Standing Your Own Ground – 5 Things You Need To Do Now

Long-term investing is a battle of nerves.

It is not for the faint-hearted. 

It can also be… very lucrative. 

To be successful at long-term investing, one must bury the nerve factor, to ultimately stand one’s ground and emerge victorious.

Let’s see how we’re going to do this. 

First up, let’s look at the quality of money going in. 

Only that money is going in which we don’t really need over the next ten years. No other kind of money is going in. No loan money, no breaking-an-FD-money, no kitty-party-money, no child-education-fund-money etc. etc. Only surplus money and that too a very small fraction of this surplus money – that’s what is going to go in each time. Period.

Why?

We’re reducing the pinch-factor bit by bit and bringing it down to zero.

What is the pinch factor?

Corrections pinch. We need to make the pinch go away. When it’s gone away, there is no pinch. That’s when our minds are clear to do what they are supposed to do during corrections. Yes, during corrections, we diligently buy more with a very clear head and after doing a lot of homework.

Second up, we are only buying with margin of safety. 

When there is no margin of safety, we don’t buy. Period. 

Why?

Margin of safety reduces the pinch factor of a correction even further, and greatly. We’ve bought cheap enough, such that the correcting stock barely makes it back to our entry level as the correction ends and a rally starts. The pain-causing element is thus mostly washed away due to the existence of margin of safety. 

Third up, our due diligence is rock solid. 

We have a check-list of the things we want to see in our stock. 

Are we seeing all of these sufficiently?

We also have a list of all the things we don’t want to see in our stock. 

Are we not seeing even a single factor on this particular list?

When our arduous due diligence gives us a go, this action is coupled with a tremendous confidence-boost in the stock. 

Confidence in an underlying is a very powerful elixir, and kills whatever pinch-factor and nerves that remain. 

We’re not done yet. 

Fourth up, we look for an opportune entry point. 

We’re looking for an inflection-point to enter, a pivot, a Fibonacci-level, an Elliott-wave correction-level or perhaps a rock-solid support, and if none of these are available, we even try and make do with a horizontal base, though a rising base is ok too. A suitable entry point is the icing on the cake for us. If the appropriate entry point is not available, we don’t enter just yet. Instead we wait for an opportunity, when such a point is available, and that’s when we enter. 

Our armour is now very strong indeed. The time has come to seal and sterilize ourselves. 

We block all tips. We don’t talk about the markets with people. We don’t discuss our investments or any rationale. We don’t watch financial TV. There’s absolutely no need to follow live quotes. Market action is limited to as and when the need arises. Index levels and stock prices are only looked at upon requirement. After getting the basics bang-on and putting our money on the line, we are now fully equipped to stand our own ground…

…and this we do with great aplomb!

🙂

 

 

 

 

 

 

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Defining a Long-Term Hold

Homework, people, is the most essential element of long-term investing.

No wonder they stressed so much upon homework in school. 

They knew what they were talking about. 

And, it has counted. I always took my homework very seriously. 

Things are no different in the markets. 

Do your homework well, and diligently, and the pay-off might surprise you. 

In the markets, you are not paid off with marks, but with appreciation in the value of your holding. 

So, what kind of homework goes into defining a long-term hold?

Today, we have stock-screeners, so use a stock-screener to spit out some potential long-term holds after defining the screener’s parameters as per your wishes. Choose a stock from the results of the screening that you might want to delve into. Then, delve into it. 

In scam-ridden India, the first things that one needs to look for are honesty and integrity.

Look very, very hard.

Do repeated fraud / scam / bribe searches. The web is your oyster. 

Look into salaries of top personnel. Low is good. If salaries are on the higher side, is it justified? Specifically, scrutinize the salary of the top promotor and the CEO. If not justifiable, just drop the stock. 

Look for acts of good governance. 

Openness.

Sharing.

Shareholder-friendliness.

Truth.

Responsibility.

Once honesty and integrity are established, go over the fundamentals. 

Overall, fundamentals will either meet your parameters, or they won’t. Also, it is you who is going to define the fundamentals you wish to gauge, and what you wish to see. 

Are you seeing what you wish to see?

No?

Discard.

Yes?

Proceed.

Is the stock going to be around even after ten years?

Gauge. Product, business-model, circumstances…

You think no?

Discard.

You think yes?

Proceed.

Is the business scalable?

No?

Rethink.

Yes?

Proceed.

Is there debt in the equation?

Are you comfortable with the level of debt?

No?

Discard.

Yes?

Proceed.

Get the overall picture. 

Are you comfortable with the overall feeling you are getting?

No?

Discard. 

Yes?

Proceed.

Look for an entry point. Open the chart and try and enter upon a base or some other technical level. If none is available, wait for a level to come, and then make your entry. 

Thus, you have successfully defined and entered your long-term hold.