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

Multiples obey skewed mathematics

Income-oriented linear growth… 

… is single-digit. 

There’s something safe about it. 

It’s going to be there tomorrow, and after that. 

Safety means less return. 

You’re ok with that as far as basic income is concerned. 

Not so the case when it comes to wealth. 

With wealth, the multiple comes into play. 

Multiples dance to a different tune. 

The search for multiples can lead to negative return – for a while at least. 

It’s risky. 

The level of reward is coupled to a corresponding level of risk. 

In comes time. 

Wealth-play is palatable because of time not pushing you to the wall. 

With time on your side, the ingredients of your cooking-pot have ample opportunity to sprout and grow into big trees. 

If growth is not able to take off owing to lack of circumstance, this becomes the breeding ground for negative return. High deductibles add to the bleeding. After all, it’s wealth you’re seeking to generate, and there will be a little blood. 

Such is the game. 

If you can’t stomach the ride till the multiples emerge, play the income-game full-time instead. 

However, once you start to digest the wealth-game, you realize that is really quite headache-free and pretty much an auto-pilot avenue. 

You’ll even start to like it when the first multiples emerge! 

Going for the Multiple 

Relax. 

We’re not going for the jugular. 

Or are we? 

The jugular has the most copious flow. 

Maybe we are then… 

… going for the jugular. 

However, there’s no stabbing happening. 

We do everything from the inside of our comfort-zone.

We act with harmony. 

Balance. 

Focus. 

Intelligence. 

Common-sense. 

We try and be non-violent about it. 

What are we doing? 

We’re looking to create wealth. 

What makes us look? 

Security. Our basic income secures us. 

Boredom. Adding to our basic income has become boring. 

Overflow. As basic income starts to overflow, it needs a long-term avenue in which it doesn’t demand our constant attention. 

Fine. 

What’s the best way… 

… to go about it?

Where there’s honey, there are bees. 

Finance-people find you. You have money. They have investments. For finance-people, you are bread and butter. 

So, you sit. 

You wait. 

You let them come. 

You’ve got discriminatory-ability. 

You sift. 99% of what comes goes into the bin. 

You like 1%. 

You invest in that 1%.

How much? 

Whatever you pre-define as your per-annum outflow into wealth-creation. 

Only that much. 

What then? 

What’s the bottom-line? 

What’s your holding strategy? 

Nothing. 

You sit. 

The biggest money is made…

…while sitting.”

You’re not even looking at your long-term investment more than once a month. 

You’re not interested in daily quotes.

The daily quote can say zero. You don’t care. You know that you are in the process of creating wealth, and that it’s going to take long, and within that period you don’t care if the world thinks your holding is zero, because you know it isn’t. 

Why? 

Due-diligence. 

Ability to think differently. 

Ability to see wealth in its nascent stage, and to recognize it. 

You have these things. 

They didn’t come for free. 

You took some solid hits to earn them. 

Yeah, you have what it takes, and that’s why… 

… you’re going for the multiple. 

What to do with a racing mind? 

Harness it. 

Or, it’ll get you. 

How? 

It won’t stop racing till it finds something of interest. 

Then, it’ll hook on… 

… without caring too much… 

… whether that something’s good or bad.

At that stage, you might not be able to control your mind. 

Control it when it’s controllable. 

Before it’s latched on. 

Before the flow has started. 

Define for yourself the area of flow. 

Actively make your mind connect. 

Regulate your flow. 

Enjoy the harnessed potential of your mind. 

Let’s observe a practical example in motion. 

I’ve actively latched on my mind, among other things, to the stock market. 

The market has many aspects.

I need to take into account most of these, if not all, while picking a stock. 

Sure. 

However, some aspects stand out for me. 

To these aspects I latch on my mind very thoroughly. 

I like it to get a feel for honesty. 

While I’m screening a stock, my racing mind either picks honesty or it doesn’t. 

If it hasn’t smelt and felt honesty after two days of studying the stock, I just let the stock go. 

Some are big on numbers. Some are big on charts. Sure, I look at both. Honesty delivers the final decision for me, though, as in, the crucial blow. 

Instead of resorting to all kinds of nonsense, the racing mind can be taught to become one’s greatest asset. 

When Do You Bet The Farm? 

Bread and butter. 

Safety-…

…-net.

Basics.

You gather yourself to carve out a comfortable life for your family. 

Build-up. 

Debt-free-ness. 

Yeah, zero-debt. 

Feel the freedom. 

Breathe. 

No bondage. 

No tension. 

You have to feel it. 

Surplus. 

First, small surplus. 

Then, big surplus. 

You’ve made sure that nobody ever will remind you to pay your bills. 

Great! Well done. Now… 

… keeping all basics intact… 

… you play with small surplus. 

Risk. Calculated. Digestible. 

Multiplier. 

Loss. Cut small. 

Win. Allowed to grow. 

Small surplus starts giving regular fruit. 

You put back the principal into your family’s basic corpus. 

Repeat. 

Many of your small surpluses have grown into fruit-bearing trees. 

Your farm is bursting with grain and fruit. 

Have you taken any big, indigestible risks? 

No. 

Have you ever put your family basics at risk? 

No. 

Have you ever thought about betting the farm? 

NO. 

Will you ever bet the farm, no matter how big the lure? 

NEVER. 

Market-maker

Manipulation. 

Recognition. 

Alignment. 

Trade. 

Spike. 

Out. 

How does one recognize manipulation? 

On the charts. 

After eyeballing many many charts, one gets a feel for it. 

Manipulated strike-points become pivot points. 

It’s a push from a fund-heavy conglomerate. Push becomes a cascade as traders join in. 

After the spike, the market-maker pulls out funds so cleverly that rates don’t fall. 

Funds are now ready for the next push. The same funds. 

Repeat. Same loop. 

Till strategy fails. 

Then, maker starts manipulating in opposite direction. 

Life’s busy for the maker. 

There’s trouble with the authorities. Ends on a compromise. Maker will step in when authorities need to prop the market. 

No maker – no market. 

Why do you think there’s always a quote to your underlying? 

Because of the maker. 

After a market has crossed critical mass, makers sit on their spikes. They roll-over on expiries, and enjoy the ride. 

Ride is not always smooth. 

Makers often get greedy and break their own rules. Functioning with no safeties, many makers get wiped out. To add to their woes, a large percentage functions on borrowed money. 

Makers have an electronic life, which loops from cellphone to terminal and back. It’s a life that’s punctuated by headaches, physical and mental. 

Don’t envy a maker. 

He or she is just doing his or her job. That’s all. 

Trade the maker. 

The Collapse of Mt Gox and its Meaning for You

February 2014.

Mt Gox collapses.

It’s not a mountain.

Mountains don’t collapse.

The largest Bitcoin exchange in the world – gone.

What happened?

Hazy area.

If one reads through the company’s press releases, it seems they themselves are not sure. Or, they’re trying to cover up that they got hacked, big-time.

Company’s claiming a black-swan event. Software goes into a crazy loop. Transaction shows as failed. However, system releases Bitcoin. Do this over and over again. You’re down 750k Bitcoin. Half a billion dollars. Hmmmmmmmmmm. Not buying it.

It’s probably not an inside job. Trail would’ve been too hot.

They’ve actually and probably gotten hacked. Possibly in the earlier days. Perhaps they tried to cover it up for the longest time, till it was no longer possible. There came a time then, it would seem, to throw in the towel and declare bankruptcy, coupled with the release of an unbelievable explanation.

Do the math. Conjecture.

We are down to conjecture, after an abominable event like this, where retail investors along with handlers, dealers and the works get fried.

For heaven’s sake.

Makes you rethink Bitcoin majorly.

Diversification is a safe thing. However, not at the cost of converting your computer into a big red flag.

There are two kinds of computers in the world. Those with Bitcoin or its cousins, and those without.

Currently, those with are targets.

There’s no better system of storing Bitcoin.

Banks aren’t taking it up systematically.

Dollar lobby is too strong.

It’s not letting Bitcoin settle.

Who was behind the possible hack?

You tell me.

Why would anyone sacrifice one’s sleep?

No tension, please.

We don’t wish to lose sleep over the fact that our computer might get hacked in the night. Also, will the cousin’s ever sort themselves out?

If criminals could hack Mt Gox, what are the chances of one’s desktop surviving?

Yeah, where does that leave you?

Till Bitcoin gets accepted more systematically, and till mainstream banks start storing it for you in their cyber-lockers, I’m afraid this leaves you off the Bitcoin demand-list.

Yeah, safety first.

Stop-Loss vs Hedge – what’s what and how?

Insurance.

Makes you sleep easy.

Simultaneously, you are able to take a calculated risk.

Risk?

Why should you take a risk?

No risk no gain.

It’s as simple as that.

You have to put something on the line to possibly gain something.

That’s what market activity is all about.

You’re doing this all the time.

Day in, day out.

You’ve become used to a steady and dynamic LINE. Your line doesn’t harm you anymore. It doesn’t disrupt your life.

Well done.

How did you achieve this?

By using stops and hedges.

What’s the difference?

The difference is technical, and then practical.

For some mindsets and positions, a stop is more suited.

When you don’t mind exposing your market-play, and want to close your terminal and do other stuff, use a stop.

You get up from your desk, engage in other activity, and have forgotten about your position, because now you don’t need to tend to its needs for 24 hours, for example.

Great.

Your position will either play out, or it won’t.

If it doesn’t, your stop will automatically throw you out of your position.

The level of the stop is digestible.

Next morning, you simply move on to a new trade.

Let’s say you don’t want to to expose your market play, or, in some cases, when you don’t need to expose your market play – how do you then insure yourself?

Hedge.

A hedge maintains general market neutrality.

It leaves windows open for what-if scenarios.

For example, the trade could make money, and then the hedge could make money.

Or, vice-versa. As in lose-lose. Sure, there are win-loss and loss-win scenarios too.

The starting point is somewhat neutral, and then there are permutations and combinations.

Some people prefer this kind of play.

They like the possibility of maximizing profit from the total position at a calculated higher risk.

Also fine.

Generally, the idea is for your main position to make money and your hedge to lose money.

It might or might not play out like that.

Some like this uncertainty and know how to benefit from it.

A stop is sure-shot and straight-forward. It is low-risk as long as it is digestible.

Hedges open you to the risks of a meta-game. Play becomes more interesting, consuming, and possibly, more profitable, for experienced hedgers.

In my opinion, a hedge is slightly higher in risk than a stop.

However, both entities lower overall risk.

Currency pair forex trades are typically taken with a stop. However, they can be hedged too.

Market-neutral option-trades are typically taken using hedges.

Step into a trade with either or, for peace of mind and career longevity.

Cheers.

🙂

What is an Antifragile approach to Equity?

Taleb’s term “antifragile” is here to stay.

If my understanding is correct, an asset class that shows more upside than downside upon the onset of shock in this age of shocks – is termed as antifragile.

So what’s going to happen to us Equity people?

Is Equity a fragile asset class?

Let’s turn above question upon its head.

What about our approach?

Yes, our approach can make Equity antifragile for us.

We don’t need to pack our bags and switch to another asset class.

We just approach Equity in an antifragile fashion. Period.

Well, aren’t we already? Margin of safety and all that.

Sure. We’ll just refine what we’ve already got, add a bit of stuff, and come out with the antifragile strategy.

So, quality.

Management.

Applicability to the times.

Scalability.

Value.

Fundamentals.

Blah blah blah.

You’ve done all your research.

You’ve found a plum stock.

You’re getting margin of safety.

Lovely.

What’s missing?

Entry.

Right.

You don’t enter with a bang.

You enter at various times, again and again, in small quanta.

What are these times?

You enter in the aftermath of shocks.

There will be many shocks.

This is the age of shocks.

You enter when the stock is at its antifragile-most. For that time period. It is showing maximal upside. Minimal downside. Fundamentals are plum. Shock’s beaten it down. You enter, slightly. Put yourself in a position to enter many, many times, over many years, upon shock after shock. This automatically means that entry quantum is small. This also means you’re doing an SIP where the S stands for your own system (with the I being for investment and the P for plan).

Now let’s fine-fine-tune.

Don’t put more than 0.5% of your networth into any one stock, ever. Adjust this figure for yourself. Then adjust entry quantum for yourself.

Don’t enter into more than 20-30 stocks. Again, adjust to comfort level.

Remain doable.

If you’re full up, and something comes along which you need to enter at all costs, discard a stock you’re liking the least.

Have your focus-diversified portfolio (FDP) going on the side, apart from Equity.

Congratulations, you just made Equity antifragile for yourself.

🙂

Order, Order! Have you Ordered?

Back in good old college days, Professor Weyrich used to teach us about entropy.

He taught us so well, that we’ll never forget what entropy is.

He began by taking away the hype. He knocked the wind out of the “monster” in our minds. We were able to learn once and for all what entropy is.

“Entropy is a stink-normal measurable quantity”. These were the learned professor’s catalytic words.

What does it measure?

Disorder.

Aha!

Million dollar word.

Aren’t we so in the middle of it?

It causes us to stall. Daily. Hourly.

It grows. Engulfs us. Disarray.

If we do nothing, yes.

What if we do something?

Will it still grow?

Not if we counter it.

How do we counter it?

By creating order.

Remember these three words. Someday, they’ll make you invincible.

How do you utilize your spare time? What about your normal time?

In fact, spend the whole day creating order. Systems. Pathways. Inroads. Efficient shortcuts. Approachable strategies. You get the gist.

Why?

Why not?

Who doesn’t want a smooth life?

What makes it smooth?

Order.

One needs to make that order exist first.

Relevance?

Order is the backbone of any financial strategy. It counters market disorder and tries to translate this into profits.

Let go of all laziness.

Start creating order.

If nothing else, do it for your families, for your children.

Go for it.

🙂

Focused Diversification : Mantra for all Times

I’m more into focus.

One can focus on one thing at a time.

Agreed.

What if after that one thing starts running, it doesn’t require any more focus?

Wow.

Then I focus on another thing.

Get it running.

Then another.

Till my focus window is full.

Let me tell you about my focus window.

I focus on cash, debt, equity, forex, gold, real-estate, arbitrage, and options.

With that, my professional focus in finance is full full full.

I get something running.

That’s it.

Then I don’t need to be with it. Mostly.

Let me run you through.

1). Cash – Bind it in a worry-free and accessible manner. Done.

2). Debt – Study the underlying very thoroughly. Reject 10 underlyings. Take up the 11th which passes all criteria. Be happy with a slightly better than FD-return. Done.

3). Equity – Invest for life. Study till you drop the stock or take it up. Only invest in what meets all criteria and offers margin of safety at time of investing. On top of that – SIP (systematic investment plan). Done.

4). Forex – Get a software robot to trade it for you. Or some human-capital. All available online. Requires a bit of fine-tuning. Keep tuning till you start making a return. Done.

5). Gold – Buy physical gold. Research your source. Needs to be impeccable. Bullion. Coins. SIP. Accessible. No jewellery. Done.

6). Real-estate – Make your real-estate yield you an income. Regular income? Done.

7). Arbitrage – Understand what this is, and why it gives you a tax benefit. Get an online MF account going with Kotak MF or DWS. Divert some funds into their arbitrage MF, either or. I prefer Kotak. Monthly dividend payout option. Done.

8). Options – Get the option-strategy going. You don’t require a desktop. Mobile is sufficient. All you now need to do is take care of square-off. On mobile. This means a slightly higher level of engagement than the above avenues. Only slightly. Are you ok with that? Fine. Done.

In a flow, it’s all doable.

And, you remain focused.

Why all this?

Times demand it. You never know what might come in handy, and when.

Yeah, times are tough.

However, you are tougher.

To use Nassim Nicholas Taleb’s terminology, you are antifragile.

Limits will keep you Safe

Safety is under-rated.

People scoff… at safety.

Ask someone to belt-up.

Or, ask xyz to take a backup.

Emergency fund, anyone?

Insurance?

Plan B?

Is anyone really interested?

Ok, don’t have a plan B. Fine.

Then, you need to watch your plan A like a hawk.

You need to install safety nets.

One such net is a limit.

Limit movement of funds.

Nowadays, this takes but a few online clicks. Setting fund-movement limits in your netbanking is not difficult at all.

What does a limit do?

It says ballyhoo to your emotions.

Greedy?

Too bad, fellow, funds more than your defined limits can’t leave your savings account, in case you wished these to depart for your trading account.

So, greed is in check. With force. Order of the day.

Limits will keep you safe.

Over-optimistic?

Same check.

Limits will keep you safe.

So on and so forth.

A little self-control is required though.

You’re not going to tamper with your limit, right?

Right.

Endgaming?

What’re we up to, in this world?

We’re endgaming.

Am I crazy?

No.

Why am I saying so?

Look at our policies.

It’s not just finance.

Everything.

We’re endgaming everything.

Good or bad?

Whether good or bad, we’re in it.

Where does that leave you?

You’re part of we.

You’re in it too.

How should you react?

Build a strategy for an endgame.

Live like there’s a tomorrow.

Your system needs to incorporate endgame parameters.

Distance yourself from those who live like there’s no tomorrow.

Save.

Build structures.

Spread your frugality.

Help.

Teach.

Donate some of your surplus. Spread hope, and goodness.

Create positivity. Let its protective bubble go big. So big, that it protects in a radius of kilometers.

Play like you’re playing for your life.

Everything’s at stake.

Give it all you’ve got… and then some.

Ignore your aches and pains.

Lend vital support to those tumbling around you.

This is it.

There’ll only be a tomorrow if there are more like you.

Pain is Pain

Pain is pain.

Can you see it?

I know you can see yours.

Thanks for reconfirming.

Can you see the pain of others, by the way?

Does it register?

Do you walk by?

Who are you… or… what are you?

Decide which question applies to you.

For example, do you see the pain of that earthworm writhing in the sun?

It rains. Coupla earthworms come out, only to be met by scorching sun. They writhe. Do you pick them up with a twig and install them in a wet muddy patch? Do you ignore them? Do you even notice them?

Finance is not too different.

It rains on your plans.

You writhe.

If your overall strategy has not been adequate, you can even perish due to your predicament.

Do you expect help?

Well, who doesn’t?

Only, you are that earthworm now. You are in pain.

Pain is pain.

The earthworm feels it, and so do you.

However, the earthworm is not able to do much. It will probably perish.

You, however, are human capital.

Stop writhing.

Prove you prowess as being superior in performance when compared to an earthworm, or perhaps to a donkey.

Stand up.

Clear your head.

Analyze the situation.

Pain dulls.

You’ve got to push through, and come out of it.

Once you’re up, and through, as in out of your predicament, well, don’t make the same mistake again. You’ll make other ones, sure, we all make other ones, but let’s not repeat the same one.

Safe investing.

🙂

Meet the BenchWarmers

Yeah, one too many real-estate agents (REAs) have popped up over the last decade.

Any Tom, Dick or Harry (TD/H) who has nothing to do becomes an REA.

Small little office, empty chairs, one TD/H reading a newspaper or watching TV… familiar?

Meet the bench-warmers.

Real-estate is in the dumps.

Sure.

Real-estate bill is in the offing. Might come out soon, might come out later.

Circle-rates are trying to bring the black-money component down.

Government A-B-C categorization is all warped.

Meanwhile, deals have dried. Volumes are zilch.

Is this the bottom?

Who says yes?

I’m afraid not too many have that conviction.

I don’t either.

You see, at bottoms, there’s blood on the streets.

Do you see any blood?

Nope.

Is black-money receding?

Slightly, maybe. Some say significantly. Some say insignificantly. Wishy-washy answers at best. Let’s put this under the “not-sure” category.

Are the bench-warmers packing up their benches?

Nope.

Are more bench-warmers springing up, in anticipation of volume-spikes?

Yeah.

Is this going to make their situation only worse?

Yeah, probably.

When will things start moving finally?

No one knows for certain.

Under the circumstances, how can one call this a bottom?

We’re still way above 2005 levels.

It’s not a bottom, or so I think. Maybe I’m mistaken. However, that’s my opinion.

All right, if it’s not a bottom, what is it then?

Time to wait and watch?

Yeah.

Time to pick up (a property) already?

Probably not.

Time to nibble at a real-estate stock?

Maybe. Just make sure the fundamentals are good and debt-component is negligible. And nibble. That’s all.

What about the bench-warmers? How should they act?

Use their office to generate income. Any which legal way, through any vocation. If not, rent it out with fool-proof lease deed. That’ll generate income too.

Bench-warming degenerates our faculties. It shouldn’t be practised over a prolonged period of time.

Patience and Nerves Anyone?

As someone I look up to put it recently – “It’s a game of patience and nerves!”

What is?

The stock-market. 

For whom?

The long-term investor. 

Do you have any?

What?

Patience, or nerves, or both?

You do?

Well, then you’ll do well in the markets, over the long-term. 

We look for complication. Meanwhile, we forget the basics. 

These are basics. 

If you’re not patient, you’ll for example jump into a stock at the wrong time, or you’ll jump out of it too early, or what have you. 

If you don’t have patience, well, develop it. 

If you can’t, do something else instead. Trade. Don’t long-term-invest then. 

If you cannot develop patience, you are not cut out to be a long-term holder. 

One method to cause the tree of patience to grow in you is to create the correct environment. 

Just don’t do anything that will make you jump. 

Invest your sur-sur-plus, money that is then pickled away, money that you won’t miss, yearn for or require over the very long-term. 

Go in with margin of safety. 

Stay in a stock you’ve singled out and entered until there’s a glaring reason to exit. Try to exit upon a high. This is the market. Highs are its nature. So are lows. That means that highs come. Wait for them to come, to exit from anything you need to exit from. 

Nervers, well, they come into play if you’ve not invested with margin of safety. 

I do remember two instances though, where everyone’s nerves were tested. October 2008, and March 2009. At these times, stocks sold for a song. Good ones and bad ones alike. Fear did the rounds, extreme fear. That’s what fear does. It creates once-in-a-lifetime opportunities. Take them. Maintain a clear head. Your nerves of steel will do that for you. Create an environment for your nerves to become strong. Or, perhaps expressed another way, create an environment where any weakness in your nerves is not required to show itself, and gets subdued into extinction. 

How?

Again, just go in with your sur-sur-plus. You’re not going to miss this money even if the sky is falling upon your head. And you’ve gone in with margin of safety. Your nerves will stay intact. 

Ensure your basics. Allow them to shine. 

The rest will take care of itself. 

Good investing. 🙂

Impedimenting

Market strategy often sounds ridiculous. 

Take impedimenting for example. 

You put impediments in your own path. 

Absurd?

No. 

Uselful?

Very.

Why?

Because we are human. We are full of behavioural quirks which invariably cause market losses. 

That’s why impediments. 

Where?

In your path?

Why in your path?

Who are these impediments meant for?

They are speed-breakers for your quirks. 

Because your quirks are inside of you, the breakers are in your path, put by you, not for yourself, but for your quirks, when these choose to expose themselves. 

1). One example – money transfer before market entry – there’s no beneficiary added. Ha. You need to add the beneficiary first and wait for it to be approved. Then you transfer money to your other account, which is linked to your transaction account. Impediments. 

Why have you done this? You don’t wish to enter anything on a whim. Whenever money moves, it’s movement should not be made easy. You’ve seen to it. Good. 

2). Example numero two – Calls Blacklist. Make it very difficult for market people to speak to you if you don’t wish to speak to them. Why? Bias. You don’t want their bias. You have limited time. You have your own opinion. Many times during market-play, there’s no room for another opinion. 

3). Doing the DD (due diligence) – don’t act without DD. Make the DD huge. Have steps and procedures which you are going to follow – period. When you shudder at the idea of DD, that’s when DD becomes an impediment. You want the upcoming DD to make you shudder. You don’t wish to enter the underlying on a whim, remember?

4). Don’t discuss your portfolio – with anyone. YOU DON’T WANT ANYONE’S BIAS. You are mentally diligent enough to build your own opinion. People asking for causal tips are going to bother you. You need to impediment your way away from these. 

5). Systems – make systems. Stick to them. They cost time. They are impedimenting. Good. While a system engulfs you, it gets the chance to scour your approach for mistakes. Your system will alert you, so it’s been worth it. 

6). Blockage – new funds are to be blocked for a while. Don’t act with new funds immediately. Give yourself ample time to decide your strategy with new funds. Pickle them away in a fixed deposit till you are sure what you want to do with them. 

Make your own list. Above are just examples, and yeah, there’s more, but double yeah, make your own list. 

Working with self-made speed-breakers to enhance your performance makes you grow. 

Your returns grow too. 

Walking on the Moon?

giant steps are what you take
walking on the moon
i hope my legs don’t break
walking on the moon

Don’t know how old this song is.

There was the version from Sting, or perhaps The Police.

Heard another jazz version of the song on internet radio the other day.

Got me thinking.

We all do. Walk on the Moon, that is.

The Moon stands for something undiscovered.

Each human is unique.

Our next moments are undiscovered, yet.

We live them in our own way.

Yeah, we walk on the Moon, each day, every new moment.

Even in uncharted territory, one wants a smooth walk, doesn’t one?

There are three steps that ensure this.

1). Proper due diligence.

2). Smelling liability from a distance.

3). Walking the other way, away from liability.

Even a donkey understands what’s written above.

Enjoy your walk, on your Moon, on your own personal journey.

The lyricist has penned it aptly. He or she knows about giant steps, so due diligence has been done. He or she hopes that his or her “legs don’t break”,  so he or she is alert that liability could be lurking.

Yeah, above three steps, people.

Not in the Mood?

Right, good.

You don’t have to be. And good that you’ve recognized it.

Mood sets the tone for success… or failure.

For example, just now, I’m not in the mood to conduct due-diligence. There’s one company which has sparked my interest, a few days ago. Work needs to be done, to decide whether I’m investing or am out. Quality of work needs to be of the highest order. Otherwise I might take a wrong decision, meaning that I might invest in a dud, or might reject a multibagger. And what happens? I’m not in the mood to conduct any kind of due diligence. For whatever reason. What’s to be done?

Nothing.

I just don’t conduct it.

Period.

What if the opportunity goes away?

So be it. Another will come along. When? Whenever. World is full of opportunities.

Why am I so pricy about my behaviour?

Well why not? It’s called being in the sweet spot. You call all the shots. Including working when in the right frame of mind. Such a condition enhances the probability of success.

When will I be conducting the due due-diligence?

When would that be?

Whenever it happens naturally, without artificial pressure.

Am I just born lucky, to be in a position to work when I want?

Well, I’ve definitely had my share of great luck, and continue to have it, by the grace of Nature. On the other hand, and to put things in perspective, I also have, over the last twelve years, worked hard to create a situation for myself where I only invest when I wish to. There’s no pressure on me to invest. My bread and butter isn’t dependent on it. I call it being in the sweet spot.

Work towards your sweet spot.

Now.

Deciding to Invest?

An investment opportunity comes along.

How do you react?

This is how I react.

First up, funds. Do I have clear funds to invest? No? Forget it, obviously.

Funds – maybe? Meaning, if I do some wangling around, fund demand could be met? Ok, move on to next step before taking a decision on the wangling.

Funds – clear – yes? Next step by default, but I’m telling myself that I’m not letting these hard-earned funds go just like that. The opportunity will need to clear my scrutiny. Period.

Then – time? Do I have 15 clear days to conduct deep due diligence.

No? Forget it. I may be travelling. Some event might occupy my time and mind. No time – no investment. Period.

Yes? Ok. Next step.

Energy? Due diligence is exhausting. I need energy reserves. My body and mind tell me. If they’re up to it, I’ll know. If not, the sheer idea of due diligence at that point will make me want to puke. Such is the power of mind and body to convey a message. No energy means improper due diligence. Not happening. No investment.

Yes for energy? Body is alive. Mind is alert. Moving to next step.

Due diligence. Digging deep buddy. I’m going to get under their skin. I’ll pick out their lie. I’m going places they won’t imagine I could get to. The internet is my oyster. We’ve never had it so good wrt information flow and disclosure. I start digging, and get so engrossed, that I forget about time.

Due diligence scrutiny check block oblique spoiler alert oblique deal-breaker? Could be an uncovered lie. Recently I discovered 100% pledging in a company, with everything else ok. Could be any dirt or its tracks. No investment.

Due diligence cleared. Go back to funds – maybe. Bring out mental weighing scale. Is the investment so worth it that I’ll wangle fund demand?

No? No investment.

Yes? Next step.

Think clearly. Very hard earned funds are about to go away for a while. What does the sum total of my everything tell me?

No? For whatever reason. I don’t question my sum total. No investment.

Yes?

Investment.

Happy investing! 🙂