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! 🙂

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!

Liqui-Deity

Ammunition. 

Ask the soldier about it.

Running out of it on the battlefield is the soldier’s worst nightmare. 

We’re soldiers too, in our respective fields of work. 

Our liquidity is our ammunition. 

What counts when an opportunity comes is how liquid we are.

When there is a market bottom, most of us are fully invested.

Is that sound strategy?

Putting together ammunition in one place is where it starts.

Holding on to ammunition and using it when most required – that’s sound strategy. 

Saving habits lead to accumulation.

Barriers hold the accumulated liquidity in one place. 

What are barriers?

Welcome to the world of self-created restrictions in an effort to have liquidity ready when one most needs it.

A dedicated bank account is what one requires first. 

Trading?

Link a bank account to your trading account, and use this one for nothing else.

Next, whatever accumulates in this account – take it away from your direct vision.

Meaning?

Block it as a fixed deposit. 

This is a barrier. One don’t see the funds as available. Thus one don’t feel the urge to use them.

When a trade motivates one enough to be taken, one then most need the funds. 

Break the FD.

Transfer the funds. 

Trade.

Has a trade just culminated?

Nothing else coming up?

Again, take the funds away from your direct vision.

Block them, either directly in your trading account, by putting them in overnight funds, or transfer them back to your bank account, if you know that you are not going to be trading for another week plus. 

Both options are valid. Do either. Bottomline is, the funds should not show up as available until you need them.

Investing?

Link a different bank account to your investing-only trading account.

Make multiple fixed deposits in this bank account, each one being one exact entry quantum in value.

Upon identifying an entry opportunity, whenever that happens, break one quantum’s FD, move the funds, and enter into the investment. 

Liquidity needs to be revered.

Unless we don’t give it proper respect, we will not have it at our beck and call when the next opportunity arises, whether we are trading or investing. 

Let’s go, let’s get our ammunition together, and let’s put it to great use.

Gauging the Crowd

What was it about winning?

Someone did observe, that 12% of market players win in Equity markets.

In Forex, the number is much lower, something like 5%, I believe. 

If these numbers are to be believed, what’s the obvious takeaway for us?

Behaving like the crowd will not make us…

…win.

Or, in other words, to win, we need to behave in a manner which is not exhibited by the crowd. 

This makes us gauge crowd behaviour…

…almost all the time. 

For example, what does everyone want to do just now?

What did everyone want to do in March?

Did we do the opposite?

If so, we are winning now.

It’s not that one can switch one’s buttons just like that.

It takes experience, solid research, conviction and will-power to go against normal market behaviour.

It doesn’t just come. 

One works towards it, and the only learning comes from mistakes made with one’s money on the line.

That’s the price of tuition in the markets. Unfortunately, books probably won’t teach you this one.

Those who don’t pay this tution-price early, when their ticket-size is still small, well, they can eventually end up doing so later, at a much larger ticket-size.

Just make your mistakes, as many as you can, as early as possible. 

Don’t repeat a mistake.

Great. You’re done already!

How does one gauge the crowd?

Let’s listen in. What are people saying? How many tips are circulating? What’s the quality of these tips? What’s the level of enthusiasm? Is the doorman talking stocks? Folks going all-in at the top?

Or, does no one want to have to do anything with the market? Are you getting calls asking whether one should stop one’s SIP? Is your close relative aghast that you have your money in stocks? Is he or she alerting you to the possibility of an absurd-looking bottom?

The human being is an emotional entity. Blessed be us Indians, we take the cake in being emotional. Not for nothing are our markets correspondingly volatile. And that’s great news for Equity players.

Why?

You’ll see wild swings in the playing fields.

Our indices roller-coast hugely, perhaps the most in the investable world.

We get fantastic bottoms to enter…

…and amazing tops to exit.

Question is, do we leave ourselves in a position to take advantage of this?

Are we continuously gauging the crowd?

Are we continuously behaving like the crowd?

Or, have we made it a habit…

…to win?

Winning on Psychology

Hey!

🙂

It’s been a while…

Didn’t feel the need to write since beginning May…

There’s a thing about words.

When they want to come out…

…they do…

…and one should let them.

Right, and there’s a need for words, since…

…(wouldn’t you say),…

it’s time for a status check.

Where do we stand?

Positions are running.

How long?

When to cut?

What’s the plan?

Hmmmm.

Frankly, I don’t believe in cutting something I like and am convinced about.

Well, there’ll be no cutting of anything I’m convinced about.

If and when we reach euphoria levels, we’ll take another call about what kind of profit one is booking from one’s high-conviction holdings.

It’s very possible, though, that there will be no profit booked here.

Why?

High conviction holdings translate into multibaggers.

If I’m booking even part of such a holding, I’m lessening my quantum of multibagger-holding in the future.

So that’s sorted – high-conviction holdings – not booking.

Maybe, at extreme euphoria, we might take the cream off the top of an overflowing glass.

Now let’s come to other holdings.

Along the way, one’s conviction in certain holdings tends to waiver.

We’re booking all of these.

How much?

Completely.

When?

At extreme euphoria.

How to know when that’s happening?

Look for signs.

Least likely people will start behaving like market-experts.

You’ll start getting calls from lay-people, asking whether they should double their SIP.

Other-field mavericks have now become F&O maniacs, voluming seven figures per day as if it’s a normal activity, like eating food.

You’re suddenly being asked about all kinds of stocks running at absolute peaks, whether they are good investments.

Don’t get irritated.

Listen.

You’re privy to the best possible indicator – human psychology.

This one will never change.

Earlier, you fell here.

Now, this avenue has become your guiding stone to gauge market bottoms, and tops.

It’s a win-win for you.