Happy Ninth Birthday, Magic Bull!

Hey,
 
Just turned nine!
 
🙂
 
We’ve seen stuff…
 
…in these nine years.
 
What is our endeavour?
 
We’re in the business of creating wealth.
 
What is wealth?
 
It is something that multiplies over a period of time, …
 
…, perhaps over a long period of time.
 
Wealth affords one things – comfort, medicare, education, luxury, and what have you. So does surplus income, but wealth has the capacity to do this whilst keeping its principle value intact, taking care of our need, and still retaining a large surplus.
 
On the grass-root level, wealth is an idea.
 
Look at it as a multiplication matrix.
 
When we’re looking at money through the spectacles of this multiplication matrix, we’re looking to create wealth.
 
When we’re looking at money without using such spectacle framework, well, then we’re looking at sheer liquidity, income, surplus income / funds etc.
 
In this form, funds are spent, or put into an instrument which returns less than inflation. Funds are burnt over time, and over the long-term, their buying power takes a huge hit.
 
Wealth, on the other hand, returns way beyond inflation. Over the very long-term, returns can even be triple-digit per annum (not using the word “compounded” yet). Double-digit returns, per annum compounded (ya, using it now), are normal. 26% per annum compounded gives a 1000%+ return over 10 years (triple-digit per year)!
 
Wealth kills inflation, and then some, actually, and then lots!
 
The assimilation of wealth doesn’t necessarily follow a linear mathematics.
 
It is better to not look at this mathematics on a day to day basis.
 
Wealth is best created out of sight, out of mind.
 
Why?
 
During the journey to wealth, one needs conviction in one’s rock-solid research.
 
Observing day to day trajectory deviation makes one lose such conviction.
 
Worst-case scenario can be to interrupt the wealth-creation process, or to stop it altogether.
 
One encounters many colleagues on the road towards wealth-creation.
 
Sure, everyone wants in.
 
Who ends up creating wealth?
 
In other words, what’s the wealth-creation mind-set?
 
Our basics have been put in place, by us, laboriously, in the beginning.
 
As in, we have a basic income going. Our needs for the next couple of years are taken care of.
 
We’ve been pickling any incoming surplus away.
 
We don’t need to draw on it for a while, for reasons explained above.
 
Our research is rock-solid.
 
Our small entry quantum strategy has been fine-tuned thoroughly.
 
However, we’ll keep at it, tuning further as per requirement.
 
We believe in ourselves, our research and our strategy.
 
WE are going to end up creating wealth.
 
Holding on to wealth and seeing it through to its logical conclusion will be the next challange.
 
Great year ahead, Magic Bull!
 
🙂 🙂

My Buddy called Compounding

Compounding…

…is my happy space.

When I’m having a difficult market day,…

…I open my calculator…

…and start…

…compounding.

My friend clears all doubts in a flash.

It’s easy to compound on the calc.

In German they’d say “Pippifax”.

The younger tribe in the English-speaking world would say easy peasy…

…(lemon squeasy).

Let me run you through it.

Let’s say you wish to calculate an end amount after 25 years of compounding @ 9 % per annum.

Let z be the initial amount (invested).

The calculation is z * 1.09 ^25.

That’s it.

You don’t have to punch in 25 lines. It’s 1 line.

What if you went wrong on the 18th line?

So 1 line, ok? That’s all.

What’s ^ ?

This symbol stands for “to the power of”.

On your calculator, look for the y to power of x key, and then…

…punch in z * 1.09 (now press y to the power of x)[and then punch in 25].

What does such an exercise do for me?

Meaning, why does this exercise ooze endorphins?

Let’s say I’m investing in sound companies, with zero or very little debt, diligent and shareholder-friendly managements, and into a versatile product profile, looking like existing long into the future, basically meaning that I’m sound on fundamentals.

Let’s say that the stock is down owing to some TDH (TomDicK&Harry) reason, since that’s all it’s taking for a stock to plunge since the beginning of 2018.

I have no control over why this stock is falling.

Because of my small entry quantum strategy, I invest more as this fundamentally sound stock falls.

However, nth re-entry demands some reassurance, and that is given en-masse by the accompanying compounding exercise.

At the back of my mind I know that my money is safe, since fundamentals are crystal clear. At the front-end, Mr. Compounding’s reassurance allows me to pull the trigger.

Let’s run through a one-shot compounding exercise.

How much would a million invested be worth in thirty years, @ 11% per annum compounded.

That’s 1 * 1.11^30 = almost 23 million, that’s a 2300% return in 30 years, or 75%+ per annum non-compounded!

Now let’s say that my stock selection is above average. Let’s assume it is good enough to make 15% per annum compounded, over 30 years.

What’s the million worth now?

1 * 1.15^30 = about 66 million, whoahhh, a 6600% return in 30 years, or 220% per annum non-compounded.

Let’s say I’m really good, perhaps not in the RJ or the WB category, but let’s assume I’m in my own category, calling it the UN category. Let’s further assume that my investment strategy is good enough to yield 20% per annum compounded.

Ya. What’s happened to the million?

1 * 1.20^30 = about 237 million…!! 23700% in 30 years, or 790% per annum non-compounded…

…is out of most ballparks!!!

How can something like this be possible?

It’s called “The Power of Compounding”…,

…most famously so by Mr. Warren Buffett himself.

Try it out!

Pickle your surplus into investment with fundamentally sound strategy.

Sit tight.

Lo, and behold.

🙂

Going beyond the P-Word

Hey,

You panicking?

Why?

Don’t.

How?

To go beyond panic at a time like this, you’ll need to be amply liquid. 

And, then, you’ll need to have the guts to engage. 

One way for remaining liquid for life is to follow a small entry quantum strategy. 

Since we’ve spoken about such strategy ad-nauseum in this space,…

…yeah,…

we won’t be going into the nitty gritty of how the strategy works for the moment. 

In a nutshell, our small entry quantum strategy leaves us liquid, and then some. 

What exactly is a time like this?

Well, Benzes have started to go for the price of fiats, and…

…that’s why we need to…

engage

Forget your pain, pinch or panic. 

Buy…

quality that’s going for a song.

Now.

Keep buying such quality for as long as the cheapness lasts. 

Year, two years, three, four, bring it on. 

When you engage in this manner, you’ll have gone beyond all your P-words. 

Wishing you lucrative and happy investing!

🙂

Feeling

Who writes the rule-book for your market-life?

You do.

Why do you do it?

Nobody else is qualified enough.

You know yourself better than others.

Don’t you?

Thus, one feels one’s way through the markets, setting up lamp-posts and rules.

For example, I recently discover how to integrate my investing life with my trading life, in one particular market.

It takes me a long, long time to do so.

Nothing has really worked on this front.

Both lives have been getting affected, adversely, because of each other.

It’s outright frustrating and, I just sheer stop trading this market, to allow my investing life to prosper.

Simultaneously, I keep feeling my way through, trying out various permutations and combinations…

…, one of which seems to be working.

How do I know?

I’m trading again.

What have I done that I wasn’t doing before?

I haven’t been using the concept of exhaustion.

I exhaust my ability to invest, opportunity-wise.

Since I follow a small entry-quantum approach, liquidity exhaustion isn’t going to work.

Opportunity exhaustion is.

As opportunities keep coming, I keep going in, each time with small quanta, not changing anything in my investment approach.

One fine day, there is no margin of safety being offered.

I don’t feel like going in.

I am exhausted.

I shut down my investment widow…

…and then {[:-)]}, open my trading window.

Within an hour, I take a trade.

Lo and behold, integration has taken place.

Seamlessly.

All our demons are inside of us.

If one is not dying, exhaust it with feeling, even temporarily, to look after your other vital activities.

The Cue from Disturbia

I am disturbed. 

This stock that I’m invested in is continuing to fall. 

That’s ok.

I want to be disturbed. 

That’s my cue…

…to invest more in the stock.

I’m in the stock for a reason. 

Something appeals to me. 

That something continues to appeal to me, despite the continuous fall. 

If that were not the case, the case for the stock would be closed, and one would look to get rid of it on a market high. 

However, that is the case,…

…and, I follow the small entry quantum strategy.

Where does that leave me?

My investment in the stock is small.

I am liquid.

That’s the beauty of the small entry quantum strategy.

It leaves you liquid.

Continued fall means better margin of safety, and that another quantum can go in.

The small entry quantum strategy ensures multiple entry opportunities as the stock continues to generate margin of safety.

When do my ears stand up?

When the fall is disturbing enough. 

The fall is the cue to go in. 

It is from Disturbia. 

Who said making money was easy?

This strategy works as long as one’s research is sound. 

Let’s go with what works.

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!

Stamina of a Marathon Runner

Yes.

That’s what a small entry quantum approach demands of its player.

To be frank, I’ve not run any marathons on field and track.

However, I’ve done my share in life, and continue to do so. 

If it’s not a marathon, I don’t get a kick.

If you’ve got that in yourself, you’re cut out for the small entry quantum approach.

There’s repetition.

Boredom.

The long-haul.

Life in the background.

No hype.

Going on and on…

…till you break through,…

…and the contents of your portfolio spill over…

…and start to show.

Might take a few decades. 

Do you have it in you?

What will make you hold out?

Stick to the tenets of the small entry quantum approach, and you will not only hold out, but your folio will burgeon too.

Buy with surplus.

Buy with margin of safety.

Learn to sit.

Enter small. Many times.

Keep entering over the years, till there is reason to enter.

Exit on highs. Only get rid of those stocks you don’t feel like holding anymore.

No fear please. Kill it. Create the circumstances for fear to vanish.

No euphoria either. That’s a tough one, especially when the whole world is dancing around you. 

Do your homework. 

Don’t listen to anyone.

You’re set.

 

This is Why Your Blockbuster Gain Story is going to Happen

You’re learning to sit. 

You buy with margin of safety. 

You buy in small quanta,…

…and that’s why you’re always liquid,…

…to avail any opportunity that arises. 

Yeah, there’s nothing impeding your liquidity…

…because you’ve kept yourself virus-free, i.e. debt-free. 

You only buy quality…

…that’s going to be around for a long, long while,…

…because you don’t sell for a long, long while. 

You don’t listen to what the grapevine is saying…

…because of the conviction and strength of your own research and opinion.

Yes, you regularly go against the crowd. 

You either buy into debt-free-ness, or into managable debt that spurts growth. 

Your input into the market doesn’t affect your daily life, leaving you tension-free to address your non-market world and thrive in it,…

…and that is why,…

…for all the above reasons,…

…your blockbuster gain story is going to happen,…

…and what’s more,…

…you are also enjoying the ride leading up to it. 

Is there Peace of Mind in the Markets?

Hey,

First up, is this even the right question?

Should the proper question not be person-centric?

Is there peace of mind in you? Or in me? Or in whoever’s asking?

Sure.

Let’s just cast aside what the proper question should be for a bit.

We are in the markets, and, if not at first, then ultimately, we do crave for peace of mind.

We’ll probably be in the markets for life.

Where does that leave us?

To answer this question in our favour, our mental, physical and monetary condition needs to be peace-of-mind-appropriate while approaching the markets.

Only surplus goes in.

What goes in, does so in small, digestible quanta, an action that does not disturb one’s equilibrium.

Also, we are not perturbed about any down movement because of our small entry quantum strategy.

We have rendered ourselves peace-of-mind-appropriate.

We have also rendered ourselves open to the effects of big moves.

Big move down?

No worries. Buy some more. Small entry quantum strategy ensures ample liquidity, whilst commitment till date has been small.

Big move up?

No euphoria please. Enjoy your peace of mind and sit tight.

For all you know, it becomes an even bigger move.

You actually end up wishing that the underlying cools down, so you can buy some more.

You’re good.

Price Based Margin of Safety

You might laugh at this one.

However, it is need based. 

We have been talking so much about small entry quanta. 

A small entry quantum allows for smaller mistakes.

It allows you to enter many times. 

It is small enough to make your capacity for entry outlast the number of margin of safety market days in a year. 

You take your savings. You define what you want to invest in equity for the year. 

You divide it by an estimate for the margin of safety days you might be getting for the year. You arrive at this number by estimating over a ten year average. 

Upon this division, you get your daily entry quantum, for the whole year, on margin of safety days. 

I go one step further to keep a constant small entry quantum defined for longer periods, for any particular entry day. 

As we said, small entry quanta should also mean many entries. 

We won’t be getting the same margin of safety every day.

On many days, we won’t be getting margin of safety at all, in the purist sense of its definition.

We will need to tweak the definition of margin of safety a bit, to have access to many entries. 

We are doing this because we are already on safe grounds. 

First up, we are playing with money we won’t be requiring for the next ten years, or so we estimate. 

Then, this is the money that is coming from our savings and is going into equity. It is for no other purpose. If it eventually doesn’t go into equity, we will end up finding some other use for it, such is human nature, and such is the nature of these multi-tasking times. 

Thus, if we see even a smallish entry possibility, we take it, because of the nature of the small entry quantum approach. 

How do we propose to tweak margin of safety?

We watch the price of a scrip we are unable to enter in. 

We watch, and we watch. 

Still too high. High, too, are fundamental entry allowers (FEAs), like price to earnings, price to book value, price to cash-flow, price to sales, etc., and we don’t enter. 

Then, one day, price starts to drop, for whatever reason. 

It continues to drop to a level, where we feel that for this particular scrip, that’s a pretty decent correction. 

It’s all feeling. 

You can look at charts, but then you tend to look once a month, and the feeling element fails to develop properly. 

So, we’re feeling pretty good about the level of correction, and we cast a glance at the FEAs. 

These are still a tad high, albeit much lower than before. 

For the FEAs to become lower than classic margin of safety levels, there could be a longer wait, or this event might not even happen, especially if we are looking at growth scrips.

If the event does not happen, it means no entry, and with our approach of small entry quanta, this leaves us high and dry with respect to the scrip. 

Are we going to let that happen?

Because of our safe small entry quantum approach, we are not going to let that happen if we can help it. 

When price offers margin of safety but FEAs are still a tad high, we enter with one quantum. 

Then we wait.

Scrip quotes some percentage points (2%, 3%, 5%, you choose) lower than our last entry. We enter with one more quantum, and so on. 

Now, two things can happen. 

The scrip can start zooming from here, and you are going to feel good about your entries. 

Or, the scrip falls further, and quotes lower than classical FEA definitions for margin of safety. 

Are you going to feel bad about your previous entries, which were small mistakes?

No.

Why?

You are too busy undertaking further entries into the scrip, quantum by quantum, for as long as the scrip quotes at levels below classical FEA definitions for margin of safety. 

Soon, you have a lot of entries done, at these safe levels, and you have more than made up for your few small mistakes. 

You’re good. 

In the other scenario, you were good anyways. 

Thanks to your small entry quantum strategy, it’s been a win-win for you all around. 

 

Sheer Moat Investing is not Antifragile 

There we go again. 

That word. 

It’s not going to leave us. 

Nicholas Nassim Taleb has coined together what is possibly the market-word of the century. 

Antifragile. 

We’re equity-people. 

We want to remain so. 

We don’t wish to desert equity just because it is a fragile asset-class by itself. 

No. 

We wish to make our equity-foray as antifragile as possible. 

First-up, we need to understand, that when panic sets in, everything falls. 

The fearful weak hand doesn’t differentiate between a gem and a donkey-stock. He or she just sells and sells alike. 

Second-up, we need to comprehend that this is the age of shocks. There will be shocks. Shock after shock after shock. Such are the times. Please acknowledge this, and digest it. 

To make our equity-play antifragile, we’ll need to incorporate solid strategies to account for above two facts. 

We love moats, right? 

No problem. 

We’ll keep our moats. 

Just wait for moat-stocks to show value. Then, we’ll pick them up. 

We go in during the aftermath of a shock. Otherwise, we don’t. 

We go in with small quanta. Time after time after time. 

Voila. 

We’re  already sufficiently antifragile. 

No magic. 

Just sheer common sense. 

We’re still buying quality stocks. 

We’re buying them when they’re not fragile, or lesser fragile. 

We’re going in each time with minute quanta such that the absence of these quanta (after they’ve gone in) doesn’t alter our financial lives. We’re saving the rest of our pickled corpus for the next shock, after which the gem-stock will be yet lesser fragile. 

Yes, we’re averaging down, only because we’re dealing with gems. We’ll never average down with donkey-stocks. We might trade these, averaging up. We won’t be investing in them. 

Thus, we asymptotically approach antifragility in a gem-stock. 

Over time, after many cycles, the antifragile bottom-level of the gem-stock should be moving significantly upwards. 

Gem-stock upon gem-stock upon gem-stock. 

We’re done already.