Where do you want to be?

Where do I want to be?

Do I want to look at a stock price and know where things stand with the stock in question?

Yes.

That’s where I want to be.

It’s not going to come for free. 

What’s will it take?

Looking at the stock…

…for an year or two. 

That’s what it will take. 

How boring, you say?

Sure.

When stock market investing seems boring…

…that’s when you’re doing it right.

Excitement and roller-coaster rides are for video-game pleasure, and for making losses.

Money is made when it’s outright boring out there. 

Where do you want to be?

In the money?

I thought so. 

Then, please get used to boring and don’t ever complain again that things are boring.

How does one position oneself in such a manner that one studies a stock for an year or two. 

Hmmm.

Let’s put some skin in the game.

I know, this phrase is becoming more and more popular, what with Nicholas Taleb and all. 

Yeah, we are picking up stock. 

What stock?

The one we wish to observe for an year or two.

Why pick it up? Why not just observe it?

You won’t. You’ll let it go.

Why?

Because it’s not yours. 

So we pick up the stock? What’s the point of observing if we’re picking it up now?

Well, we’re picking up a minute quantity – one quantum – now. That gets our skin into the game. Then we observe, and observe. Anytime there’s shareholder-friendly action by the management, we pick up more, another quantum. We keep picking up, quantum by quantum. Soon, while we’ve kept picking up, we’ve observed the stock for so long, that now, one look at the stock price tells us what kind of margin of safety we are getting in the stock at this point. 

Wow.

Now, future entries become seamless. One look and we have a yes or no decision. Isn’t that wonderful? 

Absolutely.

That’s where we want to be.

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It has to be a Dunk

When I shoot…

… it has to be a dunk.

If I’m not getting a dunk in…

… I’m not shooting.

What are the implications?

Imagine only taking market dunks for multiple decades in a row.

Where do you think that’s going to leave you?

Most of the time, though, one’s not shooting.

That’s because, most of the time, dunk trajectoires are not available.

When one is not shooting, does it become boring?

Only if you let it.

Yeah, just don’t let it.

No action is a good thing.

It saves resources.

Then, when opportunity is available, one might get twenty dunk days in a row.

Things can get so active, that one wants activity to normalize again, if not stop for a while.

Actually, not a challenge.

I’ll tell you what is a challenge…

… for me.

Dunk opportunity…

… and travel.

I don’t like this combination.

How do I deal with it?

First up, what don’t I like about it?

Distraction.

Not doing full justice to the trip.

Not doing full justice to the investing opportunity either, as in distracted due diligence.

Hmmm.

What do we do here?

Sure, you’ll argue, today one carries one’s terminal where one goes.

Does one also carry one’s zone, you know, the magical frame of mind, from within which one takes magic decisions?

Very probably not.

When one takes an investment decision, is it not better to be in this magical zone?

Therefore, unless the opportunity is just too pressing, such that it makes me open my terminal even during travel, …

…, yeah, my terminal mostly stays shut when I’m on the move, …

…, because then it’s time to do other things. Yayyyyy!

😀

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!

🙂

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. 

When is it Ok to Average Down?

Just remember one thing…

…that the words “averaging down”…

…only go with long-term investing. 

They do NOT go with trading. 

After you have fully digested and understood the above, let’s to to the when. 

When does averaging down go with investing?

The answer to this is – only after doing proper homework. 

If you’ve not researched the underlying well enough, don’t even think about averaging down, because you could be throwing good money after bad. 

When there’s a correction, the long-term investor does get tempted to increase his or her holding, because of the lucrative prices that are on offer. 

Sure, why not?

Please understand, that this “sure, why not” is coming out so casually because of course the long-termer has worked overtime to arrive at the conclusion that he or she wishes to increase his or her stake in something that is already being held. 

The fall in the price of the underlying does not perturb the long-termer. Solid research has been done, and the markets make huge mispricing blunders when in free fall. Market players go all psycho and discard their precious holdings at throw-away prices. Picking up quality stocks at bargains is exactly what the long-termer is in it for.

The long-termer has done a few more things. 

Family has been secured with multiple income-sources and emergency funds. What’s going into the market is sheer surplus, not envisaged to be required over the next ten years. 

Then, entry quantum is small each time, small enough so that entries can be made all year round, and there will still be ample savings left after all entries. 

How does one calculate a small enough entry quantum that satisfies all of the above criteria?

One works backwards. 

Pinpoint your income after tax for the year.

Decide what you wish to amply save. Subtract this from your income. Further, subtract expenses. You are left with an amount. Decide whether all of this amount can go into the market, or whether only a part. Maybe you wish to go for a holiday with your family, or perhaps you wish to buy a vehicle, or what have you. Subtract such additional expenditure too. Finally, you are left with the amount that you wish to plough into the market, over the course of the year. 

Next, take the amount, and divide it by 30, or 40 or 50. 

Why?

On the down-side, the market could offer you margin of safety on 30 of the days that it is open in the year. On the up side, the number could be 50. We are talking about ten-year average numbers. During a singular correction, the market could offer margin of safety continually for the whole year. Decide what your magic number is. 30-40-50 days per year works ok over a ten year period. Divide the amount you’ve set aside with the number you’re comfortable with to arrive at your entry quantum per entry-day, for the year in question. Now you can keep going in with this same quantum through out the year whenever margin of safety is offered, and you generally won’t have to worry about running out of investing money, on average. 

Great stock-picking, excellent due diligence, surplus going in, small-enough entry quantum, ability to sit – the long-termer is armed with these weapons, and now, he or she can average down as much as desired, whenever margin of safety is offered.  

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!

Ashes to Ashes, Bitcoin to Bust

Hey,

Sure, Bitcoin and all…

…everyone is humming the word.

Those who didn’t know of its existence a very short while ago, are all gung-ho about it.

Some experts are talking of a million dollars. They’re expecting it to touch a cool million per Bitcoin.

Other slightly conservative ones are talking about half a million.

Last month, someone thought it was chocolate candy that looked like a gold coin. This month, he’s just bought his first Bicoin. I think he paid the equivalent of almost USD 4000 for it.

Citizens are moving black money across borders with it.

It’s original signature exchange in Japan failed in early 2014.

An act of sabotage, perhaps?

Governments want it down.

The US will probably do everything in its capacity to stop Bitcoin from becoming the go-to currency of the future world instead of the USD.

Rumour has it that China has already imposed sanctions against it.

Well, well, well, what do we have here?

There’s a huge push and pull going on.

Who is pushing?

Launderers and terrorists, for starters. That’s where the bulk buying pressure is coming from. They don’t care about paying an extra buck to launder, or to buy weapons with. They’re applying real pressure, and the price has appropriately shot up.

Who is pulling?

Governments. Sanctions spoil the rise. A collapsed exchange enforces the law of gravity.

Where is this going?

Well, sure, who knows, but there’s a few things that one can say or even ask.

Has anyone seen Bitcoin?

What are its credentials?

Where did it come from?

Facts and not ghost-stories would be good here. Does anyone know the facts for sure?

Can one trust something whose whole exchange has once failed?

Now, with the Chinese move, God know what might happen?

Is the machine or device on which Bitcoin is stored not a target?

Where is the peace of mind? Can one sleep soundly with Bitcoin stored on one’s computer?

Bottomline is, there’s lots of ammunition in place to cause some massive landslides here.

Given that, there’s massive room for laundering and terrorism. The world’s launderers and terrorists aren’t done yet. Pressure will keep coming back in the current world situation.

It’s an ideal trading situation that has developed, both for the longs and the shorts.

Fine, trade Bitcoin. Make money. Good for you. I personally don’t trade it. Am happy trading stocks and currency instead, Those are my areas of expertise, and I don’t operate outside the areas of my expertise. However, if you’re making a killing trading Bitcoin, I’m really happy for you.

Just don’t do one thing.

Don’t get married to it.

Meaning, don’t pick it up at these 0% margin of safety prices, never then to let it go.

There’s so much ammunition that can bring it down, that one’s investment could even get wiped out during a swift crash, especially if it has been picked up on margin.

So, careful, people, careful.

Yeah, people, while investing in Bitcoin, tread cautiously. Wait for margin of safety to develop before picking up. Secure your device. Turn it off when you sleep. Back it up, if your backup can’t be hacked.

And…

…don’t bet the farm.