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. 

Dealing from a Position of Weakness 

When you’re losing… 

… you downsize your position. 

Why? 

To save your corpus. 

You lower the risk. 

Is risk quantifiable? 

You bet. 

Risk is no abstract entity without a body. 

In a trade, your risk is defined by your stop to stack-size ratio and the size of your one position. 

When you’re losing, you either lower the magnitude of your stop, or lower the quantity of your one position. 

Till when?

Till your corpus crosses par and then some. 

At par, you trade normal. 

Normal stop. 

Normal quantity. 

What is normal? 

Depends on you. 

What is normal for you? 

That’s what goes. 

Why the caution when below par? 

Lots works against you at this time. 

Sheer math for example. Downsizing sets this right. 

Emotions. 

Whoever’s got a remedy for those is king already. 

You. 

Your body-chemistry is affected. You’re sluggish. More prone to error. Nobody’s got a remedy for you, except you. Wait for your body to heal before trying out that perfect cover-drive, or what have you. 

Winning or losing in the markets depends a lot upon psychology, chronology, systems, strategy, application and adaptation of style. 

I like to call this “getting one’s meta-game together”. 

Let’s go people. 

Let’s get our meta-games together. 

Then we can scale it up. 

🙂 

That nagging nagging push towards action 

Yeah, it’s always lurking… 

… in the background…

…waiting for an opportunity… 

… to catch you unawares… 

… and spring to the forefront. 

Market-play is a mental battle. 

Your mind wins or loses it for you. 

Make your mind understand the value… 

… of action… 

… and of inaction. 

Make your mind pinpoitedly choose… 

… the time for action… 

… and for inaction. 

Make your mind automatically switch from…

… a state of action… 

… to a state of inaction… 

… and vice-versa… 

… and feel perfectly normal doing the switch… 

… again and again and again. 

The above by itself is a winning state of mind for you, which you can build upon. 

🙂 

Who are You?

Who am I?

Do I know?

Am I trying to know?

Is this an important question for me?

What’s my path?

Where am I on this path?

What are my basic goals in life?

What are my weaknesses?

What am I doing to make these my strengths?

What motivates me to perform?

Does my environment enhance my performance?

Or does it hamper me?

If it does, what am I doing about it?

Am I tweaking my environment?

Yeah, am I manipulative enough?

Am I content with the hampering?

Why should I be content with the hampering?

Because it makes me grow, as in evolve?

Maybe.

Who are you?

What are your defining questions?

How do you unravel?

Ultimately, what is your risk profile?

Who are you… sure… very valid question.

Why?

It’s the basic precursor question with regard to another important question.

Who are you as far as finance is concerned?

In the field of finance, you need to know your risk-profile, and you need to have a defined meta-game-plan.

Defined as per who you are.

Uniquely, for yourself.

Bye 🙂

Dealing with Noise…the Old-Fashioned Way

There’s a sure-shot way to deal with noise…

…just shut your ears. 

Yeah, the best ideas in the world are – simple. 

Let’s not complicate things, ok?

So, what kinda noise are we talking about here?

We’re not talking about audio, you got that right…!

The concept is related, though. 

If you’re charting, you’ve dealt with noise. 

Yeah, we’re talking about minute to minute, hour to hour or day to day fluctuations in a chart of any underlying.

Markets fluctuate. 

While discussing noise, we are pointing towards relatively small fluctuations which generally don’t affect the long-term trend. 

However, noise has the capability of deceiving our minds into believing that the long-term trend is turning, or is over. 

Don’t let noise fool you.

When has the long-term trend changed?

When the chart proves it to you through pre-defined fashion. That’s it. You don’t let noise to get you to believe that the long-term trend has changed, or is changing. Ever. 

You believe your chart. 

Moving averages crossing over? Support broken? Resistance pierced? Trend-line shattered? ADX below 15? Fine, fine, FINE.

Take your pick. You have many avenues giving decent signals that the long-term trend has changed or is changing. 

How about eyeballing? Works for some. Like I said, let’s keep this simple. 

So let’s get noise out of the way. 

Random numbers generate trends – you knew that, right?

You don’t need more. 

Once you’ve identified a trend, that’s your cue to latch on to it. 

We’re not talking about predicting here. We don’t need to predict. We just need to identify a trend, and latch on. That’s all. No predictions. Not required. 

From this point on, two things can happen.

Further random numbers deepen the trend you’ve latched on to. You make money. Good. 

Or, the next set of random numbers make your trade go against you, and your stop gets hit. 

If your stop is getting hit, please let it get hit. Even that qualifies as a good trade. 

You move on to the next trade setup, without even blinking. 

What you’re not doing is letting noise throw you out of the trade by deceiving your mind. 

So, here’s what you do. 

You’ve id’d your trend. You’ve latched on. Your stop is in place. Now, don’t look at your trade. 

Till when?

That’s your call. 

Don’t look at your trade till you’ve decided not to look at it. For the day-trader, this could be a couple of hours. For the positional trader, it could be days, or weeks. 

By not looking, you won’t let noise deceive you. 

If the trend doesn’t deepen, or goes against you, you lose the risked small amount. 

Just remember one thing. 

A loss has immense informational value. It teaches you about market behaviour patterns. It also highlights your trading errors. Many times, losses occur without any mistakes made by you. 

That’s the nature of trading. 

Ultimately, if the trend deepens, you’ll have made good money, and can then further manage your trade after the stipulated period of not looking.

This is the sweet spot.

This is where you want to be, again, and again and again.

Sitting on a large profit gives you room to play for more profit by lifting your stop and your target simultaneously.

To reach this sweet spot again, and again and again, you have to position yourself out there and appropriately, again, and again and again. 

This is also the nature of trading.

Wishing you happy and lucrative trading!

🙂

If it Fits You…

… then nothing else matters.

Who told you that finance is a one-size-fits-all game?

Actually, the truth is very far away.

Truth is truth.

It doesn’t matter how much you twist it, or bury it or whatever.

It eventually emerges, unchanged, unscathed, true.

And the winds here are talking about unique sizing for each market player.

Yeah, only a unique fit is going to fulfill your own market play.

It will look silly to others.

People will laugh.

Doesn’t matter.

It fits you.

You’ve found your fit. That alone is invaluable. People undergo decades of struggle looking for theirs. Many don’t find it.

What is that state of being, when you know that you’ve found your fit?

Satisfaction.

You’re not jumping.

Not edgy.

Not looking further.

Looking for extra time, to develop and enhance what you’ve found.

You’re at peace.

You’re happy sitting.

Small things count big in the markets.

And…How Much Connection Time Exactly?

Well, somebody’s got to ask these questions…

Don’t see very many around me doing so, so I just thought what the heck, let it be me…

This one’s not for all you test-tube jocks in the lab, you know…

Answer’s not about the math really; it’s more about feeling, again…

Nevertheless, this is a very important question.

Answer it wrongly for yourself, and market-play will wreck your life – all avenues of your life, that is. 

And, answer it correctly for yourself – lo and behold, you’ll actually start enjoying your market activity.

The human being ultimately excels in anything he or she enjoys doing. 

This means that if you answer this question correctly, your market activity will yield you profits. 

Told you. This question is important. Answer it.

Let me tell you how I’ve answered it for myself. 

Before that, please understand, that my answer doesn’t have to apply to you.

However, for those who don’t know where to begin while trying to answer the question, it’s a start.

I detest giving Mrs. Market too much power. This was my clue initially, and I built up on this fact. 

Initially, Mrs. M used to take over my life. She used to govern my emotions. It started to rub off on my family. I knew I had to draw a line. 

I started to trade lightly – amounts which my mind could ignore. Then, I did one more thing. 

I started to connect minimally. The was the key step, and it swung the emotional tussle in my favour. Mrs. M’s days of emotional control were over. 

What does minimal connection mean?

You only connect when you have to. Period. 

When you don’t have to connect, you just don’t.

I’ll tell you when all I connect to Mrs. M.

Order-feed – 0 to once a day. Very rarely twice for this in one day. 

Connection for me is having my trading terminal on, and seeing live price-feeds face to face. 

My market research is all offline, so that’s not a connection for me. 

Squaring-off a position – again 0 to once a day. Very rarely twice a day.

Watching the live price-feed – 0 to once a day, and only if if I’m unclear about the buying-pressure versus selling pressure ratio.

That’s it. 

When I don’t identify a potential trade in my offline research, I don’t connect at all. 

When do I connect next?

Whenever I’ve identified the next trade, or a squaring-off situation, all offline. 

There can be two or even three day stretches when I just don’t connect. 

I use options, because they allow me this kind of play for Indian equities. 

Why am I stressing upon the value of minimal connection? 

Connection means exposure to the “Line”. You’ve met the Line before. If not, look up the link on the left (“The Line”). 

Connection to the Line taxes your system, because market forces interfere with your bio-chem. 

Keeping the connection minimal keeps you healthy, and you can go out and do other stuff in life, which rounds you off and refreshes you for your next market-play. 

Keeping the connection minimal detaches you from Mrs. M. You are able to detach at will. This lets you focus on your family when your family members require your attention. 

Keeping the connection minimal makes the task of swallowing your small losses smoother. 

Lastly, keeping the connection minimal helps you let your profits run. 

So, how does one define minimal?

Do the math, and come out with rules for your minimal connectivity, like the ones I’ve come out with above, for myself. 

After that, while sticking to your rules for minimal connectivity, only connect to Mrs. M when you feel the burning desire to do so, like for example upon the identification of a sizzling hot trade, or for the order-feed of a trigger exit after a profit-run or something like that. 

Yeah, you minimise even after your rules.

That’s your minimal connection.  

Who’s Responsible for that Last Technical Bit?

Planning a technical trade?

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

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

Your buy point seems a bit off, right? 

Scrip might not reach it, huh?

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

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

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

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

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

Yeah, that’s the trade-off.

Is this trade-off acceptable to you?

Yes?

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

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

What’s going to happen?

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

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

An event. A negative one.

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

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

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

Why is that last bit left to an event?

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

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

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

A lot of scrips open really down this morning. 

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

Speed of Rise vs Speed of Fall

Specifically, equity markets have this one repetitive characteristic.

Their average speed of rising is lesser than their average speed of falling. Much lesser, I would say. 

Why?

Falling has to do with selling pressure being more than buying pressure. Selling pressure is connected to fear. Add caution to fear, and one has already sold out. 

Rise has to do with buying pressure being more than selling pressure. Buying pressure is connected to optimism. As markets keep nudging higher, slowly, optimism turns into euphoria, with a hint of caution. This caution slows the speed of rising, till greed takes over in the last stage of the rise, and one fails to see any caution anymore. At this time, the speed of rising is the highest, but is still lesser than the speed of falling at the nadir. Why?

What is the prevalent situation at a nadir? There’s blood. People are running for their lives. They take action before asking questions, and before looking here or there. 

Many times, you come across someone holding a stock which he or she has inherited from a parent. This someone comes to you with the ubiquitous query – what to do, sell it now? You look at the chart. Whoahhhh! You see the buy price, one and a half decades ago. You look at the current level. You calculate the profit. Along the time axis of the chart, you also see that the stock fell back to its buy price or below in a market crash, all within a month and a half. After this, the stock has recouped its losses of the crash, and is showing a healthy profit again, six years after the crash. During the crash, how long did it take the stock to fall below the buy price of one and a half decades ago? A month and a half. Holy moly!

That’s the equity playground for you. 

It’s directly connected to human emotions. 

Anything can happen on this playground, so keep your eyes and ears open, and…

… be prepared. 

Thunder, Lightning and the Road Ahead

Why do you look here and there?

If there’s a road ahead of you which you have defined, why don’t you just go ahead and tread it?

Is it mandatory to get distracted by things that don’t concern the path?

In the marketplace, it’s all about mind-set.

Free your mind.

Unburden it.

Dump all useless stuff into the bin. 

Secure your family’s basic bread and butter.

Identify a portion of your surplus cum non-invested cash as your NGHM (nobody’s-getting-hurt-money).

Enter the marketplace with your NGHM.

You are armed with your system.

You know how to identify your trades. 

You further know how to enter, manage and exit your trades.

These are the basics.

From here on it a mind-game.

Not partially. 

Fully.

It’s fully a mind-game from this point on. 

Mentally resilient? Are you? Well, you’re going to create thunder with your system then. 

Don’t get distracted by the lightning on the path.

Tread the path with complete confidence, drawing upon your full mental resilience. 

The road ahead is painted with glory.

Are You a Juggler?

No?

Why not?

You don’t need juggling balls to juggle.

Life in a country like India is enough.

India teaches you to juggle your way through.

You keep improvising… till something fits.

In the marketplace, a fit is big news. One struggles towards a system that fits.

Once there is a fit, you follow the system, till it continues to fit.

As the fit experiences turbulence, you struggle, tweak and juggle towards a renewed fit.

What does a fit mean?

Success.

Balance.

Harmony.

Health.

Happiness.

Peace.

What more could one want?

At times, a system collapses.

Accept the collapse.

Work out a new system.

Fine-tune it into fitting.

You’re a juggler, remember?

The Art of Emotional Recycling

Taken a hit?

If yes, at least admit it… to yourself and for your own sake.

People take hits at various times in their lives.
That’s the way of the market.

That’s how it teaches us to make money next time.

Think of your loss as tuition fees.

In my opinion, the best way forward is to take lots of small hits in the first seven years.

Then, in nine cases out of ten, you won’t fall for the big ones.

Big hits can decapacitate a player, especially when they come late, since there is no time for full recovery. Besides, emotional breakdown at a late stage is very difficult to get out of.

Make it a point never to take a big hit.

That’s only possible, if at any given time, the capital that is risked is within reasonable limits.

Let’s say you risk not more than 1% of your networth at any given time. What’s the maximum hit you will take at one time? Right, 1%.

That’s bearable.

That’s something you can shake yourself out of, and move on.

Moving on is a huge quality to possess in the markets.

Taken a hit?

Move on and make your next trade.

All this while, you are putting any remnant emotional hurt in cold storage.

Yeah, there’s a certain portion of emotional hurt that won’t be nullified by family time, vacations, hobbies etc. We’re talking about the hurt to your ego. Only a big win will wash that away. Only then is your emotional recycling complete.

Put yourself in line for that win.

After a hit, rest, recuperate, grab your wits, focus, and…

… put on the next trade.

Who Told Who So?

Nobody’s in a position to tell anyone so.

That’s the marketplace for you in a nutshell.

There are times when you’re sure a scrip has peaked, and it just keeps on going higher, and higher, and then even higher.

At other times, a scrip might show tremendous valuations, but it just refuses to rise. 9 years in a row. Just refuses to rise.

Welcome to a world where if you’re able to watch your own back, you’re good.

In the world we are speaking about, a Rakesh or a Warren are what they are because that’s what suits them particularly. What suits them might most definitely not suit you. What makes you think you can emulate someone in the marketplace?

That’s the whole point, people.

You need to carve out your own unique niche in the marketplace. Something that suits you, and just you. If you do that, you’ll be happy. Satisfied from within. And that’s when you’ll start doing well.

Your best performances will come when you start being … … yourself.

Playing someone else’s game? Well, try to. Don’t be surprised if you lose your pants.

Your biochemistry is unique. So are your reactions to subtle changes around you. Thus, your interactions and dialogues with Mrs. Market need to be unique. These need to cater to your needs, your queries, your tendencies and your idiosyncrasies.

We try to follow rules. We want to master Mrs. Market. Frankly, what a joke!

Firstly, we need to make our own rules, for ourselves.

Secondly, Mrs. Market needs to be understood, even if for short spans, and she most definitely doesn’t need to be mastered. She’ll master you rather than you her. Be wary of her, win from her, but why do you wish to conquer? Fool’s paradise. Stick to the script, pal. Take your winnings and go. Why do you bet the farm, in an effort to make a killing? You’re not proving any point to anyone. Everyone’s busy doing their own thing with Mrs. M. No one’s looking at you. You don’t need to prove anything to anyone. Don’t bet the farm. Stick to the script. Take your winnings and go.

So, what’s the real learning in this world we speak about?

When you go wrong. That’s when real learning begins. How do you handle yourself? How do you come back? How do you start winning again? How do you then keep winning, again, and again, and again.

That’s the learning.

I didn’t tell you so.

You discovered it for yourself.

Remember that.

Discover it for yourself.

What’re you waiting for?

Happy Second Birthday, Magic Bull !!

Seasons change. So do people, moods, feelings, relationships and market scenarios.

A stream of words is a very powerful tool to understand and tackle such change.

Birthdays will go by, and, hopefully, words will keep flowing. When something flows naturally, stopping it leads to disease. Trapped words turn septic inside the container holding them.

Well, we covered lots of ground, didn’t we? This year saw us transform from being a money-management blog to becoming a commentary on applied finance. The gloom and doom of Eurozone didn’t beat us down. Helicopter Ben and the Fed were left alone to their idiosyncrasies. The focus turned to gold. Was it just a hedge, and nothing but a hedge? Could it replace the dollar as a universal currency? Recently, its glitter started to actually disturb us, and we spoke about exit strategies. We also became wary of the long party in the debt market, and how it was making us lazy enough to miss the next equity move. Equity, with its human capital behind it, still remained the number one long-term wealth preserver cum generator for us. After all, this asset class fought inflation on auto-pilot, through its human capital.

Concepts were big with us. There was the concept of Sprachgefühl, with which one could learn a new subject based on sheer feeling and instinct. The two central concepts that stood out this year were leverage and compounding. We saw the former’s ugly side. The latter was practically demonstrated using the curious case of Switzerland. There was the Ayurvedic concept of Satmya, which helps a trader get accustomed to loss. And yeah, we meet the line, our electrolytic connection to Mrs. Market. We bet our monsters, checked Ace-high, gauged when to go all-in against Mrs. Market, and when to move on to a higher table. Yeah, for us, poker concepts were sooo valid in the world of trading.

We didn’t like the Goldman attitude, and weren’t afraid to speak out. Nor did we mince any words about the paralytic political scenario in India, and about the things that made us go Uffff! We spoke to India Inc., making them aware, that the first step was theirs. We also recognized and reacted to A-grade tomfoolery in the cases of Air India and Kingfisher Airlines. Elsewhere, we tried to make the 99% see reason. Listening to the wisdom of the lull was fun, and also vital. What would it take for a nation to decouple? For a while, things became as Ponzi as it gets, causing us to build a very strong case against investing a single penny in the government sector, owing to its apathy, corruption and inefficiency. We were quite outspoken this year.

The Atkinsons were an uplifting family that we met. He was the ultimate market player. She was the ultimate home-maker. Her philanthropy stamped his legacy in caps. Our ubiquitous megalomaniac, Mr. Cool, kept sinking lower this year, whereas his broker, Mr. Ever-so-Clever, raked it in . Earlier, Mr. Cool’s friend and alter-ego, Mr. System Addict, had retired on his 7-figure winnings from the market. Talking of brokers, remember Miss Sax, the wheeling-dealing market criminal, who did Mr. Cool in? She’s still in prison for fraud. Our friend the frog that lived in a well taught us about the need for adaptability and perspective, but not before its head exploded upon seeing the magnitude of an ocean.

Our endeavors to understand Mrs. Market’s psychology and Mr. Risk’s point of view were constant and unfailing, during which we didn’t forget our common-sense at home. Also, we were very big on strategy. We learnt to be away from our desk, when Mrs. M was going nowhere. We then learnt to draw at Mrs. M, when she actually decided to go somewhere. Compulsion was taken out of our trading, and we dealt with distraction. Furthermore, we started to look out for game-changers. Scenarios were envisioned, regarding how we would avoid blowing up big, to live another day, for when cash would be king. Descriptions of our personal war in Cyberia outlined the safety standards we needed to meet. Because we believed in ourselves and understood that we were going to enhance our value to the planet, we continued our struggle on the road to greatness, despite any pain.

Yeah, writing was fun. Thanks for reading, and for interacting. Here’s wishing you lots of market success. May your investing and trading efforts be totally enjoyable and very, very lucrative! Looking forward to an exciting year ahead!

Cheers 🙂

I know a guy who knows another guy who knows this guy…

Well, congratulations.

So you’re well connected.

You probably play golf with the CEO of Big Balls Incorporated.

We’re not even going into how you wangled the slot.

You probably feel, that because of your connectedness, you can get away with anything in life.

Well, almost anything.

That’s the bottom-line.

You can get away with almost anything in life.

Here are two areas where your connectivity counts jack. As in El Zero. Nadda.

One is before the Almighty (presuming that God exists). Buying a slot with God using connections isn’t gonna cut it with the big guy. You can’t buy personal time with deities using money and / or connections, even if you think you can. Also, that “bought” time, when you shoved everyone else out of line, well, that time’s not going to make your life any better, or richer. You’ve just established yourself as someone who shoves others out of line using connections….that’s how your deity is going to view your performance. So, what you’re going to understand from this space is that before deities – the Almighty – God – the Metaphysical – or whatever you might want to call what I’m talking about, connections don’t work. You only end up scoring negative in your deity’s books.

Which brings us to the more relevant matter – where else do connections not work?

In the marketplace of course, my friend.

Don’t believe me? Fine, find it out for yourself, the hard way. Or, read on.

You see, in the marketplace, insiders have an agenda. All insiders. They have an agenda.

That agenda is personal. It includes them. It doesn’t include you … … if you’re not connected to the insider. Once you are, and you use that connection to fish for “lucrative” inside information, that’s where the insider’s agenda starts to include you. The information you get is as per the agenda of the insider. If a promoter wishes to off-load huge quantities of stock, you will be told that the stock’s a good buy, because blah-blah-blah-blah-blah. On the other hand, if the promoter wishes to buy back large quantities of stock, because of attractive valuations, you’ll be told to sell the stock owing to tricky prospects in the future. You are not getting quality information when you fish for tips. You’ll only find yourself getting trapped if you follow insider tips.

There are good insiders too … is that what you are saying? Ok, fine, some insiders are good human beings. They are not vicious, and they wish you well. They might even want to do you a favour, wishing that you make some money from the information they are letting out. All true. Question is, does it really work?

No.

Why?

You see, an insider never functions alone. When a company experiences a turnaround or a great quarter comes along with excellent earnings, white-collared people connected to the functioning of the company obviously know this, and they leak this information out (for a price) to smart researchers and investors. These smarties (along with their entire intimate circle of connectivity) buy into the company’s prospects. The money moved is called smart money. Smart money registers / reflects on the traders’ charts. The scrip might show a bounce-back from a low with huge volume, or a resistance might be broken, or a new high could even be made (all coupled with large volume). Traders latch on. Price movers higher. All this is happening before the CEO has announced quarterly results, mind you. Finally, a few days before the results, the corresponding results-file lands on the CEO’s desk. He or she congratulates his or her staff on the spectacular performance, and over a round of golf, the information is shared with you. The CEO is obviously thinking that the market is going to react positively to the earnings surprise that’s going to be announced.

Well, the earnings are not going to be a surprise. The market already knows, and earnings have thus already been factored into the price, before results are announced. Announcement time is generally selling time for traders, who tend to sell all stock upon the first spike after announcement. With no more buying pressure (since traders are out of the scrip), the inflated scrip tanks despite the good news, leaving you stuck with a peak-price buy. Well done, well done indeed.

See, that’s why. Don’t listen to insiders, even if they mean well.

In the marketplace, you really are on your own. Isn’t that exciting? As in challenging?

All the best, my friend. Learn to rely on your own judgement.

“Don’t Turn Around – Der Kommissar’s in Town”

There’s activity within our slow-poke government.

Yup, we just got a new finance minister. PC’s back. Or, as the newspaper said, PC reboots.

He’s probably reinforcing backdated taxation.

He’s hinted at interest-rate cuts.

He’s after more service-tax candidates.

He’s transferred lots of portfolios.

He’s trying to dish out motivational quotes, so that the economy revives.

“Alles klar, Herr Kommissar?”

The last time PC was in town, there was volatlity in the markets. First they went up and up and up, and then they went down and down and down. Mr. Chidambaram is a by-word for volatility.

How does he do it?

Frankly, I don’t care.

If I’m getting volatility, I’m taking it.

Not that India as a market lacks any volatility without PC.

We Indians are emotionally volatile people. When we are happy, we are sooooooo happy. When we are down and out, man, we are totally gone. No surprise that our markets reflect our topsy-turvy and dramatic emotional nature. Yes, the trader in India is blessed with a volatile trading scenario by default.

So, PC or no PC, volatile trades make themselves available to us in the Indian markets regularly. What PC does is, he gives the system’s volatility a turbo-boost. Our market’s “beta” goes up wth PC, and it goes up fast, quite fast.

Man, how does he do it?

You know, I still don’t care, but if I did, I think this would be the correct answer.

Der Kommissar seems to do it in two steps. First he creates carrots, lots of carrots. These are dangled before India Inc. Things start hotting up. Foreign investment wakes up – demand – buying pressure – our markets go up. Then, when the balloon is inflated, der Kommissar will appear on television and will let out comments (implementation of stick, like the backdated taxation thing) which the market takes exception to. Or, he might give some interview in the media which India Inc. interprets negatively. Well, down we come crashing. Frankly, I still couldn’t care less. Upwards or down, there’s a trade to be found.

Just a few days in his seat, and pivot points are leading to bounce-backs, supports are holding, resistances cracking (it’s the carrots), and technicals are very, very initially changing from “range-bound” to “trending”.

Fine, let’s just trade the Kommissar while he’s in town.

I’ve quoted Falco above and I’m quoting him again : “Alles klar, Herr Kommissar!”

Finding the “Switch-Off” Button

Gadgets have a switch-off button, right?

Whatever for, have you ever wondered?

Do we have one too?

If we do, is it clearly marked, i.e. is it easy to find?

If we do, and if it isn’t clearly market, where and how can we find it?

Why is it essential to find it?

What if we don’t have a switch-off button?

First, let’s observe the Master. Sherlock Holmes. Master at the art of switching off.

Observe Holmes when the next obvious lead will take a day to obtain. Since the case is going nowhere, Holmes will take the day off. He will play his violin, trip on some coke to study its effects on mind and body (he’s Holmes), go to the art gallery, or what have you. The case at hand has gone into oblivion. Attenuated. What happens when it is time to pursue the case again? Holmes switches on. He is fresh. Alert. The switching-off really helped.

Remember the “attenuate” button on your car’s stereo?

Why do you think it is there?

So you can take that call without getting disturbed by the music. The music is still there, but upon pressing this button, it becomes really soft. So soft, that you don’t get affected by it. You conduct your business on the phone, and then press this button again, and the music comes back on in its full glory.

Same goes for the markets.

Once you are in a trade, market-forces are connected to you.

If you cannot attenuate them during off-market hours, you can ruin your evenings, nights, weekends, health and family life

Big, big price to pay.

Not worth it, so get busy and learn to attenuate the market’s connecting force once you switch your terminal off. Rest assured, it will come blaring back at you when you switch your terminal back on, but that time between terminal off and terminal on is oh so precious. That time belongs to you, and not to Mrs. Market. Don’t allow her that extra privilege. Use that time for things that you wish to do in life. Use it for your family. Mrs. M will be getting your undivided attention during the next market session anyways. Let her be content with that. Keep her in her place.

Just as any gadget needs rest, so do you.

Sometimes, the markets go nowhere, and / or are choppy. It doesn’t pay to trade. Switch off from the markets. Take a holiday. Do something else, till conditions become better for trading.

Yes, we do have a switch-off button. It is not clearly marked. It is located in the mind. One activates it indirectly. By switching on to some other relaxing activity that has the ability to grab the mind’s interest.

Switching off is a skill, and this skill needs to be developed. We don’t necessarily come with it. Most of us need to learn it. Otherwise, we’ll become tired, erratic, irritable etc. etc., scale up to commit big blunders, and then we will eventually burn out. That’s if the Street doesn’t throw us out as paupers before a looming burn-out. Also, our family lives will have gone for a toss. Our children will remember us as dreadful parents. Yes people, we need to find the switch-off button asap, and then we need to learn to activate this button at will. Essential.

And please don’t worry about not having such a button. After all, it was the human being who put such a button into all gadgets. Well, the idea must have come from somewhere. From inside our own mind, perhaps, where our own button exists?

What Exactly is a Decent Trade?

A decent trade should yield you money, right?

Not necessarily so.

Am I crazy?

No.

So why am I saying this?

Am I not in the business to be in the green?

Of course I am, so let’s delve a little deeper.

As is slowly becoming clear to you, Mrs. Market is a schizophrenic. Her behaviour is mostly looney, and more often that not, she traverses an unexpected trajectory.

In the business of trading, there lie before you a set of circumstances, and your trading decisions are based upon these.

Thus, you outline your trade.

You plan the entry.

You plan the exit.

You define the reward : risk ratio.

You draw up a trade management plan, as outlined by your system. You preplan your response to all possible movements of Mrs. Market.

Can you do more?

No.

Can you predict Mrs. Market’s future behaviour?

No.

You have an idea about what she might do, based upon past behaviour, but does that make her future path certain?

No.

So that’s it, you enter a trade offering a high reward : risk ratio, based upon information from the past and a probabilistic idea about the future. A high reward : risk means that if there is a payout, it will be high in comparison to the loss you might bear if the trade goes against you. Something like 2 : 1 (possible profit : possible loss), or at least more than 1 : 1.

So what’s going to make your trade decent?

Just stick to your systematic plan, and you’ll have traded well.

Notice, no talk of any money here.

We’ve only spoken of sticking to our system-outlined trading plan.

We are not focusing on money. We are focusing on trading well.

Money is a side-effect to decent trading.

Trade decently, do the right thing, and money will follow as a side-effect, seen over the long run.

If your trade-management plan says you are cutting the trade below point X, and if point X is pierced by Mrs. M as she moves against you, well, the right thing to do would be to cut the trade.

So what if the trade didn’t yield you money?

It was a trade well executed, AS PER YOUR SYSTEM-OUTLINED TRADING PLAN.

What would have made this trade an indecent one would be if you hadn’t cut the trade below point X, irrespective of where Mrs. M went after that.

Why would the trade then be “bad”?

Because you didn’t follow your system’s advice.

You second-guessed yourself.

That means that you don’t have faith in your trade-management abilities, and / or that you succumbed to your emotions. You begun to hope that Mrs. M would start to move your way after piercing point X during her move against your trade direction.

If you did follow your system, you actually didn’t let any hope enter the equation.

Decent.

You had faith in your system, and did not second-guess yourself.

Very decent.

Such faith in one’s system is absolutely essential, and you’ll realize that as you start to scale up in trade-size.

Let’s look at the other part of your trade-management plan.

Let’s say that you decided that if Mrs. M moved in your directon, then you would stay in the trade till you saw the scrip giving at least one sign that it was stagnating. Only then would you book profits, upon such a signal from Mrs. M.

Assume then, that after entry there’s a spike in your direction, and you are in the money.

What do you do now?

Do you get greedy, forget about your trade-management plan, and book the trade? Would such a money-yielding trade be considered decent?

No.

Firstly, you got greedy.

Indecent.

Then, you forgot about your system-outlined trading plan.

Very indecent.

So what if you made money?

Sticking to your system’s advice would have given you the chance to make more, perhaps much more.

It is difficult enough to pinpoint a scrip which is about to explode.

Then, when you land such a scrip, the last thing that you want to be doing to yourself is nipping the explosion in the bud.

You nipped potential profits, even if you took a portion home.

Very, very indecent.

There you have it, people.

Use your common-sense, and, trade decently.

Mentally Speaking

The trader’s biggest enemy is…

…his or her own mind.

The good news is, that one’s mind can be trained … to become one’s friend.

Between these two sentences lies a path.

Some never make it.

For some, this path is arduous.

Other, more disciplined ones make it through.

However, that’s not the end.

Once there, one needs to stay there.

Emotions get in the way.

Fear. Greed. Hubris. Hope. Impatience. Insecurity. Despair …

… you got the drift.

Knock them out, people. Once in the market, stamp all emotion out of your (market) life.

Listen to your system. First make your system.

It doesn’t matter if it’s a technical one, or a fundamental one, or whether it is techno-fundamental, or for that matter funda-technological.

It is your system.

You have spent time putting it together.

You have lost money recognizing its pitfalls, and have tweaked these pitfalls away after they were recognized by you.

Since it has reaped you rewards, you have begun to trust it.

Stay with the trust. Don’t let your mind play tricks on you. It likes to.

Once your trusted system identifies a setup, take it. Period.

Your mind will suddenly switch on. What if this, and what if that?

Ignore.

Only use the mind’s intellect portion to perfect your system. That’s the friendly part for you. Together with it, you construct a system that is capable of identifying setup after setup, from one properly executable trade to another.

You see a setup, and you take it. No ifs, no buts, no what-ifs.

Similary, when your system identifies a stop or a target, and when this is hit, you are out of the trade. Period.

No procrastination. No waiting. No fear. No hoping. No greed.

No mind …

… from entry to trade management to exit.

Switch your mind back on when you have wound up your market activities for the day.

Switch your mind on amidst family. It’ll be fresh.

That’s the path between the two sentences at the top.

Here’s wishing that it’s an easy one for you.