Sometimes, you don’t like it

Sure.

Like now.

Bloodbath in small-caps.

Alleged suicide.

NPAs.

Witch-hunt.

Did you choose Equity as an area of expertise?

Ok, then deal with it.

First up, India’s History is laden with scams.

We are where we are despite these.

Secondly, there’s growth. In other parts of the world, there is not much growth.

India is an emotionally volatile nation.

So are its markets.

Since this is where we act, let’s get used to things.

If you’ve been following the small entry quantum strategy, well, then you’ve got ammunition…

…at a time, when the value of this ammunition is immense…

…because lots of stuff has started to go for a song.

You do feel the pinch though…

… because whatever’s already in, is bleeding.

You don’t like it.

It’s normal.

Going in at a time like this, you will feel pathetic.

However, for your money, you are getting quality at cheap multiples. This will translate into immense long term wealth. Quality at cheap multiples multiplies fast.

Here are a few reasons you should feel ok about going in.

The small entry quantum strategy has rendered you liquid…

…after sorting out your basic family life, income-planning and what have you.

You are going in with money you don’t require for a longish time.

Muster up the courage.

Get over your pinch.

Engage.

Buy quality.

Debt-free-ness.

Shareholder-friendliness.

Generated free cashflow.

Transparency.

Diligent managements.

Product-profile that’s going to be around.

Less dependency on water.

Versatility.

Adaptibility.

Make your own list.

Use the stuff above.

Wishing you lucrative investing with no tears and with lots of smiles.

Using Auto-Manual Mix Towards Peace of Mind

Create…

… an asset.

Move on.

Create…

… next asset.

Move on.

Loop to the nth and decide what your magic n is.

Retire.

Ha!

Formula for financial independence in 22 words?

You decide.

How?

By treading the path.

The act of creation is manual.

One can use many tools while putting the asset together manually. That’s absolutely fine.

Let the asset loose.

From this point on, it’s on auto.

It’ll remain on auto, hopefully, till its logical conclusion is reached.

If the asset misbehaves in between, it will attract your attention.

If your attention is attracted beyond your critical mass, you will stop what you’re doing and attend to the asset.

You will either tweak and repair and let it loose once more.

If the asset is beyond repair, you will terminate it, i.e. sell it off, even at a loss. After all, it is misbehaving. You don’t wish to hold something that bothers you.

Peace of mind is the most valuable asset in your portfolio.

Manual has a Tendency to Enslave

There is something about things by rote.

They create a groove.

We enter the groove on a repeated basis.

Entering becomes a given.

Our system has aligned itself to entering.

Our system gets comfortable.

It wants to stay there.

It wants more.

How does one extract oneself from this vicious cycle?

Firstly, why do we wish to extract ourselves?

We wish to control Manual, and we don’t want to let Manual control us.

If there’s too much of Manual, our day is gone, and we are not able to attend to more important things in life, like family, extra-curricular activities and all the jazz.

How to go about it is a question of awareness and setting limits.

Thus, you find yourself saying that you will engage to this particular level, and no more, and once this level of engagement is reached, you will put the strategy on auto, and disengage, and remain disengaged till the next screening is due.

Easier said than done, sure.

How is one able to stick to this plan?

If the day is busy, with multiple engagements, one forgets about the activity of the morning by afternoon, because the afternoon has brought with itself a whole new set of activities. Stay busy.

Learn to take small losses in stride. That’ll line you up for the big wins. Strategies left on auto till next screening can incur losses and then get stopped out. That’s part of the deal. Have faith in your stop. You have placed it at a strategic location, where it can not be reached so easily. For your stop to be reached, the market will have to go out of its way. If the market is doing that, you don’t wish to be in the trade anyways. You’re stopped out, and that’s good. That saves you from big losses. Have faith in this philosophy.

So, you’re busy, and you have faith in your philosophy.

You engage, disengage and move on.

You don’t look behind.

That’s how you keep Manual from enslaving you.

A Little Bit of Manual is a Good Thing

Sure.

Auto is the motto.

Keep some pivotal stuff on manual, though.

It’ll give you something to do.

Because it’s pivotal stuff, it decides direction, or quantum, or what have you.

Position-sizing is ideally done on auto.

You can write an algorithm for it too.

Yeah.

You can take auto to the nth level and then some.

Keeping position-sizing on manual, though, for example, makes you remain in touch with portfolio expansion or contraction. Central.

In my opinion, setting risk:reward is a trade to trade thing, and depends upon the underlying chart. Hence, being manual here gives more dexterity.

Same goes for setting stop-losses.

Which auto strategy to look at, when, is by default a manual thing. It should be, anyways, in my opinion.

This adds spontaneity to life.

Spontaneity has a certain freshness to it which makes work fun.

Some strategies are better off when not looked at for days.

Manual helps here.

When an auto strategy stops working, one needs to manually fit it to work again.

If the strategy needs dumping, you’ll need to see to this yourself.

Creation of a new strategy – you got it – manual.

The manual stuff keeps you moving, and fit.

The auto stuff just goes on auto, and if that’s all there is for you, you’re going to start getting lazy.

Befriend manual, but don’t become a slave to manual.

A little bit of manual is a good thing.

Making Forex Go on Auto W/o Software Robotics

Charts.

Chart.

Identification…

…of trade.

Trigger Entry.

Feed in entry level.

Trigger Stop.

Choose between dynamic and fixed stop.

I like the fixed stop that keeps raising itself in chunks, chunk after chunk.

However, you might prefer a dynamic stop.

Trigger Limit. Not necessarily a must.

Put trade on.

Entry triggers.

You are now live…

…and your forex is now on auto,…

… whereby you’ve not used a software robot to achieve this.

Well done!

🙂

Auto Strategies Befit This Age

Create an asset. 
 
Move on.
 
Create next asset. 
 
Move on.
 
So on and so forth. 
 
Very soon, you are sorted for life. 
 
What is an asset?
 
An asset puts money in your pocket.
 
As opposed to a liability…
 
…which takes money out of your pocket. 
 
Therefore, we are in the business of creating assets. Period. 
 
Once an asset is created, it becomes a strategy on auto…
 
…till it needs handling for a bit. 
 
You handle for a bit, make it go on auto again, and then you move on. 
 
When it needs handling, it will tell you. It will scream. 
 
When it doesn’t need handling, it won’t bother you. 
 
At these times, it will silently put the money in your pocket, even if you’re too busy looking elsewhere. 
 
The idea is to get as many such assets in place as possible, in a balanced and no-nonsense fashion. 
 
This is the age of short attention-spans.
 
Creation of an asset requires short attention-span focus, mostly. 
 
Auto strategies befit this age. 
 
Go for it. 

The Why of Movement

Spread.

Buyer.

Seller.

Willingness to buy.

Willingness to sell.

Buying pressure.

Selling Pressure.

Which is more?

Willingness leads to pressure…

…if buyer or seller is serious about it.

Willingness stops at willingness and does not lead to pressure when buyer or seller is in two minds.

Back to…

…buying pressure…

… and selling pressure.

When overall buying pressure outdoes overall selling pressure…

…prices move up.

When overall selling pressure outdoes overall buying pressure…

…prices move down.

We Don’t Want Anymore

There comes a time…

…when we don’t want anymore.

Why has this happened?

It’s a spin-off from our small entry quantum approach.

We’ve been buying at sale prices, with small entry quanta, each day, a quantum a day.

A groove has been set.

After umpteen failed attempts, prices break through.

An interesting thing happens to us.

Slightly higher prices start to pinch us.

As prices go even higher…

…our mood is off, and…

…we don’t want anymore.

From a strategy perspective, this is the best thing that could have happened to us.

We will not be buying as margin of safety vanishes and remains vanished.

Our want will be triggered once more, when margin of safety returns.

This has not taken place for free.

It is an indirect result of our painful sticking to a small entry quantum approach.

🙂

And Now, We’re Not Looking

Who’s not looking?

We. Stock people.

What are we not looking at?

Wrong question. We’re always looking at stocks.

Ok. What are we not looking for?

New stocks.

Why?

Our magic number has been hit.

What’s this magic number?

That’s the number of stocks we wish to handle.

Is it the same for everyone?

No, it’s different for everyone.

How does one arrive at this number?

Through hit and trial. Whatever that works. Where you feel good, that’s your number.

So, will your portfolio now stagnate?

No. Most definitely not. If a stock is not interesting anymore, it can always be replaced.

How does one go about doing that?

Wait for a market high. Then discard the stock you are not interested in anymore.

And how does one find a new stock in a scenario where one is not looking?

You let the stock find you.

Meaning?

You’re not looking, but something eventually hits you in the eye.

Aaahhhh.

Then you dig deeper. If all criteria are met…

…you enter.

Rriiighht….!

Going Beyond Price Action

Is price action the holy grail?

You’ve rid yourself of all indicators in search of something that holds.

In forex, you’re probably not looking at volume either.

What you’re left looking at is the behaviour of price.

Price patterns, expressed in the form of candles, contain a psychology.

You are trying to understand this psychology in order to put on a winning trade.

However, everyone else is also watching the same patterns too, including the big boys.

Who are the big boys?

Institutions, banks et al.

Why are we talking about them?

They are the one’s capable of creating enough buying or selling pressure to determine the direction of price. Retail people, like you and I, are not.

That’s why.

And these same big boys know the patterns that you are looking out for, and are going to react to.

What do they do?

They tweak the patterns.

Think about it.

It’s the obvious thing to do. Stopping the public out will give them a smooth run later.

Is tweaking the patterns a biggie for them?

No.

Determining the direction of price is like winning a war.

What’s it going to take to win a small battle, like tweaking a pattern?

A fraction of one’s resources.

Where does that leave you?

If you’re looking at pure price action, you probably might not fare too well.

You have no choice but to look beyond.

What is beyond?

Truth is truth.

If the market wants to go somewhere, because of actual demand and supply dynamics, well, then it wants to go there.

It will reveal that with price action.

You won’t miss the message.

How can one overlook a very large-tailed candle, or an obvious support or resistance, for example?

As you are getting ready to act, based upon the obvious pattern you are seeing, you also observe, that most of the time, price is not behaving like the pattern is saying.

If the pattern is just too obvious, you need to go one step further and put on the trade, taking tweaked conditions into account.

Look at the chart for obvious points that the big boys might be targeting. Go beyond these points and set the levels for your entry, stop, and if it’s part of your strategy, your limit.

What have you basically done?

You have believed in the obvious price action that you have seen.

You have tried to factor in tweaking.

You have implemented your trade in a manner such that the negative effect of tweaking will just about give you entry, but the big boys will probably not be too bothered about going right up to the level of your stop, because its positioning is such.

This will fail.

Sometimes.

This will succeed…

…at other times.

Whether you make money or not will depend upon how you manage your winners.

Factoring in Doomsday

Because of your small entry quantum, you are always liquid.

That’s how you have defined the strategy.

What happens when there’s a market crash?

Your existing folio takes a hit.

You’ve been buying with margin of safety.

Because of your small entry quantum strategy, your hit is not hitting you.

Your focus is elsewhere.

It is on the bargains that the crash has created.

You keep targeting these with your fresh entry quanta.

You keep getting margin of safety.

Suddenly you realise, that you like it.

You like being in bargain area.

You like the sale that’s going on.

It won’t always be so.

There will be times that you won’t be getting any margin of safety whatsoever.

Then, you realize another thing.

You’re not afraid of a crash…

…because…

…you are ready, to pick more.

What has empowered you?

Margin of safety.

Small entry quanta.

Controlled level of activity.

Great fundamentals.

Great managements.

Quality.

Crashes come. Crashes go.

You’ll keep buying stocks with the above criteria as per your outlined strategy, and you’ll keep adding on to your purchases with small entry quanta.

It’s not hurting you, because the money you’re putting in has been defined in such a manner.

Your mind has digested this definition, and your strategy is in place.

The market being down while you buy is a requirement for your strategy to be successful in the long run.

It is a good thing for you. It is not a bad thing.

It takes a while to realize this.

When Money goes on Auto

What does “doing well” mean for you?

Making money – does that mean you are doing well?

Not necessarily.

You could be making money, but in the bargain, your life could be out of balance.

In my world, that’s already a fail.

Ideally, I like to keep the market in my pocket, and be in some sort of balance, such that a feeling of well-being is generated.

What am I feeling happy about?

Firstly, about defining my market scope. I have outlined how I wish to interact with the market. I’ve not allowed the market to define me. That makes me happy.

Secondly, I’ve stuck to my strategy. Before that, I found my strategy. Phew!

Now you try it out.

The market shouldn’t bother you after you’re done with it. See to it. Programme yourself in such a manner. Once you’re done with the market, you can then utilise your time for other vitally important things in life. If the market were bothering you with its constant nag, you would not be able to do these things properly.

Congratulations, your life is now rounded off, and not mono-faceted.

Sticking to a winning strategy when things are not going your way is going to see you through.

I know, the urge to call it off and look for a new strategy is huge when your current one seems to be going South. However, you’ve tried and back-tested your strategy. It should hold and then some. Now, have the confidence to stick to a plan.

Notice something?

I’ve not spoken about money.

Why?

Because, mostly, money goes on auto, when these basics are standing strong.

Money… … …speaks

I almost landed a career in research.

Got offered a PhD seat, but turned it down, since I was homesick.

Upon returning home, I started teaching, but after eight years of doing so, it was time to move on.

Ultimately, I landed up in the markets.

Was this a better place?

It was actually quite cut-throat.

Ruthless was its other name.

Amidst the many negatives, there was one solid positive, though.

This positive made up for everything, and then some.

Recognition, or lack of it, was instant.

And, you knew it.

Furthermore, recognition, or lack of it, came directly from the market itself.

The feedback loop was such, that you reported to the market, and the market reported back to you, and it told you immediately, that it was recognizing you, or if it was not.

The language of the market…

…was money.

Money…

…spoke…

…and you knew where you stood.

In research, recognition was abstract.

It came from academia.

Academia had other issues, and some of these issues were pretty ugly.

Furthermore, academia had a huge ego.

In academia, one didn’t really know where one stood, until something exceptionally huge came along. Mostly, it doesn’t.

In academia, one was left hanging, mostly.

I didn’t like being left hanging. I was actually quite happy about not being in academia.

Teaching at school level was a different form of academia.

Recognition came from students. I got my share, and it felt good.

Bottom-line didn’t look that happening, however. Teacher salaries were okayish.

For some reason, I wanted to be elsewhere.

I wanted action, challenge and knowledge about where I stood.

Entry into the markets became an ideal option for me.

In the markets, I didn’t have to look to anyone.

It was just me, and the market.

Face to face.

If I listened well, and followed accordingly, we were friends. If not, well, my account statement reflected this.

I liked straight-forwardness.

I liked being in the markets.

It thus became a long-term thing.

Allowance to Sit

Your behaviour tells it all. 

How do you feel about being in the markets?

Is money on the line making you jump?

Is it giving you sleepless nights?

Are you tense?

Emotional?

On a roller-coaster?

Unhappy?

Or…

…are you comfortable sitting on your long-term position?

One needs to earn this comfort. 

It does not come for free.

How does one earn it?

By behaving appropriately.

What is appropriate behaviour?

Buying with margin of safety…

…and maintaining a small entry quantum…

…such that one is always liquid…

…and ready for next entry…

…waiting for price to give an inch. 

That’s one example of appropriate behaviour. 

Also, that’s my example. 

How do I know it’s appropriate?

I’m comfortable. 

Not tense. 

Sleep well.

Not on a roller-coaster. 

There’s no emotion here, it’s business.

I’m sitting on the long-term stuff, and I’m happy going about all other activities in and facets of life.

That’s why I know that my behaviour has been appropriate, and hopefully, will continue to be so, if I want to continue being comfortable. 

Fall?

Let it go down to zero.

If the stocks that one’s picking have sound fundmentals, price falls are actually a blessing, because one can pick up more. 

Small entry quantum, remember?

We can go on buying, on and on. Many, many small entries. That’s the strategy. Our stocks are fundamentally sound, and peoples’ perception about their pricing is not going to change that. 

We’re not betting the farm, and money going in is not going to make us feel constrained. We’ve sorted family funds and emergency money. We are going in to the markets in a stable and comfortable condition already.

And, the way we are going in is going to maintain this comfort and stability.

Forever. 

The Stand-Out Price

You’re ready with your small entry quantum,…

…looking to add on to you portfolio. 

You’re always liquid,…

…owing to your small entry quantum strategy. 

Where do you enter?

This is not a difficult question.

Why is this question not difficult?

That’s because the stocks in your portfolio are fundamentally tested, and have been found to be sound by you.  

Fundamental soundness is a bombastic plus. 

Now comes the next question.

Where is margin of safety being offered to you?

Is it enough margin of safety for you?

Are more stocks offering this kind of margin of safety?

What, then, is a stand-out price?

You will enter there. 

A stand-out price hits you in the eye. 

It is unusual. 

It speaks of a large fall such that the level of the price draws your attention within milliseconds. 

When you see a stand-out price on the way down like this, you ask the next questions. 

Why is the price where it is? 

What has happened?

Whatever that has happened, is it a one-time thing?

Is the momentum of the fall subsiding, or mid-way, or what?

Ask as many questions as you may want. 

The answer you want to drive at is yes or no.

Yes as in you would like to use your small entry quantum to pick up the stock in question. 

No as in you would like to wait for more clarification. 

If you pick up, you’re done for the day, if you follow a one-entry per day strategy, that is. 

If not, you look for another stand-out price. 

Making Equity Antifragile

Yeps, Taleb’s the famous one. 

Moi, je ne suis pas célèbre.

Néanmoins, j’aime le terme “antifragile” de Taleb.

Also, Taleb has termed equity as robust.

I do equity. 

I’d like my interaction and future with equity to be antifragile.

Let’s first look at Taleb’s definition for antifragile.

He says that anything that has more upside than downside from random events (or certain shocks), is antifragile; the reverse is fragile.

Robust equity will eventually crack when subjected to shock.

We are aware of that.

What do we do now?

Firstly, we take time, and put it in infinity mode. Meaning, that we stay invested, for a long, long, long time. 

We’re now allowing equity amply sufficient time to recover from not one shock, but many shocks.

Also, each time there is a shock, and equity tanks, we go in and buy some more.

How can we do this?

We are sufficiently liquid, all the time

Our small entry quantum approach is ensuring that. 

Also, we’ve chosen such equity first-up that is minimally susceptible to cracking. That’s the best we can do. 

We have either avoided debt altogether or chosen debt-levels that are adding value to the stock and can be easily taken care of in the short-term

We have chosen equity with decent quick and current ratios

We have chosen adaptable managements that function as optimal human capital, fighting inflation, showering shareholder-friendliness and adding value at all times

However, crack they do, eventually, and we keep picking up more. 

Since we’ve kept ourselves “infinitely” liquid as per our small entry quantum approach, we are then also “infinitely”poised to benefit from the cracks

As we keep getting more and more opportunities to buy with meaningful margins of safety, markets show us more upside than downside

Thus, antifragility comes to us as a function of falling price, given that the underlying has sound fundamentals, low to nil debt and benevolent, versatile and diligent management

Now, let the shocks come. 

In fact, let 20 shocks come. 

We want shocks to come…

…so that we can continue to buy at rock-bottom prices, which work in an antifragile manner for us, because of the characteristics of the equity and management we have chosen

Profiting from shocks?

More upside than downside? Owing to the effects of a shock?

What kind of behaviour is that?

That’s antifragile behaviour.

Negating Promoter Greed

You like a stock. 

You’ve checked it out. 

Fundamentals are under control. 

You find the management reasonable.

They’re shareholder-friendly. 

They have high salaries though, specifically those connected to the promoter-group. 

Now, you need to answer some questions.

Are you ok with high salaries for the top staff?

What is your definition of high?

Are salaries performance-driven?

Do the company’s number justify what promoter-connected management is taking home?

Ok. 

You’ve answered these questions. 

You still want the stock, despite the fact that an answer to two could be an outlier. 

That’s fine. 

One won’t find perfection anywhere. 

If one finds it, the stock will probably already be overpriced. 

So, you’re ok with mild imperfection, as long as your basic needs are met. 

You decide to purchase the stock. 

Here’s how you can negate promoter greed. 

The fancy cars, the family dish outs, the pushed-in lunch bills, the first class travel, you get the drift. 

Who doesn’t do it, given the opportunity?

Your promoter is human, and will surround him- or herself with comforts, at the company’s expense. 

That is the norm. Get used to it. 

Here’s how you are not letting this affect you. 

You buy in a staggered fashion. 

You buy with margin of safety. 

Because you’re sure of fundamentals, you average down. 

Each time your holding average touches a new low, you’ve secured yourself against promoter greed just a tad more. 

Because of sound fundamentals, ultimately, the stock will start to rise. 

That’s the time your low holding average will show a stellar profit for you. 

Perhaps your holding average is better than that of the promoter.

If that is the case, rise in price has given you more profit than it has to the promoter. 

Therefore, while the promoter got to live in the lap of luxury at the cost of the company, you were busy raking in a better result owing to the price rise.

Successive margin of safety buying amounting to averaging down after convincing oneself of intact fundamentals has been the key for you. 

Use this key, but do so wisely, and safely. 

Remember, that averaging down only works well in the case of diligent, research-based long-term investing. Averaging down is a strict no-no for short-term traders, however. 

Wishing you happy and fruitful investing!

🙂

Own Crypto?

Own any Crypto?

You’re a target.

Period. 

Are you ok being a target?

The tension doesn’t get you down?

You take it in your stride?

Fine. 

You’re probably good for the game. 

I am not. 

I don’t like the tension. 

I don’t want any crypto on any of my devices, alone because of the tension element. 

I don’t wish to be a target. 

I don’t like the History, with exchanges going bust et al, cryptojackings, and what have you. 

I don’t like the bubble-chart. 

Governments are pushing against it. 

Top banks dissuade. They’re not willing to hold it in their cyber-lockers, for then, they become targets. 

Then, just too many cousins. Which cousins are the black sheep? Which one will go all the way? Who knows?

Let’s talk volatility now. 

Bought some crypto? Down 20% since? Now what?

I don’t want to be faced with these questions on a daily basis. 

Terrorist push. They move it with crypto. 

I don’t want to be moving it like terrorists do. 

Russian servers? Bulgarian IP? 

Already getting the jitters. 

I don’t comprehend blockchain.

Multiple people saying something is something doesn’t make that something something. 

Is someone making a very big fool of a lot of people, and getting away with it too?

Too many “I don’ts”.

Too many red flags.

Next, you’re telling me that I’m a target too. 

Fine. 

However, for whatever I’m a target, for that thing the criminal will need to accost me physically, on the road, or in my house. 

Are you getting it?

The robber will have to rob my house physically. 

Not so the case with you, crypto-owner. 

The hacker can hack from any corner of the globe. 

Criminals don’t wish to be cracking safes when they can steal from computers thousands of miles away. 

So,…

…careful. 

Time your Friend or Time your Enemy?

This one depends…

…on you.

How is time treated in your curriculum with regard to the markets?

Are you in a hurry…

…or is your motto “hurry spoils the curry”?

One can make any market action an extremely difficult one if one squeezes time. 

On the other hand, the same market action yields great results when time is stretched to infinity. 

One can understand this in the predicament of the trader.

Expiry is due. 

Trades are in loss. 

It seems that trades are not going to make it to break-even by expiry.

They would probably be showing a profit after expiry. 

However, time-span for validity of the trades has been squeezed to expiry. 

Hence, the trader faces loss. 

The investor, on the other hand, is invested in the stock of the same underlying, and doesn’t dabble in the derivative. 

For the investor, time has been expanded to infinity. 

The investor doesn’t feel pain from a time-window that’s about to close.

Now, let’s look at the cons for the investor, and the pros for the trader. 

The price for making time one’s friend is the principal being locked-in for that much time. 

The investor is comfortable with that. 

If not, the investor feels pain from the lock-in, and may make a detrimental move that works against long-term investing philosophy, as in cutting a sound investment at its bottom-most point during a long drawn-out correction. 

Investors need to fulfil the comfort condition before committing to infinity. 

After a small loss, the trader moves on with the bulk of his or her funds. 

Traders needs to take a loss in stride. 

If not, future trades get affected. 

The advantage of committing funds for short periods, in trades, is that one can utilize the same funds many times over. 

The price for using short periods of time to one’s advantage, however, is tension. 

One is glued to the market, and is not really able to use the same time productively, elsewhere. 

Friendship with one aspect of time works adversely with regard to another aspect of time. 

The investor is not glued to market movements. He or she can utilize his or time for multiple purposes while being invested simultaneously and then forgetting temporarily about the long-term investment. 

It is easier to forget temporarily about an investment than it is to forget about a trade. 

Over the years, I have found it difficult to combine trading and long-term investing, specifically in the same market.

However, I do take occasional trades, apart from being invested for the long term. 

This works for me when the markets in question are different, as in Forex and Equity. 

Price Based Margin of Safety

You might laugh at this one.

However, it is need based. 

We have been talking so much about small entry quanta. 

A small entry quantum allows for smaller mistakes.

It allows you to enter many times. 

It is small enough to make your capacity for entry outlast the number of margin of safety market days in a year. 

You take your savings. You define what you want to invest in equity for the year. 

You divide it by an estimate for the margin of safety days you might be getting for the year. You arrive at this number by estimating over a ten year average. 

Upon this division, you get your daily entry quantum, for the whole year, on margin of safety days. 

I go one step further to keep a constant small entry quantum defined for longer periods, for any particular entry day. 

As we said, small entry quanta should also mean many entries. 

We won’t be getting the same margin of safety every day.

On many days, we won’t be getting margin of safety at all, in the purist sense of its definition.

We will need to tweak the definition of margin of safety a bit, to have access to many entries. 

We are doing this because we are already on safe grounds. 

First up, we are playing with money we won’t be requiring for the next ten years, or so we estimate. 

Then, this is the money that is coming from our savings and is going into equity. It is for no other purpose. If it eventually doesn’t go into equity, we will end up finding some other use for it, such is human nature, and such is the nature of these multi-tasking times. 

Thus, if we see even a smallish entry possibility, we take it, because of the nature of the small entry quantum approach. 

How do we propose to tweak margin of safety?

We watch the price of a scrip we are unable to enter in. 

We watch, and we watch. 

Still too high. High, too, are fundamental entry allowers (FEAs), like price to earnings, price to book value, price to cash-flow, price to sales, etc., and we don’t enter. 

Then, one day, price starts to drop, for whatever reason. 

It continues to drop to a level, where we feel that for this particular scrip, that’s a pretty decent correction. 

It’s all feeling. 

You can look at charts, but then you tend to look once a month, and the feeling element fails to develop properly. 

So, we’re feeling pretty good about the level of correction, and we cast a glance at the FEAs. 

These are still a tad high, albeit much lower than before. 

For the FEAs to become lower than classic margin of safety levels, there could be a longer wait, or this event might not even happen, especially if we are looking at growth scrips.

If the event does not happen, it means no entry, and with our approach of small entry quanta, this leaves us high and dry with respect to the scrip. 

Are we going to let that happen?

Because of our safe small entry quantum approach, we are not going to let that happen if we can help it. 

When price offers margin of safety but FEAs are still a tad high, we enter with one quantum. 

Then we wait.

Scrip quotes some percentage points (2%, 3%, 5%, you choose) lower than our last entry. We enter with one more quantum, and so on. 

Now, two things can happen. 

The scrip can start zooming from here, and you are going to feel good about your entries. 

Or, the scrip falls further, and quotes lower than classical FEA definitions for margin of safety. 

Are you going to feel bad about your previous entries, which were small mistakes?

No.

Why?

You are too busy undertaking further entries into the scrip, quantum by quantum, for as long as the scrip quotes at levels below classical FEA definitions for margin of safety. 

Soon, you have a lot of entries done, at these safe levels, and you have more than made up for your few small mistakes. 

You’re good. 

In the other scenario, you were good anyways. 

Thanks to your small entry quantum strategy, it’s been a win-win for you all around.