Busy Times

Market falls are busy times. 

No, we’re not busy whining. 

We’re busy buying.

Are we not afraid?

That the crack might deepen?

That it might go down to zero?

No.

We’re not afraid of this scenario. 

Meaning?

Meaning that even though such a scenario cannot be ruled out…

Huh!?

Yeah, it can’t be ruled out. With trade wars and back to back black swans waiting to strike, theoretically, the bottom is zero.

And you’re not afraid?

No.

Why?

Because I buy into fundamentally sound businesses…

…zero debt…

…great 5 year numbers…

…sometimes, great ten year numbers…

…and I buy with considerable margin of safety.

Still, one is normally always afraid, right?

Wrong. A small entry quantum strategy kicks out all remnant fear.

How?

This strategy leaves me liquid. Let it go down to zero. I’ll still have liquidity to buy.

And that which you’re buying…

…is sound, yes. If I buy something sound, it will yield returns. It’s like agriculture. Crops grow in good soil. They don’t grow well in bad soil. I make sure that I choose excellent soil.

How does one do that?

Due diligence. Period.

With all the scams and frauds going on…

Well, I look long and hard for shareholder-friendly managements. Representable salaries, willingness to share, largesse, debt-averseness, intelligence, business savvy, the list goes on.

What if you land up with a fraud management?

Solid research will make you avoid scamsters. I search the internet thoroughly for any kind of smoke. Crooks leave a trail, and one is able to catch their online trail pretty easily. 

Alone online?

Second recourse are annual reports. They reveal a lot. I don’t invest in a company without having a thorough look into its annual reports. I look at CSR, the director’s report, skin in the game, balance sheets, profit and loss statements, cash-flow, special items, what have you.

What if you still land up with a fraud?

After I know I’ve landed up with a fraud management, I would look to exit at the next market high. 

What if your holding is wiped out till then?

If it’s wiped out, I have many other holdings to lean on, and don’t forget the liquidity that is yet to flow into honest managements.

So you’re not afraid of the loss?

There is some risk one has to take. Here, it is the risk of being wrong. The good thing is, once I know that I’m wrong, I won’t double up on my wrong call. I’ll get busy elsewhere and look to exit from my wrong call with as little damage as possible, perhaps even in profit.

Profit?

You forget, I like to buy with margin of safety, and you’d be surprised at what people are willing to pay at market highs. 

I see, well then, happy investing!

Thanks! 🙂

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Happy Eighth Birthday, Magic Bull!

Hey,

Today, we turn eight.

This is an extreme time.

Extraordinary moves have become normal.

How do we react to a world full of upheavals?

Does anyone have a satisfactory response?

We don’t know, and time will tell if our responses are correct.

However, we do know, that we possess common sense…

…, and we are going to hold on to it for all our life’s worth.

It has not come for free.

It has been earned after making costly mistakes.

It is very valuable.

It is going to see us through.

The topsiness and the turvyness is good for us.

It will set up opportunities.

We are only going to grab opportunities.

When there’s no opportunity, we do nothing.

We have learnt to do nothing.

Doing nothing actually means no entry.

We use this time to do due diligence for the future, when entry is allowed as per our entry criteria.

Doing nothing is a steady part of our repertoire.

However, when opportunity comes, we are going to let go of all fear, and we are going to pull the trigger.

We know how to pull the trigger.

We are not afraid.

Why?

We are debt-free.

Our basic incomes are in place.

Our families are taken care of.

Without that, we don’t move.

We invest with surplus.

We implement a small entry quantum strategy.

We enter again and again and again, upon opportunity.

Because of our small entry quantum, we are liquid for life.

Crash?

Bring it on.

We’ll keep going in, small entry quantum upon small entry quantum.

Don’t forget, we have rendered ourselves liquid for life.

And, we’ve got stamina!

Happy eighth birthday, Magic Bull!

We’ll Take Boring

Boring…

…is good.

Boring means…

…that you’re on the right track.

We’ll take boring.

What are we talking about?

Equity.

When it’s working according to plan, yeah, you got it, it tends to become a bit boring in the long run.

Don’t get alarmed.

That’s exactly where you want your equity to be.

When it’s there, it’s fulfilling its function, and then some.

You’ve moved away from euphoria.

You’ve moved away from fear.

You’ve arrived at boring.

Look no further.

You’re ready to scale up.

Handling a Long-Long Trading Portfolio During a Market Correction

You’re probably laughing at the use of the term “long-long”!

Hahahahaha, I laugh with you, 🙂 !

In India, we like to get our point across without caring too much for terminology, and / or how funny it may sound. 

What I mean is, and you’ve obviously gotten the drift, that the average trader is normally long in a trading portfolio.

Now, how is the trader to deal with his or her trading portfolio and its dwindling valuation during a long-drawn out market correction?

Sure, there are many options. 

One is to hold and sit it out. 

No good. 

This is not investing. This is trading. Trading means that once a stop is hit, you’re out. Period. 

Second option – bludgeon it. Cut the entire portfolio. 

Hmmmm, that’s not trading. 

Many stocks will not have their stops hit yet. Why are you cutting these? This would mean losing your position. What if the reversal starts right now? You did the right research, you entered, and now you’ve lost your position. 

Not good. 

We’re not bludgeoning it all. 

Of course we are continuing to cut those stocks whose stops are hit. 

No question about that. 

Now comes a kind of a “pointe”. 

You’ve hit a stop during the correction. You’ve gotten out of this stock, as per your trading rules. Look for another stock with a northwards chart that is not getting so affected by the correction, but has fallen a tad so as to allow margin of safety during trading entry. 

You’ve done three things here. 

You’ve entered a robust stock. 

Simultaneously, you’ve benefited from a slight price advantage. 

Thirdly, your trading portfolio is still going. Its contents are getting robust. Come the rally, and the robust contents are going to zoom. 

You’re trading on surplus. You’re not afraid to lose till your stop. You’re not afraid to reenter. So why cut it all? 

There’s no telling about turnarounds. 

However, when they happen, you are positioned. 

Optimal positioning while trading leads to big profits.

What’s the worst case scenario?

Stop after stop being hit, and eventually you being out of the whole portfolio?

Remember, the other side of the coin promises big profits, were the turnaround to happen now, with your portfolio full of robust stocks.

Are you willing to make the trade-off?

No?

Well, then don’t trade an entire portfolio. You’re better off trading one underlying, like an index derivative. Cut it when you like, no questions asked. 

Yes?

Well, then, what’re you waiting for? Make the trade-off. Go for it!

🙂

Benefit from a Small Entry Quantum

You enter the markets with an amount each time. 

That’s your selected quantum. 

The idea that’s being discussed here is as follows. 

Enter the market as many times as you want. 

Just do one thing before that. 

Adjust your quantum level to a point where it doesn’t pinch you, and…

… such that any entry mistakes make themselves felt only minimally, seen from an overall perspective.

In other words, keep your quantum of entry small.

Also, keep it constant, so that overall errors and benefits are able to average out in the long run.

Let’s get some picturization into play, to elucidate the concept. 

Let us assume that you wish to buy stock X for the long term, and you’ve decided upon staggered entry, many times, with quantum Y each time. 

You enter with one quantum Y on day A in the morning. By late afternoon, you are disappointed to see that the price has moved 5% against you. Happens. You start wishing that you had waited till late afternoon for entry. This can be classified as a random entry error through no fault of yours. Such random “errors” keep happening all the time in the markets. Get used to them.

Because your quantum Y was small, your “error” was also small. That’s the point being made here. 

You are going to enter with quantum Y many times. Sometimes, immediately after entry, price might move in your favour. There might be lesser slippage. You might get a gap-down entry. You might enter after a big correction. Overall, whatever goes in your favour gets written off against all “errors”, such that in the long run, over many entries, the effect of errors is nullified. 

Well you got me there. Nullified, I say. Then you ask what the entry error minimalization talk was all about, when it would get nullified in the first place. 

Which is when I ask that what was it that would lead to nullification?

Many, many entries, right?

What has preserved your capital enough to last for those many, many entries?

A small entry quantum.

Also, psychologically, you know that your small quantum translates into a small potential entry error for you. So, your psyche is all geared up and raring to go. It is not afraid of entry, or of the error you might make upon wrong entry. 

To sum up, at first, a small quantum works in your favour because it causes lesser potential entry error, seen as an amount. 

Then, because your entry quantum is small, your capital lasts for many, many entries, which is when one can start speaking of entry error nullification because of evening out. 

Whichever way you look from, it is the small entry quantum that works for you.

Trigger Vigour

Can you pull a trigger?

Or do you hesitate?

Are you afraid?

This is vital stuff, and you need to recognize this about yourself.

Why?

We’ll go into the why some other time, but let if suffice for now to say that trigger dynamics are part of basic risk-profiling, and if one’s market movement is not as per one’s risk-profile, things generally go wrong.

Back to triggers.

Cast aside pulling, are you able to recognize a trigger?

What comes before recognition?

Definition.

Have you defined market triggers?

Everyone has a different definition of when to act.

You need to know when you are going to act.

No ifs, no buts, just clear-cut action.

Your system will tell you that it’s time for action.

You do a double-check.

Are you recognizing what your system is telling you?

Is what it’s telling you recognized by your mind as a time to act?

Yes?

Then act.

What is the action, you ask?

Hmmm.

Why are you asking that?

You have to define the action too.

Just like you defined the conditions for action, you also define what exactly the action is going to be.

When you act, you pull a trigger. The quantum and style of your action is your follow-through after the trigger is pulled.

Make it mechanical.

As much as possible.

Going for the Jugular

It’s time.

Why…is it time?

And, time for what?

It’s time to go for the jugular.

Meaning?

There comes a time, when, after working hard, struggling, doing the whole jig, the rigmarole, you achieve your basics. 

Well done. Pat on your back. 

Then you secure these basics. 

Forever. 

If you can. 

Wonderful. More pats.

Worry factor is now out of the equation. 

Your family is secure. 

Food, safety, education, all basics intact.

Fantastic. You deserve an award. Not that anyone’s going to give you one. Frankly, nobody could care less. Never mind. You know in your mind that you’ve achieved a milestone, and that’s enough for you. 

Whats the next step…

…for you?

Jugular. 

What is this jugular?

Multiplier.

X-factor.

Call it what you will.

What does this mysterious thing do?

Better question is, what is it capable of?

You’re looking to multiply your networth. 

Isn’t everyone?

This is different.

Why?

Because it is coming as a logical conclusion, and not as a first-step with no experience and no secure basics. 

You’re keeping your head-earned basics secure. 

Nothing is touching these. You’ll be surprised at the kind of courage secure basics give you to act further. 

Next, you’ve identified an area where your skill-set can be leveraged into huge profits with minimal risk. 

Specifically in the market, these areas are abundant. 

So what exactly will you be doing?

Playing on a minuscule portion of your net worth. Let’s say not more than 2 %.

Leverage.

Stoploss.

Profit-run.

Position-sizing. Scaling up upon profits. Scaling down upon losses. 

Overcoming your demons. 

Fear.

Worry.

Hypertension.

Exuberance.

Hubris.

Complaecency. 

Going beyond. 

Multiplying.

Going for the jugular.