Fearlessness

Hey, 

There’s no hype…

…on Magic Bull.

No business lunches.

Conferences.

Fees.

Advertising.

Liasoning.

Roadshows.

Magic Bull is a no-nonsense, cut-to-the-chase space.

Why?

That’s how I like it.

A strategy that works under any market conditions, …

… is multi-faceted,…

…  adaptable, …

…  self-adjusting, …

… and comprehensive, …

… doesn’t require artificial crutches… 

… because, …

… it makes…

… money …

… on its own.  

Why is the Magic Bull approach successful in any market, under any conditions?

Because it is based on fearlessness. 

We are not born fearless.

Fear is a natural human instinct innate in us. 

It saves us, many a time. 

However, to make money in the markets, one needs to get rid of fear.

How?

Most of our planning revolves around creating circumstances around ourselves that take fear out of the equation. 

You’ll need to make the effort of going through the material in this space, to get a grip on how Magic Bull eliminates this emotion. 

You see, even if there’s a free lunch in life, it’s not that free that the spoon will lift itself and put the meal down another’s throat. 

A certain minimal effort will need to be made. 

Thing is, hardly anyone makes even that kind of effort. 

Result will be, that not more than a handful will actually read this stuff, and one or two might actually implement it.

Sure. 

Growing Magic Bull’s readership is not my objective.

What do I get from the entire exercise?

Evolution. Writing evolves. The strategy just gets better and better.

Blah blah blah. 

Oh, ya, what happens when a strategy gets it right?

I’ll leave you to figure that out, since that’s what I get. 

And why again?

Because of fearlessness.

One’s cycle of winning in the markets, under any conditions, starts with fearlessness.

Wishing you fearless trading and investing!

🙂

Banking on Infinity

In a market…

…that promises decent…

…long-term growth, …

… we are able to…

…bank on infinity.

In such a market, the concept of cost-free-ness proves successful …

… in that it is able to generate multibagger outcomes, …

… over the very long-term. 

In such a market, the power of compounding makes itself felt in its full glory.

Also, in such a market, fear goes out the window for the clued-in player, since one is able to…

…bank on infinity.

We are fortunate to be playing in one such market. 

Yes, one such market is our very own. 

Having said that, India has idiosyncrasies, as does every market, and the Indian angle on these is definitely unique. 

The main one is that we’re an emotional lot. 

That is automatically then reflected in our market too. 

High beta. 

Meaning, in normal English, that there will abound huge entry opportunities, and huge exit opportunities, on a regular basis. 

And that, if I may underline, is worth Gold for us in the pursuit of cost-free-ness.

In other words, we will be able to create cost-free-ness year upon year, month upon month, and, at times, like now…

…week upon week.

Is that not…

…wonderful!

Once cost-free-ness is created, we transfer it out of sight, and, banking on infinity, we can just sheer forget about it, focusing our attention on the next round of cost-free-ness-creation.

We can do that because we are in the right type of market for this particular model. 

In fact, this model has been conceptualised for exactly…

…this market. 

Maybe someone has done it before me. Perhaps a lot of people. More successful. Big players. Famous. And that’s huge. I’m happy for them.

However, that’s not the point. 

We’re not in this for the glory of who got there first.

We’re in this for generating long-term wealth by using the concept to the hilt, because it’s working, and promises to do so till into the far-foreseeable future.

Before I sign off for now, there’s one more thing to remember. 

When we bank on infinity, we most hold before our eyes, that the translation of long-term growth into long-term wealth…

…is not linear.

Growth is perceived in spurts of optimism spilling into over-optimism, and these become our exit opportunities, where we exit with our principals, and are left with stacks of cost-free-ness. 

During spurts of pessimism, spilling into sheer depression, prices dip low enough, such that we, once again, get representable entries. 

It’s a neat little cycle that has been playing out since markets started. 

In our own market, this cycle allows us to generate cost-free-ness, again and again, while banking on infinity. 

 

 

 

 

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!

🙂

Taking Off with Cost-Free-Ness

In Buddhism, …

…there’s a saying to the effect, …

…that as the sun rises, …

…the radiance of others stars, …

… to the observer’s eye, …

… pales, …

…into insignificance.

We’re not going to leave an observation like that hanging.

We’re going to extrude it.

When we make a well-managed underlying cost-free, …

…what are the implications, …

… on existing holdings, …

…which are not cost-free yet?

Well, over a large period of time, …

…their comparative impact on the folio…

…will start paling, … into insignificance.

Let’s say we hold x value of cost-free-ness in an underlying.

Rest of the folio’s value is y, with y = let’s say 30x.

Here’s one way go looking at it.

What’s the maximum loss you can incur on your y?

Not going to happen, but it’s 30x.

What’s the maximum gain that can occur on your cost-free holding?

Uncapped. Yeah.

At 15% per annum compounded, which is reasonable to expect for a well-managed company with many other tick-marks, if you hold your cost-free holding for 25 years, it’s value would be ~ 33x (= 1.15^25).

So, what have you done?

You’ve paled your other portion of the folio into “insignificance”, with just one created pocket of cost-free-ness.

Do ponder, what the implications would be, if you were to create a). 10 such pockets, or b). 20, or c). 50, or perhaps even d). 100 such pockets of cost-free-ness?

Can you even imagine where you would then be in 25 years?

a). With 10x of cost-free-ness, you would be at ~ 329x.

b). With 20x of cost-free-ness, you would be at ~ 658x.

c). With 50x of cost-free-ness, you would be at ~ 1645x.

d). With 100x of cost-free-ness, you would be at ~ 3292x.

Now substitute the value of x here.

Arbitrarily, let’s take x = 1.

One rupee.

One thousand.

One lakh.

One million.

One Cr.

Take what suits you.

See where you started from, and see where you’ve then come.

For example, starting with 1L of cost-free-ness, we land up at ~ 16.5 Cr in 25 years for 50 pockets.

Let’s say I have a target of creating 1 million worth of cost-free-ness in 50 pockets.

Where do I stand in 25 years?

At ~ 165 Cr (50 *1Million *1.15^25).

Alone the after tax dividend emerging from this stream would be > 2.5 Cr per annum.

Any takers?

🙂 (Happy Cost-free-ness!)

Are you Positioned?

What’s our biggest enemy in the markets?

This one’s invariably…

…our Self.

Cut to ’07.

Fancy hotel banquet room, snacks and drinks, chief investment officer of JP Morgan is talking…

…and we’re listening.

My friend and I…

…sitting on profits…

…feeling smug about ourselves…

…young guns…

…ready to conquer the world…

…nothing can stop us now.

Or can it?

“There will always be a correction…”. These words catch my ear.

I raise my hand.

“Yes? The gentleman with the lime-green tie has a question?”

I stand up, and before I know it, I ask the deadly question.

“Don’t you think there’s been a paradigm-shift with regard to India, and that India has decoupled from the rest of the world?”

“How old are you, Sir?”

“37”.

This was ’07, remember?

“I’m going to excuse your question, because you’re young, and have probably experienced the markets for…?”

“3 years”.

“Exactly. That’s why I’ll only answer your question with a smile.”

How controlled.

“You see, globalization is a reality, and decoupling is a myth”.

Myth, really?

“It’s fancy phrases like “paradigm-shift” that catch the inexperienced investor’s imagination, leading to huge market mistakes”.

In these few sentences, my entire comprehension of markets was blown up and thrown out the window.

And that would have been a good thing…

…had I listened.

Such is the arrogance of “youth”, that “youth” doesn’t listen.

Soon, the ’08 crash happened.

I lost big time.

Was humbled.

Took me a long time to get back and stabilize.

I remember my stomach churning and my unwillingness to meet people as markets crashed to lower and lower levels.

I almost couldn’t take it.

We are our worst enemies.

What’s it going to be this market high?

We’ve learnt, and are positioned.

However, there will be newbies (like we were) who are going to go through this chain of events.

What buzz-words or phrases will catch their imagination?

BitCoin?

Liquidity?

Vaccine?

Quantitative Easing?

FIIs?

Pending rally in small-caps?

There’s a new cocktail doing the rounds this time around.

This cocktail will ensnare.

Even the topmost analysts are beginning to feel that a correction could take some time coming.

Some weeks ago, most felt that a correction could happen anytime now.

Player psychology is set for the cocktail to do its work.

Then one needs a pinprick.

In ’08 this was perhaps Lehman on the world scale and the Reliance Power IPO in India.

What’s it going to be this time?

It doesn’t matter.

Remember? There will always be a correction.

Are you positioned?

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.

Supremacy of Cost-Free-Ness makes itself felt in Equity alone

The impact of cost-free-ness stretches across all asset-classes…

… that are long-term-holdable.

Equity, Gold, Real-Estate, etc., …

… with perhaps bonds being a question mark with regard to applicability.

Why is cost-free-ness not that valid a concept for short-term-holds?

That’s because multibagger appreciation of a short-term-hold is not realistically expectable.

Then, with gold and real-estate, there are certain nuances, which need to be mentioned.

Gold doesn’t adjust itself for inflation. The 100-year appreciation in Gold is 1% per annum compounded, adjusted for inflation. We can make some Gold cost-free, and then hold the cost-free Gold for the long-term. However, to expect it to burgeon into a multibagger is too much. There’s no human capital behind Gold, no intelligently thinking minds. Also, Gold is commodity-cyclic in nature. Forget about all these technical arguments. Sheer 100-year History has taught us not to think in multibagger terms with regard to Gold. Let’s say we held it for the touted 100 years. Well, then, 1 x 1.01 ^ 100 = 2.70. We’re then holding a 2.7 bagger after 100 years. Safety risk too. Naehhh, not interested.

What’s the deal with real-estate? No human capital behind it, again. Thus, the asset-class doesn’t auto-adjust for inflation. Also, we’re not taking any cash-component into consideration. What does that make real-estate behave like, in the long-term, in a regime like now? Perhaps like a glorified fixed-deposit. Or, even, perhaps, like a high single-digit yielding bond. Now minus inflation. Hmmm, after the math, real-estate becomes an asset-class that yields 2-3% per annum compounded, adjusted for inflation, let’s say 2.5%. Minus the half percent for its management (which is a hassle, btw). Well, then, 1 x 1.02 ^ 100 = 7.24. We’re left holding a 7-bagger after 100 years. With hassle in the equation, 100 years is too much effort for a 7-bagger. Not interested either.

Now let’s look at Equity. Human capital is behind it. Equity is hassle-free with regard to its management. Equity auto-adjusts for inflation. All Equity that ever existed, including companies that have gone bust, has shown a return of 6% per annum compounded, adjusted for inflation. Taking companies out that don’t exist anymore, Equity has given a return of 11% per annum compounded, adjusted for inflation, over the long-term. Intelligently chosen Equity, with proper due diligence, is extremely capable of giving a return in the range of 15% per annum compounded, adjusted for inflation, in the long-term. Let’s do the numbers. 1 x 1.06 ^ 100 = 339.30; 1 x 1.11 ^ 100 = 34,064.28; 1 x 1.15 ^ 100 = 11,74,313.45.

These numbers don’t need crunching.

It’s pretty clear, that the supremacy of cost-free-ness makes itself felt in long-term held, cost-free Equity.

I wish for you happy, long-term cost-free-ness!

🙂

Washing a Stock “Sin-Free” with Cost-Free-Ness

Each stock has sins on the balance-sheet.

Many sins don’t show up even, on the balance-sheet.

You see, they’ve been swiped under the rug.

One’ll never know the whole story, unless one is the promoter oneself.

Some stocks have nothing noteworthy to hide, though.

Others have a side they don’t want you to see.

Still others are brimming with skeletons in their cupboard.

It doesn’t matter what you’re holding, …

… when you make the stock cost-free, …

… for you, the stock just became sin-free.

Congratulations.

You’re done already.

That’s the beauty of cost-free-ness.

Yeah, in cost-free-ness, …

… one has a universal balsam…

…that rinses the underlying completely clean to hold, like, forever.

Cost-free-ness is like a magic potion that turns around the whole story, …

… any story.

So, …

… what’s the motivation…

—in making the wholesome effort…

…of creating cost-free-ness?

Multibaggers, developing within our high quality, and now cost-free, holdings.

And how could one classify our feat of cost-free-ness, in another, very meaningful and currently “hot, happening and insider” way?

Nothing’s happening to one if markets go down even to zero, as far as one’s cost-free holding is concerned, since one has pulled out all the principal. Since one is not incurring any loss whatsoever from the holding, even upon market-reversal, for one, this cost-free holding, if I’ve understood Mr. Taleb (coiner and first-user of the phrase “antifragile”) correctly, is antifragile in nature, also then because, price contraction in the cost-free holding is a good thing for us, in that more purchase of the high-quality holding can subsequently happen, with the goal of making more and more holding cost-free, as markets swing back upwards. Market reversal after cost-free-ness is setting us up for a larger cost-free holding in the future. Seen from our initial sweet-spot of cost-free-ness, since market reversal betters our poise and increases our potential to make our cost-free holding grow in units (and size), that would be the last tick mark, required and now ticked, which makes our cost-free and high-quality holding, also, antifragile.

Cost-Free-Ness doesn’t come for Free

Yes.

You read that right.

If you thought I was revealing some kind of holy grail secrets here, which you could copy-paste for yourself without having to do anything else, do please allow me to fine-tune your thinking.

First-up, true, cost-free-ness is a holy grail of sorts, I do feel.

However, it’s hot to handle.

As discussed previously, our greed comes in the way. We don’t unlearn our greed just by reading a blog-post.

Then, when I speak about cost-free-ness, I stand upon the shoulders of giants. I have always maintained that in all my writing. One struggles, and comes upon…

…gems.

Others have struggled and stumbled upon these gems before, similarly. Some have documented their experiences for us to learn from.

That’s the way of life. One builds upon the edifice that one’s peers have left standing.

As long as one gives freely of oneself, life moves on comfortable trajectories, and the Universe rushes to protect and encourage such giving.

Lastly, you’ll also have to struggle when you go about establishing cost-free-ness for yourself.

Make good causes, so that difficult Karma doesn’t spoil your party by forcing you to liquidate your cost-free-ness, in order for you to have to finance your way out of such Karma.

Then, complete market rewiring required by the brain takes about a decade and a half of putting one’s money on the line. That’s been my my experience. One needs to rewire one’s mentality to be able to create cost-free-ness in any market situation. Like I said, it’s going to cost you.

This freebie material here is just to get you started on your path.

Besides, I do owe a debt towards all the free material I myself use on the internet, so this is my giveback in lieu of that.

I wish for you happy, lucrative and cost-free investing!

🙂

Being Cost-Free is like having 100% Margin-of-Safety

What allows us to sit?

It’s margin-of-safety.

When we buy without margin-of-safety, we are not able to sit for the long term.

Long-term investing fails for us if we don’t know how to sit.

Extrapolating this logic further, what would allow us to sit on high-quality holdings, like, forever, allowing for multibaggers to develop in our portfolio?

It’s cost-free-ness.

Being cost-free in a stock is equivalent to having 100% margin-of-safety on the holding.

Such a state of being allows us to freely sit on the holding, like, forever.

A range of other benefits open up for us, and about these we have spoken in detail earlier.

For example, we become fearless with regard to our cost-free holding. Then, we experience full freedom of focus on future play, while simultaneously forgetting that we even have this other cost-free holding that we own! Like I said, we’ve discussed all this thoroughly in previous pieces.

Bottom-line is, that we understand explicitly following extrapolation : Buying with margin-of-safety translates into sitting-ability for us, leading to creation of cost-free-ness upon appropriate appreciation, and such cost-free-ness in turn equates to 100% margin of safety in the held underlying, which then allows us to sit indefinitely on our high quality holding.

We’ve thus set the stage for holding many multibaggers in our ‘folio, by the time we reach retirement age.

🙂

However, Cost-Free-Ness does afford us full Freedom of Focus

Markets crashing?

Is one cost-free?

Yes?

No worries.

Markets can crash.

Technically speaking, one’s money is not on the line anymore.

This makes crashing markets a good thing for one.

Why?

Because of the lucrative entries coming up ahead, that’s why.

Is one able to focus?

You bet.

Somehow, magically, one’s focus is not on one’s existing Equity in the markets. Anymore.

Why?

Because it’s cost-free.

Earlier, falling markets would hamper full focus, which was supposed to be on fresh and lucrative entries coming one’s way.

With great difficulty, and lots of practice, one did manage to shift one’s gaze though, in the end.

Now, with complete cost-free-ness in the picture, focus is a breeze.

Yeah, one is fully focused on entry levels that might crop up in the stocks one is looking to enter into.

Without appropriate entry levels, one’s funds aren’t going to move. Period.

For that, one needs focus.

And it’s there.

Unfortunately, Cost-Free-Ness doesn’t do away with Greed

So, one’s cost-free in the markets, and still gloating.

Let’s not gloat.

Much rather, let’s be watchful.

Watchful?

Yeah.

Why?

A still rising market is going to play tricks on our mind.

FOMO…

…missing-the-bus-syndrome…

…greed…

…call it what one will.

It is happening, or is going to happen, to us.

Without mincing any words, let’s have the lowdown laid out straight-up.

There are two things in our path that are now stopping us from the creation of multibaggers in our portfolio.

First-up, there’s the play-out of destiny.

Circumstances could occur that force us to reduce our cost-free-ness, or completely cash it out, to finance something immediate, if funds are not available elsewhere.

Please let’s create systems to avoid dipping into our cost-free-ness, if we can help it.

Cost-free-ness is a very hear-earned commodity.

One’s taken knocks to achieve it.

Yes, it’s cost sweat and toil.

We’re not letting go of it if we can help it.

Then…

…there’s greed.

This is the one thing which can cause us to cash out of our cost-free-ness, just like that, for nothing, except for the gratification…

…of itself (our own greed).

What’s the anti-dote of greed?

Practise giving.

Yes.

Do charity.

Everyday.

In some form or the other.

Cash, effort, emotion, support…

…give of yourself.

Give others joy.

Experience the joy of giving.

Greed will subside.

One’s hard-earned cost-free-ness will stay intact…

…and multibaggers will develop in our cost-free cum high-quality portfolio.

Happy Investing to you, and blissful cost-free-ness.

🙂

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.

From Cost-Free-Ness to a Unified, Singular, Comprehensive, 360° Market-Field-Strategy

So you’re cost-free in the markets…

…and are contemplating your further market-journey ahead.

Yeah, now what?

First-up, let’s grab a hold of what you have in your hands.

You are holding high-quality material which fits your risk- and long-term holding-profile, and, most importantly, this material has now been freed up of its investment-cost.

That’s (very) huge!

So, how does it go from here?

I’ve been here, and have always bungled it up.

This time, I won’t.

Why?

I’ve finally realized the supreme importance of being at this point, and, …

… I wish to keep coming back to this sweet-spot, …

… again, and again and again.

It’s a wonderful feeling.

One feels deep satisfaction, of achieving something big.

Yeah, at Magic Bull, we sheer achieve, write about it, and then achieve more.

We’ll just go on achieving.

We’re not stopping.

The writing part is only to keep a log and to help others on the path.

And of course, it clears one’s thoughts, making one arrive at gems of strategies…

…which all converge and unify into a singular market-approach.

Let’s talk about singular.

At this sweet-spot, the ghost of trading arrives.

One feels like riding the highs by video-gaming through the markets.

And, one falls flat.

It’s not familiar territory, because the approach till now has been one of investing, and investing and trading are diametrically opposite in nature. Meaning that it takes some time to rewire.

Before rewiring properly, …

… one’s already pressing buttons as if buttons are soon going to become extinct, since one is seeking thrills. It’s normal.

One’s achievement-vector points only towards falling flat, such is one’s behaviour.

How do we conquer this pitfall?

We’re going to exhaust this ghost’s potential to our benefit.

We are going to trade, …

… because otherwise, ghost’s not going away.

However, we are going to trade only those scrips that are already inhabiting our cost-free portfolio.

We trade these, as new units, in a different trading account.

Entry is worth one small quantum, whatever small entry-quantum one has defined for oneself.

The objective is to ride a quick run, and make, let’s say, 20% of the traded units cost-free.

That’s would be good, hard, tangible bang for our trading bucks.

Assuming we succeed, we then transfer the cost-free units to our long-term portfolio.

In the event we fail because markets start to reverse, it’s still ok.

It’s a holding we are comfortable holding, into the next market cycle, where we’ll again try and make it cost-free, and we’ll then have cost-averaging on our side, since we’ll have reversed to an investing approach.

It’s win-win everywhere.

Failure comes eventually, because markets ultimately reverse.

No one knows when.

Till them we keep trading and increasing our cost-free-ness.

When failure comes, it’s once, and eventually we hold and try to turn it around.

Because we’re holding quality, the probability of turning the situation around is high.

Before this one failure, we are poised for many possible trading wins, with each win adding to our cost-free-ness.

And there we have it…

…voilà…

… , yes, it’s a unified, singular, comprehensive, 360° Market-field-strategy…

…courtesy your friend and comrade-in-investing. …

… Magic Bull !

🙂

How Big is your Win?

Assuming you cruise…

…cost-free in the markets now…,

…how big exactly is your win?

Have you stopped to ponder over this fundamental point.

Let’s go over it together.

The question you need to be asking is, …

… “What will happen to my cost-free-ness from this point onwards?”

Well, what’s going to happen solely depends upon your behaviour.

We’ll just study a best-case scenario.

Let’s assume you leave your hard-earned cost-free-ness be, in the markets, for the next 25 years.

What would become of it?

First-up, let’s understand the very nature of your cost-free-ness.

It’s high-quality.

It urges you to hold onto itself, forever.

The fact that you can’t let go of it despite such highs speaks of it as being the essence of your struggle, in terms of quality, if you know what I mean.

High quality material would typically compound at 15% per annum, over the long run, adjusted for inflation.

The figure of 15% per annum compounded, adjusted for inflation, is very achievable for your high-quality material – let’s put it like that – in a market like India’s.

Let’s do the math.

1 * (1.15) ^ 25 = 32.91

There you have it.

Your cost-free portfolio is slated to increase almost 33-fold in the 25 years to come.

That’s 3300% in 25 years when seen as pure appreciation, making 132% per year simple appreciation (not compounded).

That’s how big your win is.

Yes, staying invested with your cost-free-ness will make your cost-free-ness typically burgeon almost 33-fold over the next 25 years.

Go figure.

🙂

Cost-Free-Ness

Why…
 
…do we play this game?
 
I play it to…
 
…win.
 
What’s one’s definition of a win?
 
It’s different for everyone.
 
I’ll tell you mine.
 
I want to be completely cost-free in the markets before the end of a bull-run. 
 
What does being cost-free mean?
 
It means that whatever one has in the market, has been completely freed up of its principal. 
 
That’s done by taking the principal out, over time, as markets climb. 
 
What purpose does cost-free-ness serve? 
 
Firstly, whatever’s in the market now, in a cost-free state, is all high quality material. 
 
It can’t be otherwise. 
 
What’s not high quality will be pulled out as markets persist in their climb. 
 
Why?
 
The impulse to book is very strong. 
 
In that state of mind, whatever is not worth holding anymore, will be automatically booked. 
 
It’s human nature. 
 
Secondly, what’s in the market now, can stay in, like, forever, without causing us any tension. 
 
That’s an ideal state of mind for the creation of multibaggers, and the underlyings in question are all multibagger material, being the essence of one’s entire market-play. 
 
Thirdly, one has gotten one’s soldiers home, to fight more battles, as valiantly as ever, in the times to come. 
 
Ya, cost-free-ness means that one has pulled one’s principal out. 
 
This very principal will now be utilized to make more and more shares cost-free.
 
Fourthly, we are not going to suffer any pangs about the markets climbing and climbing further. 
 
Further climb benefits our material in the market, immediately. 
 
More material, picked up at trading levels, is likely to yield a small chunk of cost-free shares, in the form of a winning trade. As one exits such trade, one leaves one’s profit in the market, in the form of cost-free shares. 
 
Sure, eventually the market will collapse, and we’ll be left with some material which is not only not cost-free, but is now losing, perhaps big.
 
That’s ok.
 
Why?
 
Because, quantities are relatively small. These are trading levels, remember? Thus, entries will be small.
 
Then, these are the same underlyings as already existing in our portfolio. 
 
We want to hold these. 
 
We are holding many cost-free units of these very underlyings. 
 
Current loss-making units of these underlyings can be averaged as markets sink further, because we are highly convinced about these holdings.
 
Eventually, the curve will turn, and a new cycle will start.
 
As markets climb in the new cycle, eventually these new units will start becoming cost-free.
 
Such positive loop outlined above is the market sweet-spot I always wish to be in.
 
It’s the essence of almost seventeen years of first-hand, in-the-field market learning, with personal funds on the line at all times, struggles, losses, beatings, the works and what have you. 
 
And now, there’s cost-free-ness.
 
That’s my win in the markets!
 
🙂
 
 
 
 

Breaking Free

[ “I want to break free
I want to break free
I want to break free from your lies
You’re so self satisfied I don’t need you
I’ve got to break free
God knows, God knows I want to break free… ” – Queen].

How does one stay invested in the markets…

…despite all its deceptions and mind-games?

As indices creep up and up, our minds start playing tricks on us.

We seek excuses to cash out.

And, mostly, we…

…cash out.

Done?

NO.

We don’t want to be done.

Why?

There might come a day, when we wish we hadn’t cashed out.

Markets can stay overbought for ages.

Or not.

We don’t know.

No one knows.

Appreciation that counts sets in upon staying invested for the long-term.

How does one resolve this…

…conflict of mind versus reality?

One…

…breaks free.

Meaning?

Free up whatever has gone in.

Meaning?

Cash out the principal.

Leave the profit in the market.

This profit has cost no money.

Leaving it on the table is not a biggie.

Or is it?

It is…

…for most.

Those, for whom it isn’t, will benefit properly from compounding.

Now, what’s the danger?

No danger.

What’s on the table hasn’t cost you, so no danger.

Still, what would one fear?

No fear. What’s in is free, so no fear.

Let me paraphrase.

What’s the worst-case scenario from here?

Well, U-turn, and a big-time correction.

So what?

Use the correction to buy low, with the idea of freeing up more and more underlying(s) upon the high.

This way, size of one’s freed-up corpus keeps growing, and so does one’s exposure to compounding.

Wishing all very lucrative investing! 🙂

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! 🙂

Working Backwards

In trying to gauge the markets,…

… we work backwards.

What’s the starting point?

Current state of affairs.

One step back…

…is where the market is coming from. 

One step ahead…

…is the impact being had on the retail investor.

The rest is extrapolation.

Why are we targeting retailers?

This is because we wish to gauge market tops and bottoms. 

These are scripted by retail investors. 

At the top, retailers are left holding the hot pie in their hands, for which there are no further takers at that price. 

At the bottom, retailers rid themselves of stocks as if the world is coming to an end.

If we get a handle on how retailers are reacting to the market at hand, that’s huge.

This is working backwards in action.

We’re not first forming an idea about how the market should behave…

…and then we’re not trying to shove this perception down the market’s throat.

Because we are reacting upon what is happening, and not dreaming up what’s going to happen first, chances of winning are tilted in our favour. 

We’ve not invented this course of action.

Others have done it before, with huge success. 

We stand upon the shoulders of giants.

Here’s Steve Jobs on working backwards : https://youtu.be/oeqPrUmVz-o .

See?

It’s taken a while to get here, and also many knocks. 

However, we’re here now, and we’re here to stay!

Playing Over-hot Underlyings with the Call Butterfly

A call butterfly is a fully hedged options trade …

… with an upwards bias.

It consists of four call options.

2 buys…

…and 2 sells.

One can play any overtly rising underlying with the call butterfly, without batting an eyelid.

Why?

Firstly, and most importantly, one is fully hedged.

Meaning?

At first look, the call butterfly seems market neutral as far as basic mathematics is concerned, that is +1, -2, +1, net net 0.

So, net net, one isn’t looking at a large loss if one is wrong.

When is one wrong here?

If the underlying doesn’t move, or if it falls, in the stipulated period, then one is wrong,…

…and one will incur a loss.

However, the loss will be relatively small, because of the call butterfly’s structural market neutrality.

And that’s magic, at least to my ears.

Method to enter anything flying off the handle with the chance of a small loss?

Will take it.

Then, also very importantly, the margin requirement is relatively less, when one uses the following chronology.

One executes the buys first.

Then come the sells.

Upon the upholding of this chronology, the market regulator is lenient with one on margin requirement, as long as the trade-construct is market neutral.

Typically, for one butterfly, total margin requirement is in the range of 50 to a 100k.

Now let’s talk about what one is looking to make.

5k per single-lot trade-construct, if it’s fast, as in execute today, square-off tomorrow, or even intraday, if expiry is close.

10k if slow, as in 7 to 10 days.

If the butterfly is not yielding because the underlying is not moving, then one is looking to exit, typically with a minus of under 3k.

Just do the math. Numbers are great.

What kind of a maximum loss are we looking at, if things go badly wrong, as in if the underlying sinks?

5k to 10k.

Can the loss be more?

If the trade construct is such that the butterfly can even give 40 odd k till expiry, one could even be looking at a max loss of about 15k too.

Here’s an example of a call butterfly trade that can lose around 15-16k, but has the potential to make upto around 45k till expiry. The graphical representation is courtesy Sensibull.

GAIL Call Butterfly Dec 31 2020 Expiry

I mean, it’s all still acceptable.

Tweaks?

Let’s say one is losing.

Sells will be in biggish plus.

Square-off the sells. Yeah, break the hedge.

Margin gets returned. Premium pocketed.

Buys are exposed, though.

They are losing big.

With some time to go till expiry, if the underlying goes back up, the buys gain.

What one makes off the trade is proportional to how much the underlying goes up.

It’s riskier. Correspondingly, profit potential is higher.

Money risked here will be up to double of the fully hedged version of the trade, and one could lose this amount if the underlying does not come back up appropriately and in time. Pocketed premium of the squared-off sells softens the hit.

Therefore, it makes more sense to pull this tweak with at least ten days to go before expiry, giving the underlying time to recoup.

Got another tweak.

This one’s intraday, though.

Underlying’s on a roll, and you want to make the most possible off the opportunity.

Square-off the sells at a huge loss.

Let the buys, which are winning big, run for some part of the day.

Chances of them yielding more are very high.

Square-off the buys before close of trade.

If the underlying promises to close on a high, square-off the out-of-the-money buy before close of trade, and take the in-the-money buy overnight.

Risky, though.

You could lessen your risk, and increase your chances of taking most profits off the table by squaring off the in-the-money buy and taking the out-of-the-money buy overnight.

Square-off the overnight buy next morning on a high, or wherever feasible.

With this particular tweak, the trade becomes somewhat more like a lesser exposed futures transaction, at least for some time, after the hedge is broken.

There’s another thing one can do with the call butterfly.

One can adjust it as per the level of perceived bullishness.

If -1 and -1 are set at the same level, one trades for averagely perceived bullishness.

If one -1 is closer to the lower +1, and the other -1 is above this first -1, then one trades for below average perceived bullishness.

If one -1 is closer to the upper +1, and the other -1 is below this first -1, then one trades for above average perceived bullishness.

Anything else worth mentioning?

Volume. Need it.

Bid-ask spread needs to be narrow.

Scaling up needs to correspond to one’s risk-profile, requirement, temperament and acumen.

One can make it an income thing by scaling up, during bull runs, or generally, just in case an up move is tending to pan out.

One can make the call butterfly do a lot of things.

It’s a very versatile trade to play a rising market, with low risk and low capital requirement.

Happy trading!

🙂