Suvi Investing Journey

(The Confused Consultant) #42

Incredible Act of Well-Wisher’s. THANK YOU

18 Nov morning, got a call from home to my shock. My mother got admitted to ICU fighting for life and death. I had to rush for Bhubaneswar immediately and subsequently an ordeal which still continues till now. But that’s not something personal I want to convey you and give pain for no reason. Something else got repeated again, this time. Again, and again, act of superior luck, an unexplained result forced me to rethink and share what is it, why this happens at a time when you need most, what could be forces behind it. I tried to sometime and I think got a knack to some extent, here it is. First the incident:

I call them Well-wisher’s trades. Simple reason, the success belongs to numerous people who at some point of time knowingly and unknowingly have fond memories of me, shared their dreams and pains, empathetic to my needs, a shoulder to cry, no fear or prosecution. The ear keeps ringing with same words- we cannot be consumed by panic differences any more.

As medical bills shoot hour by hour, day by day (still it is); I noticed something once again which I saw 5 years back (when I had a medical problem). Two of stocks I purchased in November 2nd week start rising ferociously, sometimes sounded for no reason. I added aggressively, stocks rose further. One delivered 60% in a week, both of them covered 65% of total medical bill so far. Almost similar when I was in a slumber health back in 2012. This force me to think why this happen when you need something the most. Here is answer:

It’s the lovely people surrounding us. For me it’s YOU whether colleagues, neighbor, family, forum, street; you name anything. I think when you ride high and low at bad times; combined wishes of people just gravitate towards your effort and make it an inferno which destroys all possible evils and obstacles from the process. It made me realise how important for me to connect with you, understand you, share with you. It reinforces my beliefs how genuine your wishes, how lovely and beautiful human you are. It’s so centrifugal and powerful which even make extremely painful process as cake walk.

I once again thank you all the wishes and love. I think this keeps all of us going.

Some practical aspects I found regarding this subject:

  1. I guess time to spend time with needy, financial contribution is not enough.

  2. I have made it a point this point I will attend every question to best of my abilities wherever, who ever asked.

  3. Going forward I will ensure I say thanks to deserving. Sometimes I guess it’s missing due to arrogance and ego perhaps.

This is becoming an ephemeral subject now for further deep dive and action!

Thanks all and loads of wishes

(asvasanra) #43

Cannot express my gratitude for your thread " Guru mantra". I had stumbled onto it yesterday, and have been, you can say, addicted- in a good sense, especially drawn by the lucidity with which you explain the various concepts.
Am really thankful for your effort to impart your knowledge and share your wisdom. Would also request to know if we can message you directly with specific query, if any.

(The Confused Consultant) #44

Yes Sir

The whole purpose of me spending time on forum is to reach out and understand people, help and learn from them, importantly getting their good wishes.

Please reach out to me at [email protected] , whenever you feel I am of any help to you otherwise even as well.

Thanks for writing in to me.

(kums17) #45

Its great to read your threads. Keep it up

(The Confused Consultant) #46

Just replied in morning to some one, take it as a pinch of salt or write of as contrarian.

At the outset it’s nothing unusual to get frustrated and confused. Investing is a painful activity as it involved both indecisiveness and regret. I was beaten down twice initially (almost zero portfolio).

  1. Investment includes primarily 3 activities:

a. picking a stock
b. money management (bet size etc)
c. risk management (managing loss of capital)

If you go anywhere be it online forum or seminar every one speaks about first activity So whole focus goes to 33% requirement. Why? Because we are too engrossed with few people and their ideas, hardly we look beyond them. In short please understand what is risk management and money management is, then customise it.

There is nothing wrong in cloning, biggest of companies outsource their non core competency. I have seen mathematician who are strong in money management buy stock letters for a picking a stock. This approach has been immensely successful for them as they understand what they are good at.

  1. Value investing in 2018 is an ego statement. Value investing was defined during 1940’s changed numerous times, it has big disadvantages, not updated. Then why every one calls themselves as value investor? Simple, Mr Warren Buffett say so. Tomorrow he dies, 80% will not call them as value investors. Every investing has something to offer. pick the good advice’s from where ever available.

  2. Investment is an act opposite to our habits. Investment asks us to do uncomfortable things which we do not manage in day to day life. For example buying cheap is a bargain in real life, in stock market it can be nightmare. This stems around psychology of person, a lot of habits needs to be re-written per se

(s) #47

Unfortunately in current market condition Junk is also selling at premium. Correction are dreams and destination is looking illusion. Risk are being ignored by experts and novice alike. Message is tread with caution and load only if you have a horizon of 5 tears plus.

(kums17) #48

I agree with every word written here. The real challenge is compliance and adherence to Size and Risk management. The reasons for missing on size is probably ignorance, lack of perseverance and not developing conviction on your winners. Pyramid during up-move can help us overcome this problem. Risk management is more to do with building own psychology. But I am grateful to you for exposing me to these issues.

(The Confused Consultant) #49

I am happy to know you could able to identify a money and risk management for yourself and you are working on it. There are people on both sides, even averaging down works beautifully; subject to they should know capital requirement, stock numbers, risk of ruin etc. It’s a whole picture which can be fixed basis your own capital, your psychology, stock selection and so on. Important is to understand what works for me! That would require open our eyes rather than carried away by hyperbole. The challenge to my opinion (I can’t say about others, but I have faced all these):

  1. CAGR is not the right measurement of metrics, it doesn’t tell you anything. You won’t know what works for you or not I.e. whether it was profit percentage, accuracy or even loss containment.
  2. CAGR calculation is not easy in non linear place. When components are variable and moving you just can not calculate end number and publish CAGR.
  3. 50-60% drawdown depends on your capital availability, number of stocks and psychology. If I have 1 lac rupees and invested in 8 stocks for 80000. With 20000 rupees I am planning to average downward , you can imagine how dilapidated condition you are in. Second can you digest that kind of drawdown? At least I can not now, I won’t let go my entire decades of profit in a whisker.
  4. Large drawdowns are handled by people using ‘OTHERS MONEY’. There are multiple reason behind it. A good number of these guys can’t come and go in so easily due to liquidity. The number of choices available become narrowed down, if exit then what to do? PMS is far better situation in this regard.
  5. Averaging down increases your risk significantly. Again it will go back to your deep pocket, psychological texture, concentrated portfolio and so on.

Sir you would agree market is non linear place. If we try to assume we can conquer it by assuming everything is predictable and in long run it will take care it’s a fallacy. This attitude has beaten down many sooner or later. Rather than predicting Sensex at 45000 or 15000 at any time I would probably do is:

  1. Have an entry and exit plan always. This is irrespective of market condition, many factors influence an exit plan. E.g. my own metrics, I will try protect my historical average. Can you ask Michael Phelps to slow down in 5 races to 5 minutes so that he can win next races in fraction of minutes. Athlete works on his own performance, he doesn’t take loses or slow down easily rather cut them and analyse to come back immediately.
  2. Average holding period tells us how effectively we have been managing our psychology. Agree, this period every one is a Phelps, but over a period of time your will realise it’s far tougher to hold a stock than what we think.

(The Confused Consultant) #50

Big Bull Rakesh Jhunjhunwala confession finally:

How much has leveraged investments/trading contributed to your success?
Trading is the mother of all my wealth. That’s where I get all the money to invest.

Would you say that being a trader made you a better investor?
Yes and vice versa.

What time frame do you use for your trading or non-core positions?
I always approach every act of trading with an open mind.

Does taking a loss have an emotional impact on you?
Never, because I am not afraid to make a mistake. I only ensure that I make one which I can afford. A setback well digested is the key to victory.

Would you say that the key to your trading success is emotional discipline?

Have you had losing streaks? How do you handle them?
Certainly, I have had them. The way I have handle them is by reducing my position.

(The Confused Consultant) #51

Markets: ONLY Method to Madness

Once again, a roaring bull markets, hyper sensitive participants born in bull markets with ever talented financial institutions forming a cocktail of decade. The bigger question when you will have hangover and pop a much-desired medicine? Or keep the medicine next to you as and when it is required. And what do we call this cocktail, ‘THIS IS DIFFERENT’.

First what is the combined crowd or forces of market wanting to tell you? Here is a list:

  1. GDP and markets are brother in arms. With GDP shifting to high gear these markets will continue their merry making. GDP calculation in a country like India is as complex like translating Ernest Hemmingway texts! House wife contribution has never been discounted in GDP, read more the critics side. Then linkage between GDP and stock market, so many unorganised sectors, Indian railways! the list is like Alexandar is great. Finding a relationship is like uniting India and Pakistan.

  2. Honourable Prime Minister Mr. Narendra Modi will bail out in case of a turmoil. Can there be a bigger joke than this? Do you think he was elected by few thousands or lacs strolling stock market for their hyper greed and excessive pleasure? Politician will continue to do what fetches votes for them. That includes actions market likes and some market don’t like. Mr. Donald Trump or Mr. Modi are no different.

  3. Central bank controls on liquidity and fiscal prudence. The five-year policies, NITI Ayog does not sit there for stock market. Rarely they have been bothered about market crashes. The travesty is policies are made long term or at least annual basis, crowd in market try to decode gain second by second.

  4. Too much money with bank. With an overnight adjustment to ‘fiscal measures’ like REPO central bank can make banks have lot of money. The ultimate custodian of treasury is central bank not scheduled banks.

  5. High PE ratio. In a PE ratio one variable is current earnings, second variable is expectation of earnings growth. Unless entire crowd agrees to one growth rate, it’s always going to swing wildly. And I guess without swinging expectation there won’t be any speculation. Without speculation stock exchange will become empty.

Am I trying to tell you that all of these events do not affect stock market. Please do not get me wrong, they all do. We both over estimate and under estimate them. One these are complex set of puzzles, we do not have clear information on them. Two rudimentary free reading online makes us feel we have all information we need. Third the biases within us are activated to the fullest now, with cash balance is ringing every second we are hypnotised to accept that we can go wrong!

Am I trying to be a bear, no? Still I buy when my processes say so. If my process stops working I sit out, if my process does not work for long time I go back and check whether something has gone wrong. Process tell us relationship between input to output, not imaginary heuristics for pleasure. It tells us what to buy, when to buy, when to sell also.

The combination of stock, risk management and money management has never changed since the game has begun in stock market. It is unlikely to change unless humans are replaced by aliens or robots. Our fibres, neurons have improved for sure, the list of biases also growing further. That would mean a lot more deliberate practice than past.

When Sensex became 5000, the people who came before me said oh my god 5000! This will fall. 5000 became 10000 turned to 21000 and now at 34000. One school will always argue this will fall (mostly guys like me who is sitting on high percentage of cash), second school will counter attack with famous saying ‘bull just got its horn’.

Your risk is yours, my risk is mine. My greed is mine, your greed is yours. This will define our relationship with market when it come to my performance, my financial objectives. No GDP, no fiscal policy will ever define this. Sooner, we understood better for us. In short understand your financial objectives, build a risk management in place and apply money management to achieve. There is no other holy grail of stock market investing for you and me. Hyperbole, academic discussions will continue depending who is getting paid by whom!

So please respect your financial objectives, risks surrounding it and the process you have build to achieve this. Nothing else is important for us. Lastly, I can see the eventuality of next disaster, ‘it will be the employed young class who has access to easy execution and information’. In previous bear market brokers and sub brokers went bust, this time speculators have cleverly shifted the risk to crowd by reducing entry barriers.

To end this, on a lighter note, ‘in a fight between domestic animal (bull) and wild animal (bear) you know who wins temporarily and in long term.’ Plan accordingly.

Lots of good luck

(paraa) #52

" Lastly, I can see the eventuality of next disaster, ‘it will be the employed young class who has access to easy execution and information’. In previous bear market brokers and sub brokers went bust, this time speculators have cleverly shifted the risk to crowd by reducing entry barriers."

Interesting line of thinking which i never thought of.I am just thinking of ways this mad rush of liquidity will run out.Will it be due to a crypto currency crash with spill over effects to equity markets or the new crowd in market getting scared in a downturn and running away

I remember a experienced investor telling me in 2009 and “you guys are all sheep and we are wolfs. As long as the herd of new sheep keep coming to the party,we will do well”

(Vikas Pandey) #53

(The Confused Consultant) #54

A Caution rather warning before you give money to an equity advisor

He is a senior surgeon in Apollo Hospitals, one of finest medical brain I have ever come across. He called frantically yesterday for something which is really disturbing. Apparently, he has given money to some equity advisor ultimately turned out to losses, pain and nightmare even before a meaningful correction yet to take place in market. Same story with dear good NRI friend from Houston, thinks 10 times before which Gas station he should go in but it’s fraction of seconds before committing lacs into an investment.

Let us look at some of description fancy advisors using:

  1. I am an avid biker, I was an ignorant human 5 year till I read concept of mental models by Charlie Munger.

  2. I am a deep-sea consultant managing family money since 5/7 years. You can see my performance from my website which describes random stock theories for few years.

  3. I come from lower middle-class family like you and studied in an engineering college. First day I worked as software developer I realised this is not for me, I need to be where I am. After 3 years he claims to be marquee advisor and investor. Almost like Ramakrishna gave that spiritual kick on first day of job where Swami Vivekananda was born!

So how come a savvy doctor with five degrees next to his name fell into this. Read this carefully:

  1. The guy writes so well in online forum and have a big fan following online.

  2. Random appearance on newspaper or television.

Interestingly earlier speculators used to trap people in name of trading and quick money. Now there is a new breed who use value investing, irony!

If you chose MBBS is a must your doctor should have, your house architecture must have a diploma if not a degree; then what is the VALIDATION process you have carried out before you chose an investment advisor. Few important points:

  1. SEBI process is and will be inadequate always. Reason is this is a subjective area, can SEBI say only a finance person with financial services background become an investment advisor? You will immediately argue finance is not holy grail of investing or else all CA/MBA would have become billionaire, fact is they are not. Do not consider SEBI regn as only thing.

  2. Every person asking money should have AUDITED process regarding returns so claimed including transactions history. Some even goes to audit their own process. The audit has to be carried out by a professional chartered accountant who is empowered to do so.

  3. Look at their experience history, the same way you expect a surgeon to perform multiple operations you should expect the person advising should have gone through thick and thin of stock market. Has a prior employment experience in financial services company, portfolio management services, equity research, PE etc.

  4. Random news paper articles are mostly influenced. Media will chase and publish those without which they can not survive like highly successful investors, fund managers etc. There is a second category who appears on newspaper through influence, courterie, friendship etc. Take the articles as pinch of salt!
    Then where are financial institution guys who are opening their own? All of these guys have a common dream, do not chase common man. Get hold of few HNI, your life is settled before attracting sovereign funds, pension funds. This leaves the common man at hands of overnight investors.

Like surgery performed by a MBBS, MD after lots of deliberate practice at different hospitals and varieties act of investment also has its own paradigm. There are actors, players, audiences in investing world. People have been taught in university, are going through years of grinding in financial institutions, preparing studies and research after research day and night. These acts can not be replaced by overnight heroics. The problem is a surgery cannot have performed without having MBBS, but investing can be done anyone, without any entry barriers. Although it creates a level playing fields, it creates certain illusion regarding its methods and processes. And with a stamp of success people twist and turn it to the way it worked for them unlike a surgery can be performed with certain standard instruments only!

I won’t say anymore, open your eyes. If you have been successful in job and business you can do chose better if not do it yourself type. I even write here and there, some get impressed and wrote back with lovely notes. I am deeply honoured by these gestures and wishes but buck stops there. This is the same reason despite some of you agreed to handover the money last year I came out quickly. Managing other people’s money means much more, managing people’s emotion and dreams also. I am not prepared at this moment for such a greater responsibility more so closed group. If you are do it yourself type then get an experienced mentor (mentors don’t ask for money), if you are otherwise give it to a thorough professional after validation process.

(The Confused Consultant) #55

Risk Management and Money Management

Market began to fall, today expect another meltdown. Nothing unique, market should fall and rise. But what is not unique is a practice lacks process.

For hundredth time or more let me repeat again for those who has responded to me or lend an ear and mind to accept divergent views.Respect risk management, otherwise it will ensure your demise.

  • keep a tolerance limit for any stock, a point where you will exit. Does not matter you are sitting in profit or loss. Portfolio value is real value not notional. So lock profit or exit losses. Your tolerance limit should bow down to mathematics i.e. if you lose 50% you need 100% to recover.
  • do not increase your risk. Any act of adding to portfolio, calculate your risk of ruin. It should never be more than zero, does not matter you are long term or short term. If you have chance of going bust no one will save you i.e. either ghost of Mr Livermore or angel of Mr Warren Buffett.
  • Reduce your risk appetite based on results. If your return is coming down, reduce your position size/capital allocation. Overnight heroics will cost you your life time savings.

A couple more nuts and bolts:

  • the higher number of complex variables you add more confusion you will create. Analysing 10 years jewels can be learning for me or as a project, but when it comes money management or risk my only priority is my metrics. Lie down when wind hits you, you won’t miss any learning rather you will learn at lower cost. This is not a time to analyse tonnes of data if you are retail investor, protect your capital and profits. Your past metrics should have tell you the percentage, if you are not maintaining make it a point to maintain.
  • Do not regret booking losses. Losses are part of any business. As long as you have overall profit in game you are doing well. If you keep losses which crosses profit year after year you get nothing but bruised ego.

I am rather happy to be called as stupid while in profits, than called as super intellectual with losses in portfolio.

I leave it you, yesterday morning internally I wrote to few. 90% of derivative stocks struggling to go up or moving down. It’s suicidal to go against a movement. Going against crowd has it’s meaning, look for spots when initial and meaningful recovery takes place from correction. Not at the time of flag march, you will get killed in stampede.

Whether this is beginning of bear market? Not at this point, it has to create at least 2 down legs and multiple days of distribution. Yes bad news is feed globally, whether meaningful distribution takes place only time will tell. No point in predicting, lets keep an eye rather.

Disclaimer: I am short on Nifty since yesterday afternoon (toe in water, testing). No long positions in trading (since 10 days back), portfolio stocks down to historical old 3 (2 experimental stocks removed from portfolio, put back to watch list).

(The Confused Consultant) #56

YEAR 2 UPDATE: Principle of adversities

Sharp 7 in morning, I started with my old pal towards a particular destination. Reason, inter school competition has been arranged this time at least 30 kilo meters from the city in some rural areas. Whether this was a master stroke by organisers or not is questionable but it definitely did not impress a majority of parents who has to travel with their kids. Obviously, each child was guarded by more people now including grandparents and in some cases neighbour uncles and aunties!

Before 200-meter race begin for kids as usual well wishers surrounded every child with water bottles, biscuit, fruits and so on; this is despite a continuous push by organiser not to make the area crowded. My eyes caught attention of a child apparently stood alone watching towards the sky. I couldn’t trace an iota of influence from surroundings on his face.

By this time, you would have realised who won the race? That’s not stumped me but the margin of winning, he was ahead at least 50 meters from the next competitors in a 200 meters race. The race got over, hyperbole again came back with crowd; same stuffs i.e. biscuits to fruits. The winner is gone, as if he came for race and executed; once done he left. I decided to trace him out, after 1 hour of search I learnt his name. Born to a farmer, but importantly for the occasion he is not spoiled by herd thinking. Whether he will be able to maintain this instinct, we have to wait and watch.

This incident brought me back to a pertinent research by Tom Stanley few years back. He jotted down (not one year but almost 3 decades list) 100 richest, influential people from Forbes and other research/projects and traced their roots to understand what were these men and women when they were little known. For me outcome is not surprising, you see for yourself:

  • Less than 2% of these successful people hardly excelled in school, be it sports or studies. Back bencher type of guys and girls!
  • For the selected few who worked in employment, none of them was blue eyed boy or green-eyed girl in office. No accolades, no rapid promotion!

So next time you see your child or someone shy and looks like idiot you know the future! Also, if your child is not cracking big in exams or not doing well in sports don’t blow off your eyes. Child may turn out to be one of the multibagger talent. There are multiple reasons behind this divergence, I leave it to you to read Tom’s thesis. I just wanted to tell you, it’s a fact that what we see from surrounding systems can be crap, nothing more.

It’s now end of 2 years since I moved out of employment. The first thing I wanted to tell you is I have survived 2 years, going by law of averages if I survive one more year I am going to thick skinned in game. My survival chances get manifolded then.

I will not summarise the journey today, let’s keep it for some other day. Also, I have been mentioning on and off with key learnings every time. Today I wanted to tell you about the principle of adversity rather maximum adversity.

Maximum adversity is the presence of inherent obstacles, show stoppers, difficulties etc you come across when you pursue an objective. Like any inherent risk you can reduce it to tolerable extent but can not eliminate it. From an investor perspective market will beat you down more number of times than whatever you plan and design. Maximum adversity is there everywhere, everything we do. The task is not to find out all adversities from day 1 (you won’t be able to) but to manage the adversity differently while playing different roles. For example, if you manage non-delivery at office in a specific way, it may be different way while managing same issue at home. In fact, some times it can be upside down or opposite. And largely these opposite acts need too many contradictory principles for a human to manage, more so if you are present in multiple quadrants; say you are employee as well as entrepreneur. I will talk few of my own principles of adversities which turned my belief system and still in progress.

You will be fired IF YOU TELL YOUR BOSS

A. I am going to do 60% or mistake or more. Still I am going to be the best, because I want to be best loser.

Imagine you lose 50-60% more times on a regular basis across your life span. That is nature of probabilities not certainties where risk and rewards are largely regulated.

B. Let us not have target date for assignment. Objectives can not be ephemeral but enduring.
You are on a continuous spree of losing (3/5/7 years or more), process is no where in end at sight. No one knows where is end.

C. We may not have profit for 9 months a year still we will do far better than rest.
You start with six months losses at a row in a year. Can I give guarantee for month 7? No, still I am optimist I will end the year at a consolidated positive.

D. If we do nothing for next six months we will still be far ahead of others.
Sitting tight for months and inactive does wonders in investing world. I found this hardest among all traits. They say empty mind is devil’s mind (more reference to lazy), here it can bring miracles.

E. If we accept our mistakes quickly we will improve our performance.
Once you admit to mistake you detach yourself from whole execution and management. Emotionally as well. Quite a painful activity.

Resurrecting the inspirations

It’s a fitting time to give tribute to few personalities who inspired and changed my process and belief systems. A small token towards them by expressing my gratitude.

My Mentor

Quote 1
I struggled four and half years with no income, reluctant to went for a job until one day decided. I will not be mediocre anymore, this is the last day I would see myself in despair. Next day my fortunes changed. Message- BELIEF IN YOURSELF FIRST.

Quote 2
Accountability is look for guide, develop a process and accept failures to amend process. Repeat the process till victory. I will rather die in chasing process than quitting. Quitting is not an option.

Quote 3
The bottom line is you need to work hard. So hard you feel pain, sometime not tolerable. You get up in midnight with eyes gazing to roof for hours. You should know you are close to the light.

Quote 4
To dream you need to remain alive, to be alive you have to keep going and to keep going you need to hyper realist.

Quote 5
Everyday I get up first line I think, man you can damage yourself more than anyone else. Cherish the risk or else perish.

Quote 6
They called me stupid and ignorant, I prefer to be stupid while in profits than a genius while having losses.

Quote 7
The best wisdom lies in your own foot prints. Respect the metrics else don’t expect anything.

Quote 8
If the child starving next road will go to hell, so does you. For god’s shake come out of illusion, everyone’s beginning and end is same. After a point take the bus towards end destination only. Rest all is gimmick.

Jesse Livermore

I do not want to quote anything from him as he is a widely respect personality, a legend rather. He left a deep-rooted impression within me forever, reasons to me are:

  • Focus on life style, life style and life style. The road to bankruptcy is mis management of expenses not income.

  • Out perform the tiger, not to win the race but save your life. Set your benchmark for both risks and rewards not REWARDS only.

  • The difference between heroics and stupidity is a thin line. Reverse is true also, you can come back in a week.

  • Human behaviour has not changed nor it will. Pattern is eternal truth of world, as long patterns exist, rewards exist so does visual thinking.

  • Do not culcate a habit of making something simple as extra ordinarily complex. You do not end up as a genius but stupid.

  • Mathematics is force behind nature, the game has never changed in stock market neither it will. Ignore mathematics, you are out of the game

What next? Moving to next zone with minimal panache.

Underplaying and over dose of risk management:

I am born in a middle-class family surrounded by academicians and employees. Nothing wrong! We scale up further and moves to next step, society also fragment further to enable your dreams further. But the movement is restricted till mean reversion. What does this mean?

__n simple words I played the game in my comfort zone. If I was getting a particular amount as salary, if I was spending certain amount as expenses and lifestyle that determined decision making when it comes to investing. Say if your lifestyle is settled in six digits there is a trigger required to take seven-digit decisions in investing quadrant. The emotional movement from a number or criteria to another one which you have never seen earlier. _
Investing can work with right money management and process only. If that requires to move to an extreme uncomfortable zone, so be it. The risk can be much higher in non-linear place including a wipe out. But execution can only bring experience and triggers that are required moving on next. I am gearing up again for next zone.

_This audacious act again will require a lot more wishes from you. I am eternally optimist that I will continue to get them.

(rskothari) #57

Liked your writing. Why not you write a book as you mentioned there are not many Indians writing books on investing.

Thank you for generously sharing your thoughts.

(The Confused Consultant) #58

Thanks for your candid compliments. Honestly comments and wishes like yours keeps all us going and marching towards objective.

I thought of a launching a free e-book via kindle some time. This is definitely in back of my mind. Before that I want to get my process audited by some professional firm. Also with full time I have become contrarian to my own beliefs most times. I need to settle down on my own philosophy first.

(The Confused Consultant) #59

Market Corrects, do correct and sometime heavily

Yesterday Nifty fell almost to the level of 200 DMA. Technically market indicates it has been lagging from its average and weak.

The recovery from here is not going to be key but intensity of recovery. Overcoming 7/8 big distribution days can not happen with one or two day of small pullback recovery.

Let us forget market direction basis certain patterns and fundamental for a while and focus on our own engagement.

Probable event: Market goes to third leg of corrections or even continued with intensified second leg corrections.

You are down by more than 50%, index is down say 20% plus. You continue to be bullish and expect good stocks will come back.

Feb 15- Feb 16 saw a fall from 9000 levels around to 6800. This is around 24% correction. Let us check what were the multi bagger doing then.

  1. Symphony slipped from 1600 to 800 i.e. 50% cut. It took 2 and half years to cross that level.

  2. Relaxo footwear fell from 620 to 360. A 42% fall. Again after 2 and half years it is able to recover.

You may argue I am taking selective samples, why not Avanti Feeds and Bajaj Finance? Lets check them out.

Both Avanti and Bajaj do not have a major draw down problems despite of market fluctuations. Because they were growth stocks, defy all gravity in their peak cycle. The history will be written when growth stocks matured and goes into saturation cycle. When Symphony fell after being spectacular performer very few thought it will go out of memory. Growth maturity can be assessed by

a. PE expansion that took place from phase I, if you see 8/10 times PE has expanded be cautious.

b. The acceleration in growth is coming down. Look at Bajaj Finance, Jun 17 growth was 39% in EPS and 38% in Revenue. This fell subsequently to 32, 30 and 31 in both. As expectation is coming down PE will be re-rated.

Most importantly your engagement with the stock:

  1. Do you belong to early adapter? Or late majority Or Laggard? Your price will decide your return not the company. If someone has bought Bajaj Finance at 1900 levels the draw down has already been 16-17% in six months.Other hand if you got in at 100 levels back in late 2013 you may be sitting 20 times profits, right? Change your hat, if the stock has gone up by 20 times you may not be sitting at 2000% profit. Your average price may well have been around 400-500. A correction to 1000 (50% cut) brought you back to 100% return in 7 years. Even in the best of breed like Bajaj Finance.

  2. Now say I will average further, I brought down my avge cost from 500 to 300. How, by putting more capital, right? Your absolute loss does not change by averaging out. Say after 2 years stock came back to 2000 again. Post 7/8 years you will have 6 times returns. But no guarantee though of coming back. The question you should ask whether you can do better, not what you have done.

This is my game plan (can be flawed):

  1. Despite of all these corrections my total capital is down 2.8% till date. This is largely due to cash holding levels (profit booking earlier and losses booking recently).
  2. My eventual protection point is 6.5% loss in capital (full exit from market). This requires one year of liquid funds without doing anything. I can sit idle and back in market next year with same capital!
  3. If there is a recovery from here, my research does not go away anywhere. I will start scaling up. Agree, in scaling you wont be able to catch the entire rise. Instead of 50% my average gain would be somewhere 30%. But on a much higher incremental base. It’s the base which supports compounding, weak base can not compound anything.

A. 100 capital becomes 95 and you are out. After one year 95 becomes 102. Market recovers, your 102 goes up 30% to say 132.

B. 100 capital becomes 50 and your are still hoping. Market recovers, you gain 50% to 75!

Put a thinking hat, what works for you!

To add to this I do prepare a metrics showing ‘Absolute Return for the period (each quarter), Percentage allocation of capital against available capital, Percentage invested capital against allocated capital, Market Levels.’ Try this, it will tell you your own foot print.

I will get into my metrics review post 31 March, will update of interesting outcome.

(Divyanshu Bagga) #60

A 6.5% drawdown is much more frequent than 50% drawdown. Don’t you think this approach will give you many whipsaws?

Besides, why exit the market completely? A correction or bear market can be a good opportunity to take short position in fundamentally weak stocks, like the PSU banks in present case.

(The Confused Consultant) #61

6.5% draw down on original capital (plus a opportunity cost to balance). That would mean plenty of locked in profits, just to hint 6.5% draw down will result a 22 year old stock to exit . I don’t build incremental risks with capital, my original risk on transaction 1 rarely gets increased. I make risks negative first before adding to my portfolio.

I did not say exit completely or partially. I do not decide anything emotionally, if my expectancy and metrics says I should go out, I will exit otherwise not. My exit criteria are based currently on:
a. credit risks
b. average profit against historical profit
c. average loss against historical loss
d. holding period against opportunity cost
e. expectancy
f. accuracy

Last but not the least metrics.

For a core portfolio I would include factors like a. growth acceleration b. follow up of close ended competitive advantage c. major deterioration in balance sheet (like significant decrease in reproduction value)

You can say significant changes to entry checklist becomes a exit criteria. What gets added is metrics (this will include performance, market direction etc)

Shorting is a different animal, just to let you know I am short since more than a month now. But again shorting principles are diagonally opposite to long. Another discussion altogether.

If you want to peak into my risk management, I shared a few things earlier in multiple posts.