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!

🙂

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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!

🙂

 

 

 

 

 

 

Nath on Equity – almost there

Market being down 61). should not pinch you. If such condition does pinch you, you might react accordingly, and do something painful. 

You make market-downs not pinch you by being 62). miniscually committed at any given time. 

Also, 63). you continue committing your miniscule quanta during market downs. 

That’s because 64). you’ve made sure you have lots more to commit, by defining such an approach for yourself. 

You are 65). happy that the market is down, because it is giving you an opportunity to enter. 

You 66). switch off market TV. You don’t wanna know from them, because they themselves don’t know what works for you. 

All 67). useless emails and smses are put on block. 

That’s because 68). information overload is your nemesis. 

You 69). learn from everything you experience. 

However, you 70). don’t follow any market-person. 

That’s because 71). you are unique. Only you can benefit yourself, ultimately. 

You are going to 72). teach yourself to become a strong hand

Thus, you will 73). not get affected by the behaviour of weak hands, ie. the masses.

Instead, you will teach yourself to 74). take advantage of the behaviour of weak hands. 

Market players 75). commit the same blunders again, and again and again. 

That’s because 76). every few years, a whole new batch of market players starts behaving unreasonably. 

This proves to us 77). that the only real learning comes first hand from market-play, to you and you alone, and only from your market-play.

This also pretty darn well insinuates that 78). theoretical learning from books or universities has zilch value in the markets.

You’re lucky 79). if the market knocks you around during your first seven years of market-play, when the kitty is small. 

That’s because 80). exactly that learning from 79). is going to earn you big as the kitty increases during your meat-years of market-play.