Is Cost-Free-Ness the Holy Grail?

There is…

…a Holy Grail…

…mentioned in the Holy Bible. 

Also, …

… human capital

… pursues excellence.

I…

… am no exception.

Having stumbled upon…

…cost-free-ness…

…after many knocks in all possible markets, …

… and having developed the concept a tad, …

… I do say to you this.

I say to you, …

… , that cost-free-ness…

… is no holy grail. 

In its pursuit, money does get stuck. And, …

… upon its generation, money does flow, at times, into expensive, “uncatchable” material.

These are the two main mentionable “nuances” associated with the pursuit of cost-free-ness, that one needs to be aware of. 

Money getting stuck? Hmmmm.

If we’re afraid of money getting stuck, we should exit from the market. Any market. Period. 

Don’t be in the game if you can’t take the heat. 

It’s ok. 

Play another game, where you can. 

Perfectly fine.

Now let’s tackle the other one. 

Purists are jumping, I know. 

I can hear them yelling “EXPENSIVE!”

Sure.

Extremely high quality…

…will be expensive. 

One legitimate entry opportunity every ten years can be possible in such underlyings.

When it comes, and if one is having a bad hair week, one can even miss the window.

When it comes, we’ll enter big.

That’s a larger game, non-cost-free initially, and we’ve played it well in March 2020, entering non-cost-free, entering big (because of the available margin of safety), and generating vast amounts of cost-free-ness within a few months, to then ultimately be sitting on large, extremely high-quality & completely cost-free portfolios, perhaps for life.

However, such timelines are anomalies. We’ll pounce upon such chronologies when they happen. Meanwhile, …

…our bread and butter is to generate small amounts of cost-free-ness on a regular basis, day-in-day-out, all year round, …

… and it’s ok to enter extremely high quality with one’s freshly generated small amounts of cost-free-ness, right here right now, at the expensive price. 

Why?

Firstly, it’s not costing you. 

Secondly, when we deploy cost-free-ness into extremely high quality in a long-term-growth-promising market like India’s, it’s probably for life. 

Seen from a perspective of a decade or two, or perhaps three, the currently expensive cost-free entry is legitimate. 

Please do the 10, 20 or 30 year math for India, and you should come to the same conclusion.

Why do we wish to deploy immediately?

Out of sight, out of mind. 

Money has idiosyncrasies. 

The biggest one is that it is spent, in the blink of an eye. 

Better, deploy it, specifically also because your mathematics is okaying a legit entry for the extremely long-term.

And, pray, have you wondered why you will be able to sit on your investment for so long?

Primarily because your entry is cost-free. 

There is no other singular, more overwhelming reason. 

Cost-free-ness overwhelms the mind into sitting on extremely long holds. Try it out for yourself.

That takes care of the second point, …

… and I say to you this, that…

… cost-free-ness, …

… though not the holy grail, …

… could well be the next best market concept available to mankind, for long-term success in the markets.

Wishing you lucrative & highly successful cost-free investing!

🙂

Positioned

By now…

…, we are positioned.

The persistence of high price-levels…

…has led us to take appropriate action.

One after another, we are washing our market mistakes clean.

What remains, is cost-free-ness, in high-quality holdings.

We’ve then also helped our relatives and friends attain the same state of market-being.

MFs?

Now cost-free

ULIPs?

Gotten them to money-market.

Debt market holdings?

No more debt market for a while.

Bond-yields are rising.

There’ve been blow-ups. Boys @ FT and Nippon take a bow.

Parking where?

Fixed deposits.

Why?

Not in it for returns.

Just to park, safely.

We’re sticklers for parking safely.

Loss of interest will be made up within days of opportunity, into which funds then flow, and then some.

One can now say…

,…safely…

,…that we’re positioned.

What happens from this point onwards?

How many days has the main sensory index spent at PEs of 35+ within the last 5000 days?

Yeah, right?

Small-cap rally still due?

That’s what everyone feels, right?

That’s the point.

Leave the masses hanging onto something they’re expecting.

If it doesn’t happen, they’re what?

Left hanging. Devil takes the hind-most.

Please do your math, and please position yourself too, appropriately.

What if markets go on rising?

Sure, that’s a possibility, perhaps for a while.

Simple rule.

No level, no entry.

We know how to sit.

On our holdings, and then…

…on our cost-free-ness.

Now, capital will only move…

…upon opportunity.

And the pipe-line’s ample, our positioning has seen to that.

Come something like March ’20, and we’ll blast the flow of our pipeline.

Oh, another thing.

Notice the speed of moves, nowadays?

It’s fast, isn’t it?

As in markets are efficient, till they’re not, and then they’re efficient again, and then they’re not, back and forth, to and fro, all very fast.

Meaning what?

Meaning, that there will be ample opportunities, more sooner than later, and that till there are inefficiencies on the down-side,…

…we sit tight…

…to maximize the impact of our positioning.

Cost-Free-Ness completely does away with Fear

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

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

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

…because of the sheer magnitude of the feat.

Well, congratulations.

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

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

Markets can go anywhere.

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

Fine.

Still unshaken?

Yes.

Why?

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

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

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

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

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

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

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

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

Fear is nowhere in the equation.

Using Counter-Intuition as a Buy-Sell-Tool

When the world is burning around you…

and there’s “blood on the Street”…

the last thing that one wishes to do…

…is to…

…buy.

Why?

One is afraid.

However, the most lucrative buys are the ones…

…made precisely…

…at this point in time.

Everything in our brain- and bio-chemistry will be screaming not to buy.

We will now use this state of being as a buy tool.

What?

You think I’ve let some kind of a secret out of the bag, or something?

Try doing it.

That’s the thing.

It’s most difficult to push through.

That’s also the reason very few people make big money in the markets.

Now let’s speak about exits.

Nobody really knows what’s a good exit, ever.

Why?

That’s because nobody knows the future in advance.

What we do know, is that euphoria can last long enough…

to wipe shorts out…

…as the recent shorters et al found out the hard way, in the US.

When there’s euphoria, we don’t feel like selling.

We want to make more, and more.

We feel that this can go on and on, ad infinitum.

Every bone in our body says hold on.

A sell made at this time could well nip a multi bagger in the gut.

However, our counter-intuition is speaking.

It’s already done us a service by providing us with great entries.

Let’s at least listen.

Tell you what we can do.

We can listen to it, i.e. we can exit, to some extent only.

That way, we’ll have exited and will still be in the market.

How exactly, then?

When we are feeling like this, and are experiencing prolonged euphoria…

…we can get rid of unwanted stuff.

As euphoria continues to rage, we target to make all wanted holdings cost-free, bit by bit, by exiting to that extent, ultimately and ideally.

Yes, ideally, we only want to be left holding cost-free items in the market.

From that point onwards, we don’t care where the markets are going with regard to our holdings.

It’s a sweet-spot, and we are in it because we have used counter-intuition as an effective and lucrative buying and selling tool.

Dynamics of a Right Call

India is in a long-term bull market.

Sure, there will be corrections.

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

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

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

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

Yeah, I will be.

Lighter.

That’s about it.

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

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

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

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

We don’t discard core-portfolio inhabitants.

These we allow to compound into multi-baggers.

It’s OK to make wrong calls.

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

We won’t make the next mistakes though.

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

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

The best calls remain right…

… like…

… almost forever.

We’re talking Buffet and Coke.

Or, for example, RJ and Titan.

List goes on.

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

Allowance for compounding.

Increase of position upon interim lows.

Patience.

No trigger-fingers.

You get the drift.

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

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

This is where we want to be.

It’s OK to dream.

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

Happy long-term investing! 🙂

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.

Equity – The New Normal for Parking

Who’s the biggest…

…Ponzi…

…of them all?

Insurance companies?

There’s someone bigger.

The government. 

Legit.

Probably not going to go bust…

…at least in a hurry. 

Moves money from A to B…

…with minimum accountability. 

Resurrects skeletons and gives them infinite leases of life…

…with good, clean and fresh funds…

…that flow out of the pockets of helpless citizens. 

So, what about the government’s bond?

Sovereign debt.

The herd is flowing to sovereign debt, and to some extent to 100% AAA max 3 month paper duration liquid funds. 

This is after the johnnies at FT India miscalculated big-time, and had to wind-up six debt mutual fund schemes in their repertoire.

Should one do what the herd is doing?

Let’s break this down. 

First up, the herd exited credit-risk funds en-masse, post FT India’s announcement. Logical? Maybe. Safety and all that. Took a hit on the NAV, due to massive redemptions. I’m guesstimating something to the tune of 3%+. 

This seems fine, given the circumstances. Would have done the same thing, had I been in credit-risk. Perhaps earlier than the herd. Hopefully. No one likes a 3%+ hit on the NAV within a day or two.

Let’s look at the next step.

Sovereign debt is not everyone’s cup of tea. 

Especially the long-term papers, oh, they can move. 3% moves in a day are not unknown. 13-17% moves in a year are also not unknown. A commoner from the herd would go into shock, were he or she to encounter a big move day to the downside in the GILT (Government of India Long Term) bond segment. Then he or she would commit the blunder of cashing out of GILT when 10% down in 6 months, should such a situation arise. This is absolutely conceivable. Has happened. Will happen. Again.

There are a lot of experts advocating GILT smugly, at this time. They’re experts. They can probably deal with the nuances of GILT. The herd individual – very probably – CAN’T. The expert announces. Herd follows. There comes a crisis that affects GILT. Expert has probably exited GILT shortly before the onset of crisis. Herd is left hanging. Let’s say GILT tanks big time. Herd starts exiting GILT, making it fall further. Expert enters GILT, yeah – huge buying opportunity generated for expert.

More savvy and cautious investors who don’t wish to be saddled with the day to day tension of GILT, and who were earlier in credit-risk, are switching to liquid funds holding 100% AAA rated papers.

Sure. 

This is probably not a herd. Or is it?

Returns in the 100% AAA liquid fund category are lesser. Safety is more. How much are the returns lesser by? Around 1.5 to 2% lesser than ultra-short, floating-rate and low-duration funds. 

Ultra-short, floating-rate and low-duration funds all fall under a category of short-term debt which people are simply ignoring and jumping over, because apart from their large size of AAA holdings, a chunk of their holdings are still AA, and a small portion could be only A rated (sometimes along with another smallish portion allocated in – yes – even sovereign debt – for some of the mutual funds in this category).

The question that needs to be asked is this – Are quality funds in the category of ultra-short, floating-rate and low-duration funds carrying dicey papers that could default – to the tune of more than 2%?

There’s been a rejuggling of portfolios. Whatever this number was, it has lessened.

The next question is, if push comes to shove, how differently are 100% AAA holdings going to be treated in comparison to compositions of – let’s say – 60% AAA, 30% AA and 10% A?

I do believe that a shock wave would throw both categories out of whack, since corporate AAA is still not sovereign debt, and the herd is not going to give it the same adulation. 

The impact of such shock wave to 100 % AAA will still be sizeable (though lesser) when compared to its cousin category with some AA and a slice of A. Does the 2% difference in returns now nullify the safety edge of 100% AAA?

Also, not all corporate AAA is “safe”. 

Then, if nobody’s lending to the lower rung in the ratings ladder, should such industry just pack up its bags? If the Government allows this to happen, it probably won’t get re-elected.

The decision to remain in this category encompassing ultra-short, floating-rate and low-duration bond mutual funds, or to switch to 100% AAA short-term liquid funds, is separated by a very thin line

Those who follow holdings and developments on a day to day basis, themselves or through their advisors, can still venture to stay in the former category. The day one feels uncomfortable enough, one can switch to 100% AAA. 

This brings us to the last questions in this piece. 

Why go through the whole rigmarole?

Pack up the bond segment for oneself?

Move completely to fixed deposits?

Fine.

Just a sec.

What happens if the government issues a writ disallowing breaking of FDs above a certain amount, in the future, at a time when you need your money the most?

Please don’t say that such a thing can’t happen.

Remember Yes bank?

What if FD breakage is disallowed for all banks, and you don’t have access to your funds, right when you need them?

Sure, of course it won’t happen. But what if it does?

You could flip the same kind of question towards me. What happens if the debt fund I’m in – whether ultra-short, or floating-rate, or low-duration, or liquid – what happens if the fund packs up?

My answer is – I’ve chosen quality. If quality packs up 100%, it’ll be a doomsday scenario, on which FDs will also be frozen dear (how do you know they won’t be?), and GILTs could well have a 10%+ down-day, and, such doomsday scenario could very probably bring a freeze on further redemptions from GILT too. When the sky is falling, no one’s a VIP.

Parked money needs to be safe-guarded as you would a child,…

…and,…

…there spring up question marks in all debt-market categories,…

…so,…

…as Equity players, where do we stand?

Keep traversing the jungle, avoiding pitfalls to the best of one’s ability. 

How long?

Till one is fully invested in Equity. 

Keep moving on. A few daggers will hit a portion of one’s parked funds. Think of this as slippage, or as opportunity-cost. 

Let’s try and limit the hit to as small a portion of one’s parked funds as possible. Let’s ignore what the herd is doing, make up our own mind, and be comfortable with whatever decision we are taking, before we implement the decision. Let’s use our common-sense. Let’s watch Debt. Watch it more than one would watch one’s Equity. Defeats the purpose of parking in this segment, I know. That’s why we wish to be 100% in Equity, parked or what have you, eventually. 

As we keep dodging and moving ahead, over time, the job will be done already.

We’re comfortable with the concept of being fully parked in Equity. 

Whereas the fear of losing even a very small portion of our principal in the segment of Debt might appear overwhelming to us, the idea of losing all of one’s capital in some stocks is not new for us Equity players. We have experienced it. We can deal with it. Why? Because in other stocks, we are going to make multiples, many multiples, over the long-term.

Equity seems to be the new normal for parking

Secret Ingredients in Times like Corona

Hi,

It’s been a while.

Unprecedented times call for every iota of resilience that’s inherent.

Whatever we’ve learnt in the markets is being tested to beyond all levels. 

If our learning is solid, we will emerge victorious.

If there are vital chinks in our armour, we will be broken. 

Such are the market forces that are prevailing. 

Have we learn’t to sit?

Meaning, over all these years, when over-valuation ruled the roost, did we sit?

Did we accumulate funds?

Did we create a sizeable liquid corpus?

If we did, we are kings in this scenario. 

One of the main characteristics of a small entry quantum strategy is that it renders us liquidity, almost through and through. 

If we are amply liquid in the times of mayhem, there is absent from our armour the debilitating chink of illiquidity.

Illiquidity at the wrong time makes one make drastic mistakes by succumbing to panic. 

We’re not succumbing to any panic. 

Why?

Because our minds are focused on the bargains available.

The bargains are so mouth-watering, that they are entirely taking away our focus from existing panic.

To twist our psychology into the correct trajectory in a time like Corona, the secret ingredient that’s required is called (ample) liquidity. This secret ingredient is a direct result of the small entry quantum strategy, which we follow. 

Then, let’s address the other potential chink, and just sheer do away with it. 

Having access to ample liquidity, are we now greedy?

What does greed mean?

It’s not greedy to buy when there’s blood on the street, no, it’s actually outright courageous. 

Greed Is defined here as per the quantum of buying. 

Are we buying disproportionately vis-à-vis our liquidity-size and our risk-profile?

Yes?

Greedy.

No?

Not greedy.

How will we know the answer without any doubt in our mind that we have the correct answer to this question, since it is vital to our learning curve to answer this question correctly?

The answer will make itself felt.

Are we able to sit optimally even if markets crash another double-digit percentage from here?

50% from here?

No? Greedy. We have bought in a manner that doesn’t gel with our risk-profile. Our liquidity is exhausting, and focus shifts from bargains to panic. Ensuing tension amidst further fall will very probably cause us to commit a grave blunder, with this happening very probably at the bottom of the market. We are poised to lose in the markets like this. 

Yes? Not greedy. We have bought and continue to buy as per our risk-profile. We will win…

…in the markets.

The secret ingredient that locks in great prices and continues to do so as the market keeps falling, is called quantum-control as per the tolerance level of our risk-profile towards further fall. This secret ingredient ensures that liquidity outlasts a longish fall, keeping our focus on the bargains and not on the panic. This secret ingredient provides for the basic mechanism of our small entry quantum strategy.

 

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.

🙂

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! 🙂

Nature of the Beast

Stocks…

…crash.

It’s the nature of the beast.

Stocks also multiply.

For stocks to multiply, one needs to do something.

What is that something?

One needs to buy stocks when they crash.

Let me give you an example. 

Let’s assume markets are on a high, and there’s euphoria.

Excel Propionics is cruising at a 1000.

The prevailing euphoria seeps into your brain, and you buy Propionics at a 1000.

For Propionics to multiply 10 times in your lifetime, it will now need to reach 10,000.

Likely? Wait.

Cut to now.

Stocks are crashing. 

The same stock, Excel Propionics, now crawls at 450.

You have studied it. 

It’s debt-free.

Positive cash-flow.

Ratios are good.

Numbers are double-digit.

Leverage is low.

Management is shareholder-friendly. 

You start buying at 450. 

By the time the crash is through, you have bought many times, and your buying average is 333.

For Propionics to multiply 10 times in your lifetime, it will now need to rise to 3330.

Which event is more likely to happen?

Just answer intuitively.

Of course, the second scenario is more likely to play out than the first one. In the second scenario, Propionics will need to peak 3 times lower.

Simple?

No!

Try buying in a crash.

You are shaken up. 

There’s so much pessimism going around.

Rumours, stories, whatsapps, opinions. The whole world has become an authority on where this market is going to go, and you are dying from inside.

What’s killing you?

The hiding that your existing portfolio is taking, that’s what’s killing you.

Are you liquid?

No?

Very bad. 

Why aren’t you liquid?

Create this circumstance for yourself.

Be liquid.

Optimally, be liquid for life. 

Then, you will look forward to a crash, because that’s when you will use your liquidity copiously, to buy quality stocks, or to improve the buying averages of the already existing quality stocks in your folio. 

How do you get liquid for life?

You employ the small entry quantum strategy.

Yes, that’s about right. 

We’ve been speaking about this strategy in this space for the last two years.

Read up!

🙂

Happy Eighth Birthday, Magic Bull!

Hey,

Today, we turn eight.

This is an extreme time.

Extraordinary moves have become normal.

How do we react to a world full of upheavals?

Does anyone have a satisfactory response?

We don’t know, and time will tell if our responses are correct.

However, we do know, that we possess common sense…

…, and we are going to hold on to it for all our life’s worth.

It has not come for free.

It has been earned after making costly mistakes.

It is very valuable.

It is going to see us through.

The topsiness and the turvyness is good for us.

It will set up opportunities.

We are only going to grab opportunities.

When there’s no opportunity, we do nothing.

We have learnt to do nothing.

Doing nothing actually means no entry.

We use this time to do due diligence for the future, when entry is allowed as per our entry criteria.

Doing nothing is a steady part of our repertoire.

However, when opportunity comes, we are going to let go of all fear, and we are going to pull the trigger.

We know how to pull the trigger.

We are not afraid.

Why?

We are debt-free.

Our basic incomes are in place.

Our families are taken care of.

Without that, we don’t move.

We invest with surplus.

We implement a small entry quantum strategy.

We enter again and again and again, upon opportunity.

Because of our small entry quantum, we are liquid for life.

Crash?

Bring it on.

We’ll keep going in, small entry quantum upon small entry quantum.

Don’t forget, we have rendered ourselves liquid for life.

And, we’ve got stamina!

Happy eighth birthday, Magic Bull!

The Benefit of Quantum upon Quantum

Underlying equity. 

How do you protect against fraud and / or investor-unfriendliness?

You’ve done your research. 

All good. 

Stock is a buy. 

Meets your parameters. 

What’s the next step?

Protection. 

You buy quantum upon quantum. 

You don’t plunge into the stock with all you’ve got to give. 

No. 

You put in a quantum.

Then you wait. 

Better opportunity arises.

Fundamentals haven’t changed. All still good. 

You put in another quantum.

Quantum…

…upon quantum. 

That’s how you keep entering the stock till it keeps giving you a reason to enter. 

Year upon year. 

Between quanta, you’re studying behaviour. 

You’re looking for investor-friendliness. 

Your next quantum is only going in if investor-friendliness continues.

No more investor-friendliness?

No more quanta.

You wait.

Will investor-friendly behaviour resume?

And you wait.

Is it coming?

Yes. 

Good. 

Upon buy criteria being met, next quantum goes in. 

Not coming?

At all?

Ok. You’re looking to exit. 

Market will give you a high to exit. That’s what markets do. They give lows, and highs. 

Wait for the high. 

High?

Exit. 

Frozen

Frozen? 

It’s ok. 

Breathe. 

You need to acknowledge that you’re frozen. 

Without that, the next step won’t come. 

It’s normal to freeze sometimes. Just acknowledge it. Then learn. 

For example, I acknowledge that I’m currently frozen wrt to the USDINR short trade. Missed entry. Next opportunity to enter never developed for me, and the underlying is currently in free fall. Don’t have the guts to short it at this level. Yeah, I’m frozen all right.

However, the fact that I’m acknowledging it opens up the learning window. 

Why did I miss entry?

I know why I froze. Fear. What I need to understand is why I allowed a situation to develop that would lead to fear. 

Ok. 

Was running super busy. 

Neglected the underlying. 

Kept postponing entry… 

… till free-fall started. 

It’s good to be busy. 

Hmmm, so this can happen again. 

How do I stop this from happening again? 

If I ID a setup, I need to take it. 

No second-guessing. 

What about strategy? 

Meaning, am I going with a short strategy for USDINR? Or am I keeping the window open for a long strategy?

See, that’s it.

Keeping short and long windows open makes me second-guess all the time. 

So can I go in one-direction wrt USDINR all the time? 

What speaks for it? 

Underlying is falling from a height. Good. 

Short only means no second-guessing. You just go short, period. 

Stoploss will save ruin. 

Not nipping profits in the bud will amass fortunes. 

Can the underlying keep falling over the next few years? 

Why not? Modi’s looking set for 2019. 

Hmmm, so a short only strategy has a lot going for itself. 

There’s more. Future month contracts are quoted at a premium. The premium evaporates over the current month. This move is in your favour if you’re short. 

Ok, enough. 

Yeah, there’s enough on the table to warrant a short only strategy for USDINR. 

SEE? 

Learning process. 

Why did it happen?

Because I acknowledged that I had frozen. 

Now, my strategy is more fine-tuned and I’m probably less prone to second-guessing. 

You need to pull off such stuff when you freeze. 

Use the freeze to evolve. 

Dealing from a Position of Strength 

Next move… 

… should make you stronger. 

If it’s not, you’re wasting your position of strength. 

And, if it’s not, it’s not going to be your next move. 

Think up a different one. 

You had the acumen to gravitate to a position of strength. 

What makes you think that you don’t have the acumen to become even stronger? 

Take your time. 

In a position of strength, time becomes your friend. 

Here, you possess the means to double, treble or what have you your time. You hire quality people, to listen to their sound advice. You don’t have to follow them. However, it’s good to look at quality behaviour while finalizing the next move. Specialists provide you with that service. The specialist you want to listen to first wants to make you some money and then thinks about his or her commission. There are some such ones out there. Find them. 

Reject a hundred specialists. Then choose one that fits your specs. You’re in a position to do so. You’re in a position of strength. 

When time becomes your friend, consolidation comes as a matter of course to you. You consolidate before every next move. Consolidation makes your strength potent. 

You might want to consider some charity. Increase the good vibes around you. Make it a better world. Those in a position of weakness can’t afford to do so. You can. Come on. You’ll feel good about it. Yeah, help someone in a position of weakness. You’ll remain grounded. 

Take time off. Leisure will bring you back with all cylinders firing towards your next move. 

Pursue secondary, even tertiary lines. Disconnect from primary at will. Connect back, again at will. 

You see? 

Position of strength opens up a whole new world for you. 

That’s where you want to be… 

… in a position of strength. 

Work towards it. 

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. 

🙂 

Nath on Equity – almost there

Market being down 61). should not pinch you. If such condition does pinch you, you might react accordingly, and do something painful. 

You make market-downs not pinch you by being 62). miniscually committed at any given time. 

Also, 63). you continue committing your miniscule quanta during market downs. 

That’s because 64). you’ve made sure you have lots more to commit, by defining such an approach for yourself. 

You are 65). happy that the market is down, because it is giving you an opportunity to enter. 

You 66). switch off market TV. You don’t wanna know from them, because they themselves don’t know what works for you. 

All 67). useless emails and smses are put on block. 

That’s because 68). information overload is your nemesis. 

You 69). learn from everything you experience. 

However, you 70). don’t follow any market-person. 

That’s because 71). you are unique. Only you can benefit yourself, ultimately. 

You are going to 72). teach yourself to become a strong hand

Thus, you will 73). not get affected by the behaviour of weak hands, ie. the masses.

Instead, you will teach yourself to 74). take advantage of the behaviour of weak hands. 

Market players 75). commit the same blunders again, and again and again. 

That’s because 76). every few years, a whole new batch of market players starts behaving unreasonably. 

This proves to us 77). that the only real learning comes first hand from market-play, to you and you alone, and only from your market-play.

This also pretty darn well insinuates that 78). theoretical learning from books or universities has zilch value in the markets.

You’re lucky 79). if the market knocks you around during your first seven years of market-play, when the kitty is small. 

That’s because 80). exactly that learning from 79). is going to earn you big as the kitty increases during your meat-years of market-play. 

When Push Comes to Shove 

Genetically… 

… we’re savers. 

Indians. 

Save. 

That’s a good thing. 

Since the ’00s though, our banks have started pushing loans as if there’s no tomorrow.

The motto seems to be : we don’t care who you are, just borrow. If we know who you are, here, borrow some more

That is dangerous policy. 

It sets the stage for a push comes to shove scenario. Savings are being lent further, and they might not come back. 

What counts when push comes to shove? 

Deposits in the bank? No. Gone. 

Real Estate? No. No buyers. No renters. Illiquid stuff just won’t move. 

Equities? No. Dumps. Good entry levels though. No resale value for a while. 

Bonds? Perhaps. Short duration ones, provided underlying doesn’t go under. 

Gold? Yes. Big. 

Trading? Yes. Options, forex, commodities, what have you. 

Cash? Yes. Provided there’s no hyperinflation. Use it for day to day life. Use surplus to acquire great bargains. 

Farmland? Yes. You’re then sorted as far as food and water are concerned. 

Use your imagination. 

Prepare for a push and shove scenario. 

It probably won’t happen. 

However, you’re prepared, just in case. 

Looking for a Deal-Breaker

I look. 

Don’t find it. 

Look again. 

And again. 

Keep looking. 

Tired. 

Eyes ache. 

Sleepy. 

Stop. 

Resume next morning. 

Still nothing. 

So on and so forth. 

Few days. 

Absolutely nothing. 

Buy the stock.

Yes. 

That’s the chronology. 

After zeroing in on a stock…

…that’s the chronology. 

Am I happy the search was unsuccessful?

You bet!

Am I spent?

Yawn…yes. 

Was it worth it?

Of course. I now own a quality stock. 

What’s happened before?

Stockscreener. 

Stock pops up. One that appeals to me. 

Check it for value. 

Pass.

Check it for moat.

Pass. 

Look for deal-breaker. 

Yeah, final step. 

Takes the longest. 

It’s boiled down to a yes or no. 

One’s going to holding the stock for a long, long time. 

This is when one is asking every cell in one’s body. 

Yes or no?

No deal-breaker?

Fine. 

Going for it. 

It’s a yes. 

Who gets 5 Stars for Fund Movement?

Movement?

Or lack of movement?

What will you have?

Who discusses such a topic?

Is this lame?

Is it that we have nothing better to do?

NO.

Fund movement is a central topic.

Funds are blood.

You need to be master of their movement. Winners are.

What’s there to discuss?

Aren’t things obvious?

Well, no.

To most people, things wrt movement of funds are everything else but obvious.

No pipelines are created.

No sheds for storage.

No safety mode in the firing gun.

Gun fires as soon as the load is available.

You see, all this leads to losing positions.

How?

One should not fire as soon as one can load.

One should fire when one sees a ripe target for the taking.

What should one do till then?

Store the load. Elsewhere. Give it some light work to do. Put it in a position that it can make its way easily back to you as soon as you call it in.

When do you call it in?

When you see the big fat target.

Again, isn’t all this obvious?

Again, no, to most people, no, no, no.

Most people are busy getting sophisticated.

They don’t focus on the basics.

Basics win you the game.

Sophistication might deceive you into the false belief that you are winning or are one up, but because you’ve forgotten to focus on the basics, chances are high that you’ll end up losing.

So here’s what one needs to do.

No gun in the house.

No load in the house.

Big fat target. Identify.

Go to load. Load = funds.

Direct load to gun. This is the movement process. It happens online. Funds are directed to a website.

Fire. Pull the trigger on the concerned website. Yeah, gun’s in cyber-space.

Wait for next opportunity.

Repeat.

So on and so forth.

This way, due to sharply controlled fund movement, one creates positions with high potential to win.

Come on, get your basics in order. Leave sophistication to the losers.

🙂