… And Why Growth Stocks…?

Well, why not?

We’ve got History on our side.

Buffett shifted a tad from value to growth in the latter part of his career.

Forget about all that.

We get into growth because we wish to get into growth.

We’re not buying at growth prices, mind you.

Our value background comes in handy. We use value techniques to pick up growth.

We continue to accumulate upon opportunity, quantum by quantum.

Our portfolio gets rounded.

Over the long run, its gets a bit of a boost.

Ideally, we’d like our growth stories to continue, forever.

Consider this. What if even one of our holdings makes it to a 1000-bagger?

What do you think this would do to our portfolio?

Exactly.

Lots that starts out as value becomes growth later.

We pick value with growth in mind.

Sometimes, we’re not offered value in something we want to pick, for a long, long time.

We’re not offered value in the traditional sense of the way we expect value to be.

At these times we evaluate.

Is this something to “wantable” that we have to have it, like Buffett and Coca Cola?

No?

Continue as normal.

Yes?

Create new criteria for value, within growth.

Enter only when these criteria prevail, quantum by quantum.

Sit on your growth holding. Don’t just exit in a growth fashion, upon any odd market high.

Exits are reserved for when you comprehensively don’t want the stock anymore.

Why’s it not stinging you when there is a correction?

Meaning, that growth stocks fall considerably during corrections.

Well, firstly, you are not using money that you might need in the foreseeable future.

Then, the correction is an entry opportunity, so instead of being glum, you are busy going about entering.

Thirdly, because you are entering quantum by quantum, you have tremendous entry potential still left, with more being added to this month upon month, from your savings.

So, you’re not worried when your growth stocks fall.

When they rise, your portfolio burgeons, so…

…for all the above reasons…

…that’s why growth, too, apart from your value pursuits.

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How to Enter into a Growth Stock

You can play this one in different ways.

The successful way for you will depend upon your risk profile.

What we will be discussing here is a kind of a value way for growth stock entry.

Fine. What sets growth stocks apart from value stocks?

Valuation.

Growth stocks have high multiples.

What does that leave us margin of safety people?

Will we completely have to stay away from growth stocks?

No.

There’s a way.

Loosen your margin of safety criteria slightly. Bring it up to, for example, PE < 15, amongst other things. (We’ll compensate for this loosening, you’ll see).

Now wait.

Let the stock correct.

PE goes under 15.

Don’t enter yet.

Now we compensate.

We let more margin of safety develop in the price.

We want price going down to a technically viable level for entry.

This can be a Fibonacci level, a support, a base, a pivot, or what have you.

Three things have happened.

You have identified a stock through your due diligence.

You have waited for it to reach desired valuation after raising your valuation criteria a tad to compensate for the growth aspect.

You have compensated for your compensation by waiting further for a technical level to be hit before entering.

Now, you enter.

Your entry price becomes your base. (Subsequent entries will always refer to the base-price average).

You have entered with your minimum entry quantum.

You will take many entries, each with your minimum entry quantum.

You will keep taking entry till all the above criteria keep being met.

When even one criterion is not met, you will stop entering and will sit tight.

You will keep watching the stock and its management.

If entry criteria are not met for a long time, but stock is still not over-valued as such, you can enter once for every shareholder-friendly act of good governance, upon an interim dip in price.

You will only stop entering when over-valuation rules and becomes obvious.

You will think of exiting when you are no longer convinced about the stock.

Exit will be done upon a market high only.

Hopefully, you won’t need to exit for a long, long time, so that your investment turns into a multi-multi-bagger!

🙂

That nagging nagging push towards action 

Yeah, it’s always lurking… 

… in the background…

…waiting for an opportunity… 

… to catch you unawares… 

… and spring to the forefront. 

Market-play is a mental battle. 

Your mind wins or loses it for you. 

Make your mind understand the value… 

… of action… 

… and of inaction. 

Make your mind pinpoitedly choose… 

… the time for action… 

… and for inaction. 

Make your mind automatically switch from…

… a state of action… 

… to a state of inaction… 

… and vice-versa… 

… and feel perfectly normal doing the switch… 

… again and again and again. 

The above by itself is a winning state of mind for you, which you can build upon. 

🙂 

Nath on Equity – Yardsticks, Measures and Rules

Peeps, these are my rules, measures and yardsticks. 

They might or might not work for you. 

If they do, it makes me happy, and please do feel free to use them. 

Ok, here goes. 

I like to do my homework well. 1). DUE DILIGENCE. 

I like to write out my rationale for entry. 2). DIARY entry.

I do not enter if I don’t see 3). VALUE.

I like to see 4). MOAT also. 

I don’t commit in one shot. 5). Staggered entry.

I can afford to 6). average down, because my fundamentals are clear. 

My 7). defined entry quantum unit per shot is minuscule compared to networth. 

I only enter 8). one underlying on a day, max. If a second underlying awaits entry, it will not be entered into on the same day something else has been purchased. 

I’ve left 9). reentry options open to unlimited. 

I enter for 10). ten years plus. 

Funds committed are classified as 11). lockable for ten years plus. 

For reentry, 12). stock must give me a reason to rebuy. 

If the reason is good enough, I don’t mind 13). averaging up. 

Exits are 14). overshadowed by lack of repurchase. 

I love 15). honest managements. 

I detest 16). debt. 

I like 17). free cashflow. 

My margin of safety 18). allows me to sit. 

I pray for 19). patience for a pick to turn into a multibagger.

I keep my long-term portfolio 20). well cordoned off from bias, discussion, opinion, or review by any other person. 

There’s more, but it’ll come another day. 

🙂

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. 

Looking for a Deal-Breaker

I look. 

Don’t find it. 

Look again. 

And again. 

Keep looking. 

Tired. 

Eyes ache. 

Sleepy. 

Stop. 

Resume next morning. 

Still nothing. 

So on and so forth. 

Few days. 

Absolutely nothing. 

Buy the stock.

Yes. 

That’s the chronology. 

After zeroing in on a stock…

…that’s the chronology. 

Am I happy the search was unsuccessful?

You bet!

Am I spent?

Yawn…yes. 

Was it worth it?

Of course. I now own a quality stock. 

What’s happened before?

Stockscreener. 

Stock pops up. One that appeals to me. 

Check it for value. 

Pass.

Check it for moat.

Pass. 

Look for deal-breaker. 

Yeah, final step. 

Takes the longest. 

It’s boiled down to a yes or no. 

One’s going to holding the stock for a long, long time. 

This is when one is asking every cell in one’s body. 

Yes or no?

No deal-breaker?

Fine. 

Going for it. 

It’s a yes. 

How and Where to Look for Outperformance

Is it surprising, that the kind of outperformance we look for crops up in unexpected places?

Not really.

Yeah, it’s not surprising. 

I mean, if we found a certain brand of outperformance in an expected place, well, everyone would make a beeline for it, and soon, it would be over-valued. 

There’s only one way we want to be in something that’s over-valued – when we’ve bought it under-valued. We’ll then keep it for as long as the ride continues. 

Otherwise, we don’t want to touch anything that’s over-valued, even though it might appear to be outperformance. 

Getting into outperformance at an undervalued level gives us a huge margin of safety. That’s exactly what we want. That’s our bread and butter. 

So let’s start outlining areas to look in. 

Task gets difficult. 

I mean, how will you define areas literally?

Button-clicks. 

Algorithms. 

No, you don’t need to know how to programme, to put together an algorithm. 

Just do it online. 

Put in it what you’re looking for. 

Hit and try. 

Ultimately, you’ll hit the right combo, Stay with it, as long as it’s working. 

What do you put in your algorithm?

Value. 

Good ability to allocate capital. 

Efficiency.

Frugality.

Humility.

Etc. etc.

You ask how?

Well, this is not a spoon-feeding session. 

You’ll need to use your imaginations a bit. 

It’s all possible, let me assure you. 

Meaning, it’s possible to incorporate traits like humility into your mother-algorithm. 

Do the math. 

Ok, so you’ve translated what you’re looking for into computer language without knowing how to programme. 

You run it. 

Where?

All over the place, online. Any finance site. Yahoo Finance, for that matter. 

You get some results. 

In these you look to confirm. 

Is the outperformance you were seeking there or not?

No?

Look further. 

Yes?

Has this outperformance been discovered by the general market?

Yes?

Look further. 

No.

Bingo. 

Look for an entry strategy, provided your other parameters, if any, are being met.