should ignite one’s passion.

Nothing else counts.

Let’s say you’re an investor, and you feel that you’re missing something by not trading.

Fine. Fill the gap. Sort out the basic folio, and then dabble in trading with small amounts, that don’t throw you out of whack. Do it for the thrill, if nothing else. As long as one is clear that this is not one’s A-game, and expectations are not as high as they are from one’s A-game, one might even enjoy the ride.

Let’s say you are a trader and need an avenue to park.

Yes, Equity is a serious avenue for parking.

Use it.

With one caveat.

This is not a trade.

Trading rules don’t apply to parking.

In fact, trading rules are inverse to investing rules.

You’ll need to figure this one out before moving your bulk into Equity for parking.

The investor is able to take trading with small amounts casually, and use it as an avenue for amusement.

When the trader explores the avenue of Equity for parking, its serious business, and spells doom for the trader if basics of investing are not understood.

So, who breathes easier?

One would know this by now.

Rewiring 3.0.3

We grow up, being taught to win.

Slowly, we learn to expect shocks, but only sometimes, in sparing intervals.

We prepare fancy resumés. 

Life must look five star plus all the time, that’s the standard. 

We see this standard all around us. It encompasses us. We become it, in our minds.

It’s not like that in the markets.

Markets are a world, where loss is our second nature. 

If we’re not accustomed to loss, we die a thousand deaths, in the markets. 

What kind of loss are we taking about?

Small…

…loss. 

Your stock holding going down to 0…

…is a small loss…

…when compared to another holding multiplying 1000x over 10 years. 

Both these scenarios are very possible in the markets. They’ve happened. They will happen again. 

How do we react?

Our stock going down to zero mortifies us. We do something drastic. Some of us quit. 

When our potential 1000x candidate is at a healthy 10x, yeah, we cut it. 

Then we quickly post the win on our resumé. 

We must look great to the world, at any cost. 

We keep reacting like this…

…and, like this, we’ll perish in the markets with very high probability.

We can’t take a hit, and are nipping our saving graces in the bud. 

When does this stop happening?

When we rewire.

Rewiring is a mental process that happens slowly, upon repeated market exposure. 

For successful rewiring to take place, real money needs to be on the line, again and again and again, as we iron out our mistakes and let market forces teach us the tricks of the trade. 

While we’re rewiring, we need to play small. 

When we’re partly rewired, we wake up to the fact that this is the age of shocks. 

High-tower professors who’ve never had a penny on the line and have put together theorems about six-sigma events (black swans) setting on once in blue-moons have led us to believe that black swans are rare. 

They are not. They have become the norm. Our first-hand experience of multiple black-swans in a row teaches us that.

Once we rewire fully, the expectation of black-swans as the norm is engraved in our DNA. Then, we use this fact to our huge advantage.

How?

We realize the value of our ammunition, i.e. our liquidity. 

Whenever we have the chance, we build up liquidity. 

We become savers, and are not taken in by the false shine of the glittery world around us.

Also, when markets are inflated, we sell stuff we don’t want anymore, boosting our ammunition for the next onset of crisis…

…and, we stop preparing fancy resumés.

Markets have humbled us so many times, that we now just don’t have the energy to portray false images. 

Whatever energy we have left, we wish to use for successful market play, i.e. to make actual money. 

When that happens, yeah, we know for sure that we’ve fully rewired. 

Welcome to rewiring three nought three. 

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

No. 

Everything is taking a hit. 

Sure. 

Hit’s actually in the “Wealth” segment…

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

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

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

I see.

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

You mean something could change there?

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

Right. 

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

How do you know a crisis is going to appear?

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

Don’t want?

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

Makes the market exit oneself?

Yes, through trigger-entry of sell order.

Why not just exit on limit?

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

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

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

Which brings us back to the initial question…

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

And there’s no worry?

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

Stellar would be?

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

So no worries?

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

What if that takes a long-long time?

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

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

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

Thanks Mr. Nath.

One more thing.

Yes, what’s that?

What’s my maximum downside in an underlying?

100%.

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

Ummm, don’t know exactly.

Unlimited. 

Unlimited?

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

Right, got it. 

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

🙂

What’s on your mind, Mr. Nath?

Any questions, Mr. Nath?

Ya, I did have something on my mind. 

Ask.

I want to ask someone else.

Who?

Mrs. Market.

How are you going to do that?

I’ll just imagine that I could.

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

It’s not so much a question, really…

What is it then?

An observation perhaps…

…or a regret, maybe…

… not able to pinpoint exactly.

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

It’s about rewiring. 

Rewiring?

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

Who’s the you?

Mrs. Market.

Doesn’t your rewiring depend upon you?

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

What is this rewiring?

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

True. That’s what needs to be rewired?

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

How long did it take you to rewire?

Seven years.

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

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

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

Let’s pin-down the bottomline here.

And that would be?

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

…till one is rewired. 

And how would one know that one’s rewired?

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

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

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

Sitting – III

Mood-swings…

…happen all the time…

…in the markets.

If we don’t get used to dealing with them, we’re pretty much gone.

When pessimism rules, it’s quite common for one to develop negative thoughts about a holding. 

Research – stands. 

There’s nothing really wrong with the stock. 

However, sentiment is king. 

When sentiment is down, not many underlyings withstand downward pressure.

Eventually, you start feeling otherwise about your stock that is just not performing, as it was supposed to, according to its stellar fundamentals. 

If your conviction is strong enough, this feeling will pass. 

Eventually, pessimism will be replaced by optimism. 

Upwards pressure…

…results in upticks. 

Finally, you say, the market is discovering what your research promised.

You feel vindicated, and your outlook about the stock changes, in the event that negativity had set in.

You’ve not ended up dumping this particular stock.

If your conviction had not been strong enough, you would have gotten swayed. 

Market-forces are very strong. 

They can sweep the rug from under one’s feet, and one can be left reeling. 

In such circumstances, solid due-diligence and solid experience are your pillars of strength, and they allow you footing to hold on to. 

However, if your research isn’t solid enough, you will start doubting it and yourself, soon (and if you’re not experienced enough, make the mistake, learn from it, it’s ok, because your mistake is going to be a small mistake just now, and you’ll never repeat it, which is better than making the same mistake on a larger scale at the peak of your career, right?! We are talking about the mistake of doing shoddy due-diligence and getting into a stock without the confidence needed to traverse downward pressure).

With that, your strategy has failed, because it is not allowing you to sit comfortably. 

Please remember, that the biggest money is made if first one has created circumstances which allow one to sit comfortably. 

Basic income. 

Emergency fund.

Excess liquidity.

Small entry quantum.

Rock solid research work, encompassing fundamentals and technicals both. 

Margin of safety.

Patience for good entries.

Exit strategy. Whichever one suits you. It should be in place, at least in your mind. 

Etc.

Fill in your blanks. 

Make yourself comfy enough to sit and allow compounding to work. 

Weed out what stops you from sitting, and finish it off forever, meaning that don’t go down that road ever again.

Very few know how to sit. 

Very few make good money in the markets.

Make sure that you do. 

Make sure that you learn to sit.

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.

🙂

So, Who’s Buying?

Yeah, who’s buying?

Superinvestors? 

Sure. Tremendous pipeline, great bargains, of course they’re buying. 

Who else?

Market-makers.

They buy and sell for a living.

They make the market for us to trade in.

Let’s forget about them for this discussion.

Anyone else?

The syndicate?

What syndicate?

I mean, is there even a syndicate?

Let’s not go into conspiracy theories. 

Whether or not there is a syndicate should not affect us. 

Moving on…

…think of anyone else?

Mutual funds?

Sure.

Lots of SIPs going in, a few NFOs doing the rounds, yeah, MFs are biting.

Foreigners?

More like exiting.

Hedge funds?

Busy trading I guess, won’t count them as strong hands, they’ll book a profit and will be sellers, over the short to medium term. 

What about retail guys?

Retail investors are scared. 

They’re tired of bad news. 

They’re tired of the markets.

Most have run away. 

Most of those who haven’t, want to. 

Is any retailer buying?

Well, the small entry quantum guys are. 

Why?

Firstly, they’re liquid.

Their strategy leaves them liquid, … , like forever. 

Till when are they going to buy?

As long as quality is selling cheap, they’ll continue to buy.

Are they scared?

No.

Why?

Their strategy gives them the courage to work on full throttle at times just like these. 

Times like what?

You know, bad news galore, whatsapps, lay-offs, scams, everything under the sky that can take place – is taking place.

And you know, bring it on. Gloom, doom, kaboom, and quality will start selling even cheaper.

We are loading up on quality and will continue to do so as long as it is cheap.

We’re happy that there’s a buying opportunity.

🙂

Going beyond the P-Word

Hey,

You panicking?

Why?

Don’t.

How?

To go beyond panic at a time like this, you’ll need to be amply liquid. 

And, then, you’ll need to have the guts to engage. 

One way for remaining liquid for life is to follow a small entry quantum strategy. 

Since we’ve spoken about such strategy ad-nauseum in this space,…

…yeah,…

we won’t be going into the nitty gritty of how the strategy works for the moment. 

In a nutshell, our small entry quantum strategy leaves us liquid, and then some. 

What exactly is a time like this?

Well, Benzes have started to go for the price of fiats, and…

…that’s why we need to…

engage

Forget your pain, pinch or panic. 

Buy…

quality that’s going for a song.

Now.

Keep buying such quality for as long as the cheapness lasts. 

Year, two years, three, four, bring it on. 

When you engage in this manner, you’ll have gone beyond all your P-words. 

Wishing you lucrative and happy investing!

🙂

Making Time Work For You

Imagine…

…entering into a stock…

…many, many times.

When would you do that?

When your research is solid, …

… when you’re amply liquid, …

… and of course when the stock keeps giving you margin of safety to enter for a longish period of time.

There’s no excuse for not doing solid research. 

It’s a given.

Research – solid – period.

How do you render yourself amply liquid?

You do this for example by following a small entry quantum strategy. 

Let’s have a look at one advantage that springs up in particular. 

You become an expert in the stock you are entering into again and again. 

You know its nuances over time.

You start getting a hang of its overpricing, underpricing, par value, good results, bad results, and what have you. 

You’re in it till you’re convinced about it, sure. 

While you’re in it, you’ve developed an expertise on it.

You’ll take that, right?

Sure. 

What exactly have you done?

You’ve made time work in your favour.

First up, staying invested in a fundamentally sound stock over a long period of time should give you a good return.

Then, repeated interaction over the passage of time gives you expertise. 

Double-shot, please!

🙂

Feeling

Who writes the rule-book for your market-life?

You do.

Why do you do it?

Nobody else is qualified enough.

You know yourself better than others.

Don’t you?

Thus, one feels one’s way through the markets, setting up lamp-posts and rules.

For example, I recently discover how to integrate my investing life with my trading life, in one particular market.

It takes me a long, long time to do so.

Nothing has really worked on this front.

Both lives have been getting affected, adversely, because of each other.

It’s outright frustrating and, I just sheer stop trading this market, to allow my investing life to prosper.

Simultaneously, I keep feeling my way through, trying out various permutations and combinations…

…, one of which seems to be working.

How do I know?

I’m trading again.

What have I done that I wasn’t doing before?

I haven’t been using the concept of exhaustion.

I exhaust my ability to invest, opportunity-wise.

Since I follow a small entry-quantum approach, liquidity exhaustion isn’t going to work.

Opportunity exhaustion is.

As opportunities keep coming, I keep going in, each time with small quanta, not changing anything in my investment approach.

One fine day, there is no margin of safety being offered.

I don’t feel like going in.

I am exhausted.

I shut down my investment widow…

…and then {[:-)]}, open my trading window.

Within an hour, I take a trade.

Lo and behold, integration has taken place.

Seamlessly.

All our demons are inside of us.

If one is not dying, exhaust it with feeling, even temporarily, to look after your other vital activities.

The Cue from Disturbia

I am disturbed. 

This stock that I’m invested in is continuing to fall. 

That’s ok.

I want to be disturbed. 

That’s my cue…

…to invest more in the stock.

I’m in the stock for a reason. 

Something appeals to me. 

That something continues to appeal to me, despite the continuous fall. 

If that were not the case, the case for the stock would be closed, and one would look to get rid of it on a market high. 

However, that is the case,…

…and, I follow the small entry quantum strategy.

Where does that leave me?

My investment in the stock is small.

I am liquid.

That’s the beauty of the small entry quantum strategy.

It leaves you liquid.

Continued fall means better margin of safety, and that another quantum can go in.

The small entry quantum strategy ensures multiple entry opportunities as the stock continues to generate margin of safety.

When do my ears stand up?

When the fall is disturbing enough. 

The fall is the cue to go in. 

It is from Disturbia. 

Who said making money was easy?

This strategy works as long as one’s research is sound. 

Let’s go with what works.

Busy Times

Market falls are busy times. 

No, we’re not busy whining. 

We’re busy buying.

Are we not afraid?

That the crack might deepen?

That it might go down to zero?

No.

We’re not afraid of this scenario. 

Meaning?

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

Huh!?

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

And you’re not afraid?

No.

Why?

Because I buy into fundamentally sound businesses…

…zero debt…

…great 5 year numbers…

…sometimes, great ten year numbers…

…and I buy with considerable margin of safety.

Still, one is normally always afraid, right?

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

How?

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

And that which you’re buying…

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

How does one do that?

Due diligence. Period.

With all the scams and frauds going on…

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

What if you land up with a fraud management?

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

Alone online?

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

What if you still land up with a fraud?

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

What if your holding is wiped out till then?

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

So you’re not afraid of the loss?

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

Profit?

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

I see, well then, happy investing!

Thanks! 🙂

Nath on Trading – II – Building up on Basics

21). You started small, right?

22). Ultimately, you’re staying consistently in the green, correct?

23). Then it’s time to scale up. Slowly does it.

24). Why the whole spiel about starting small? You make your biggest mistakes in the first seven years.

25). Hopefully, you don’t repeat a mistake once it has happened, and once you’ve learnt from it.

26). However, mistakes are good, because they teach you. Nothing else can teach you with incorporation into DNA. Mistakes can.

27). No university can teach you. No books. No professor. Play the market, make the mistake, and learn.

28). A big break early in the markets is a recipe for disaster. More likely than not, you’ll blow up later, when it matters.

29). The best possible way to scale up is using position-sizing as delineated by Dr. Van Tharp.

30). The good thing about position-sizing is that it makes you scale down, when trading corpus goes below par.

31). Day trading takes up the day. You’re exhausted and are not able to do much else.

32). Short-term trading also keeps you riveted to the terminal, mostly.

33). However, position trading and longer time frames keep you in the line for whatever else you wish to achieve.

34). Market TV makes it a video game. Switch it off.

35). Trading with targets caps big-win potential.

36). When you trade, you trade. You don’t invest.

37). Successful trading means buying high and selling higher, or…

38). …selling low and buying back lower…

39). …as opposed to successful investing, which is buying low, not selling for the longest time, and then selling for a multiple.

40). Read points 16 to 19 again.

This is Why Your Blockbuster Gain Story is going to Happen

You’re learning to sit. 

You buy with margin of safety. 

You buy in small quanta,…

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

…to avail any opportunity that arises. 

Yeah, there’s nothing impeding your liquidity…

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

You only buy quality…

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

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

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

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

Yes, you regularly go against the crowd. 

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

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

…and that is why,…

…for all the above reasons,…

…your blockbuster gain story is going to happen,…

…and what’s more,…

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

Blockbuster Wealth Stories in Equity still do the rounds

The latest one doing the rounds…

…is the Bezos parents’ story. 

Their investment in their son’s company twenty three years ago has returned a whopping twelve million percent, making them become worth billions.

Staggering.

You can have such a story too. 

Here’s how. 

Identify pockets of value. 

Invest in these pockets of value. 

Money going in is something you don’t need to touch for a long, long time.

Build up a sizable investment in each pocket, bit by bit, as long as it remains value. 

When value becomes growth, let it be.

Occupy your mind elsewhere, looking for more value. Don’t bother looking at what’s started to grow. 

If you’ve picked well, out of your many pockets of value, some will become good growth stories over the years. 

A few of these runners will turn into multibaggers. 

And then, there might one odd investment, that returns a staggering amount, just like the above mentioned example. 

It’s not over. 

You let this one run. 

Don’t finance your prodigal son’s wedding from this one. Do it by selling your losers, if you have to. 

Why let it run?

What’s returned a hundred thousand percent today might well return a million percent or more over time, if we let it…

…be.

 

 

Try retaining one-off Wealth

Easy come, easy go…

…am sure you heard that one before…!

When you come into something too easily, you sure do want to spend it, right?

Well, why not?

However, do take that one step back.

Let’s explore the possibilities here. 

You can spend it all. Have a blast. Blow it up. Yeah. We’ve touched upon that. Know many people like that. 

Or, you can save some and spend some. 

How about that?

Who’s asking you to save it all?

No one. 

You like spending?

Fine. Spend. A bit. Gratify your most burning desires without injuring anyone’s fundamental rights. 

Then, save the rest. Pickle it. Look away. Move on with your life. 

Why?

Lady Luck smiled. You got your one-off dose of wealth. Use some of it to make wealth a permanent feature in your life. 

For that to happen you’ll need to invest, be patient, compound, reinvest and what have you, till many many cash flows take care of all your needs. 

From which point did it start?

From the moment you decided to save some of your corpus and provide it with the necessary environment to grow.

It’s a basic decision…

…, yeah, a real simple one…

…that’s tough to implement. 

Try retaining wealth. 

You’ll then know exactly what I’m talking about. 

Wealth-Generators know how to Sit

Most humans don’t know how to sit. 

Most humans are not wealthy. 

If you are a wealth-generator, you’ve probably already made the connection, knowingly or unknowingly. 

You sit. 

You are focused.

You know what you are doing. 

You are confident about what you are doing. 

You don’t keep looking over your shoulder. 

You are not jumpy. 

You don’t require a daily quote. 

In fact, you’re quite happy with a monthly quote. 

You know the value of your underlying. The world cannot tell you otherwise. 

You seal one wealth-generating opportunity, and move on to the other. 

That helps you to sit on the former, while you focus on the latter…

…till you seal the latter, which is when you move on to the next one, and so on and so forth. 

Soon, you are at the pivot of many, many wealth generating ideas. 

You are surrounded by multiples. 

Some have fully matured. 

You bring them to their logical conclusion. If this is a cash-out, well it’s a cash-out. 

You move the funds resulting appropriately…

…perhaps to a new avenue…

…or perhaps to finance something big…

…be it a lifetime-requirement…

…or what have you. 

You recognise the fact that one of the main purposes of wealth is also to fulfil lifetime-requirements. 

Mere income is not able to fulfil these. 

Generated wealth is. 

You recognise that. 

You are a wealth-generator. 

You know how to sit. 

Adding No-Action to your Repertoire

Action with positive outcome vs…

… no action vs…

…action with negative outcome…

…hmmmm.

Sometimes we become oblivious to actions with negative outcomes.

Society preaches to be active.

We listen.

We feel that doing something means a step forward.

Well, it ain’t necessarily so.

Many times, and especially in the markets, it actually pays to do nothing.

The most successful investors in the world will tell you, that the biggest money is made while sitting. They’ll also tell you, that almost no one has learnt how to sit.

They’re right.

Meanwhile, I’m telling you, right here and right now, that you can sit comfortably upon your investment without jumping only if you’ve bought with margin of safety. Think about it.

Also, the most successful traders in the world will tell you that the number one action that saves money in the markets is no action. Yeah, when markets move sideways, which is about 60%+ of the time, trades tend to get stopped out both ways, and the trader loses money repeatedly. At such times, it’s better not to trade.

What’s vital here?

Recognition.

Recognize that it’s a time for no action.

Then, do something else.

For this to be practical, make trading and investing your bonus activities.

Meaning, that if your bread and butter depends upon another mainstream activity, you can easily switch off from trading and investing for a while, at will, and without any negative impact upon your basics.

Also, you need to be versatile enough to have fall-back activities lined up, which switch on where trading and / or investing switch off. These need to take over then, and keep the mind occupied.

The danger of not going into no-action mode is the continuous committing of actions with negative outcomes.

That’s precisely where we don’t want to be.

 

 

 

 

 

 

 

What about Daddy Cool? 

Boney M sang this blockbuster hit in the ’70s.

I’m sure you’ve heard it, because it’s still the rage. 

he’s crazy like a fool – what about daddy cool? 

Who’s Daddy Cool? 

You tell me. 

Is it you, in a cool cucumber moment, slow to respond to stimulus, devoid of anger, master of your situation in a kinda non-bossy, non-micro-managing (cool) way? 

And what of Mr. Hyde’s Dr. Jekyll nature? 

We’re talking about your “like a fool” moment.

Just for your information, winning behaviour is often termed foolish by the crowd. 

Contrarian investing is one such example. 

Successful derivative trading is another. 

To cap it, let’s not even talk about private equity in real-estate. 

Did someone mention high-yield structured-debt? 

There are many examples of “foolish” behaviour. 

These same examples earn very well. 

So… 

… how do we do it? 

We maintain our cool. 

We keep all basics going, as they are. 

With a small portion of our surplus, we take calculated risks, in a controlled environment. 

Sure, these risks will appear foolish to someone on the outside. 

However, our controlled environment has installed riders for our safety. 

A balance-sheet might be stressed, but not stressed enough for bankruptcy. 

A lock-in might be ultra-short. 

A stop-loss might be in place. 

Collateral might be up to 4x.

There might be a highly reputed Trustee in between. 

What have you.

Have your Daddy Cool fool-moments. 

Take some calculated risks with small portions of your surplus. 

These should give your portfolios an extra-boost.