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. 

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When it Pinches, Then You Buy

What is a good time to buy for the long-term?

Is there some kind of formula? Mathematical equation? Algorithm?

Who doesn’t look for the holy grail?

Sure, there are technicals galore, to assist one’s buying and fix its appropriate time. 

Of course, fundamentals, when studied properly, are even more helpful. 

However, neither technicals nor fundamentals can replace emotion.

The emotional alarm, when sounded, is a good time to buy for the long-term. 

Surprised?

Here you are, getting alarmed at how the markets are falling. 

How are you supposed to buy with a straight face amidst the panic?

That’s just it. 

Markets are wired in an opposite fashion to our mentality. 

At the onset of margin of safety, our mental framework emits panic upon seeing the mayhem. 

Upon the vanishing of margin of safety, the same mental framework emits euphoria and wants to participate in the rally. This is trading, not long-term investing, and as long as you buy high and sell higher, you are good. What you are not going to do here is hold your trade for the long-term, thinking it’s a long-term buy. What has not been bought with margin of safety is not a long-term hold. 

Why?

Margin of safety gives us a buffer. 

Let the markets fall; they still don’t reach our entry price. Or, they only fall a tad under it, and then start to rise again. That’s the beauty of buying with margin of safety. You can use the low now created to pick up some more, if you are still convinced about the stock. Otherwise, you can always exit the stock on a high. 

In long-tem investing, one should not exit on a low due to panic. If one does so, it’s like market suicide. 

What causes exits on lows?

Panic. 

Need for money.

Weak hands. 

Become a strong hand. 

Put in only that money which you don’t need for the next ten years. Make sure before entry that you won’t be pulling out this money in the middle of the investment if you can help it. Have a fallback family fund to lean on ready before you start putting money into the market for the long-term. 

Teach yourself not to panic. Rewire yourself alongside the market. This takes time. It took me almost a decade to rewire myself. Everyone needs to go through this rewiring process.

Once you’re rewired and  financially secure, your strong mind will pick up on the emotional trigger, and will start buying when the pinch-factor kicks in. 

Your strong hands won’t let go owing to panic. 

In the long run, your investment, which has been made with margin of safety and proper due diligence, will yield you a fortune.

Happy investing!

🙂

Bifurcation Ability – Do you have it?

No?

Develop it asap, please.

Otherwise, don’t be in more than one market. 

However, who is satisfied with just one market?

That would leave one with a lot of time on one’s hands, wouldn’t it?

Time on hands means looking for another market, and another, and another, till one’s time is fully occupied, and one’s thirst for market activity quenched. 

With multiple markets on one’s radar, one needs to bifurcate. 

As in time and mind compartmentalisation…

…which basically translates as…

…that when you’re working on the one market, you’re not letting any overhang from another market bother you. 

If an overhang is bothering you, take two, or take ten, or take however long it takes to kill the overhang. 

Loss, depression, profit, jubilation, exuberation, whatever cause or emotion is prevailing, let its effect come and let it go. Wait for it to go. Then open the next market. The last thing you want is for the other market to be observed and analysed while there’s emotional bias from a former market. 

Therefore…market done…market closed…next market. There’s no other formula here. 

Most market people are both traders and investors. 

This is the area where they really, really need to bifurcate and compartmentalise. 

Why?

Trading and investing involve diametrically opposite implementation strategies, that is why. 

If you’re making changes within your investment portfolio, but are still in the trading mindset, you are going to make major mistakes, which will most definitely disturb whatever balance you have managed to instill within your investment portfolio. 

Similarly, if you’re looking to open a trade and are still in the investing frame of mind, you are optimally poised to botch up your trade big time. 

This is how I approach the matter. 

I do a first half – second half thing. 

The first half during which the markets are open are for investment decisions. 

Then there’s lunch.

By lunch, I forget how the first half of the day has been spent. At least, I try and forget. 

I let the scrumptious lunch help me drown my memory. 

After lunch, the second half starts, which is dedicated to trading decisions.

Strategies used after lunch are diametrically opposite to the ones used before lunch. 

This works for me. 

There comes a time when there are no more investment decisions to be taken, at least for a while. Markets become expensive, and margin of safety vanishes. One is not thinking of entries. Exits are far, far away, as this is long-term investing. Here is when one can dedicate oneself to one’s trading. One’s got the whole day for it. It’s a great situation, because the need for bifurcation between trading and investing is gone. 

Then there comes a time where no trades are developing. Lovely.

Right, pack up, take a break, let’s go for a short and sweet holiday!

Dealing from a Position of Weakness 

When you’re losing… 

… you downsize your position. 

Why? 

To save your corpus. 

You lower the risk. 

Is risk quantifiable? 

You bet. 

Risk is no abstract entity without a body. 

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

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

Till when?

Till your corpus crosses par and then some. 

At par, you trade normal. 

Normal stop. 

Normal quantity. 

What is normal? 

Depends on you. 

What is normal for you? 

That’s what goes. 

Why the caution when below par? 

Lots works against you at this time. 

Sheer math for example. Downsizing sets this right. 

Emotions. 

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

You. 

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

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

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

Let’s go people. 

Let’s get our meta-games together. 

Then we can scale it up. 

🙂 

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.