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! 🙂

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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.