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.

 

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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.

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.  

Let if Fall to Zero, I Say

Markets are correcting. 

The correction seems to be gathering momentum. 

Long-term portfolios lose out on net worth. 

Trading portfolios get their stops hit. 

It’s not pretty. 

Should one be worried?

Why?

Have we not taken worry out of the equation?

Sure. 

We have. 

We’re not worried. 

In fact, we want the correction to linger. 

Why?

So we can buy more. 

How long can you keep buying?

Till eternity.

How’s that possible?

Very simple. Do you have savings?

Yes.

Lovely. Do your savings grow?

Yes, month upon month, they do. I make sure of this by spending less than I earn. 

Even lovlier. Now take a very small potion of your total savings, and put it in the market. 

How small?

Small enough, such that if you were to put in that same small quantum on all off the approximately 220 days of the year that the markets are open, even then, your savings would keep growing at a representable rate. 

Ok. I see where you’re going with this. 

Absolutely. Now, suddenly, your whole perspective changes. You want your next quantum to go in. Thus, you want the correction to linger. 

What if the markets go up?

One keeps going in with the same quantum till one is getting margin of safety. No margin of safety anymore means no more entry. 

I see. That’s where your confidence is coming from.

Not entirely. You see, by the grace of God, I have made sure that my family’s bread and butter is secure before putting even a penny into the markets. 

Oh. Well done!

Then, whatever is going in, is surplus. 

Right. 

The rate of entry, i.e. the size of each quantum is minuscule enough to not pinch me upon the onset of a lingering correction. 

Great. 

Please note, that one gets one’s margin of safety on perhaps 20 – 30 days of the 220 days that the markets are open in the year, on average.

Really?!

Yes. 

That means that your savings keep growing at almost their normal rate of growth, because you’re rarely deducting from them as far as your long-term entries are concerned.

Mostly. However, what if a correction lingers for 2 years or more? Even at a time like that, you’ve got the ammo. 

Ammo, yeah, ammo is paramount. Don’t you feel like spending your savings?

I spend wisely. I don’t blow them away. I make sure, like you, that I’m saving more than I’m spending, month upon month upon month. However, I do spend.

Ok, now I’ve understood how you are so confident. 

I’ve not told you about my due diligence yet.

Oh, sorry for jumping the gun.

Due diligence is my most powerful weapon. I delve into a stock. I rip it bare. I get into the nitty-gritty (I wanted to say “underpants” originally) of the management, and let all skeletons in the closet loose. If there’s something crooked, it will emerge. The internet is my oyster. Nowadays, any and everything is available online. Mostly, a stock fails my parameters within the first 15 minutes of research. If a stock  survives perhaps three full on days of head-on research, that stock could be a likely candidate for long-term investment. Then, one looks for an appropriate entry point, which might or might not be there. If not, one waits for it. One could wait even a year. Markets require patience. 

Wow. Can I now say that I understand where your confidence is coming from?

Yes you can. 🙂

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!

🙂

 

 

 

 

 

 

From Park Mode to Flow

Funds find their way …

… to where they want to be.

Thus, if you’re sitting on some surplus, let it sit.

Pressure will be there, to do something about the funds.

Park.

There’s a German saying.

Aus den Augen, aus dem Sinn.

Meaning, that what’s away from one’s eyes is also away from one’s mind, literally translated. However, you do get the drift.

Park your funds in such a manner, that you can’t immediately see them.

It can be something as simple as a savings account linked fixed deposit.

I prefer liquid funds, with my broker in between.

To call in the funds, I need to dial my broker. Then, a full working day needs to elapse before I have access to the funds in my savings account. I find this activation barrier slightly higher than logging in to net banking and nullifying a fixed deposit. That would give access in just two minutes. Too soon for me. I use my off-set day as a buffer, to perhaps contemplate about really going ahead with fund deployment or not. Access in two minutes would mean firing the gun without proper contemplation.

Yes, put an activation barrier between you and your funds. On purpose. Then they are truly parked. What do you do when you park your car? Handbrake on? Of course. So it is with parking of funds too. You put the handbrake on. Your activation barrier is the handbrake.

Now?

Now nothing.

Sit.

Do other stuff.

Lead a full life. Enjoy your life.

Time will pass.

Opportunities will come …

… and go.

Are they making you jump out of your seat?

No?

Right.

Keep park mode on.

Eventually, something will come along that will make you jump.

Homework gives a green signal.

You will want to be in. Every cell in your body will say so.

Kill park modus.

Let the funds flow to where they want to flow, into this opportunity that is making you jump.

Let it be has now turned into let it flow.

MP vs MoS : the lowdown on Trade-Entry

Margin of Safety (MoS)… 

… hmmm… 

… wasn’t that in investing? 

Well – surprise – it’s in trading too. 

You can enter a trade with MoS. 

How? 

Ok.

ID the trend. 

Wait for a minor reversal.

Let the reversal continue towards a pivot, or a support or a what have you. 

During this reversal, whenever you feel that you have considerable MoS, well – enter. 

Why shouldn’t you wait for the pivot to get touched? 

Things happen real fast at a pivot. Upon a pivot-touch, you can lose your comfort-zone even within minutes. 

Two vital things can happen at a pivot. 

Either there’s a quick bounce-back, or the pivot gets broken. 

Bounce-back means your trade is now in the money, and that you can go about managing your trade as per your trade-management rules. Wonderful. 

Pivot-break is not a worry for you. 

Why? 

Because you’ve placed your stop slightly below pivot, after the noise. 

Upon pivot-break, you get stopped out. You take the small hit and move on to your next trade. 

Eventually, things heat up. 

There is movement. 

Tops get taken out. 

Fast money can be made. 

How do you enter here? (Needless to say, for shorts, everything is to be understood reversed). 

Momentum play (MP)… 

… is the weapon of choice. 

You set up a trigger entry after a top or a resistance or a what have you, and wait for price to pierce, and for your entry to get triggered. Then you place your stop, below top or resistance or what have you. 

MP vs MoS is a matter of style. 

If you’re not comfortable changing your trading style to adapt to times, that’s fine too. Stick to one style.

If you’re conservative, stick to MoS. 

In a frenzy, however, MoS might almost never happen. 

In a frenzy, entry will be triggered exclusively through MP.

Take your pick. Adapt. Do both. Or don’t. Do one.

You call the shots. 

This is about you.