Suvi Investing Journey


(Yatharth) #62

I do not understand investing so well. For me, Symphony returns are 60% CAGR for 4 years. If I calculate screen price ( not bought price 4 year back ) then return is only 10% or so for 3 years. But I could not have guessed that Symphony will fall so much. A good company, I could not have sold and re-bought. So kept this as it is.
See I sold Gruh at @ 650-670 but now I find difficult to buy ~525 even though I think that it will be 20%+ cagr from here onwards.
Rebalancing is definetely tough for me very now and then. Will learn, may be.


(Divyanshu Bagga) #63

There is a C. 100 becomes 95, and you are out. Market recovers back to 100, but you are unwilling to buy at 100, what you sold at 95. Then it goes to 120, justifying your original Investment thesis, but you will no longer have the position.

Now, when 100 becomes 95, what is more likely - B or C. Even if you get back in again at 100, the same situation can recur, causing losses from repeatedly moving in and out.

In general, the tighter your stop loss is, more frequent C will become. Your stop loss has to be wide enough to prevent stopping out, as long as your original reason for taking position is intact.

I read your previous post. We have slightly different definition of risk (mathematically), so there may be some confusion. For me, risk is never negative. You are distinguishing between your original capital and unrealised profit, therefore, allowing negative risk when you are only giving back part of unrealised profit. This perspective can help psychologically, especially if you are highly risk averse. But this separation is not a useful logical concept. Hence, for me, risk is the amount I am willing to sacrifice on my present position.

I can think of two major differences.

First, when you are long, your position size increases as things move in your favour. But when you are short, your position size decreases with the trade moving in your favour.

Second, the volatility increases as the price moves down, but decreases as it moves up. I suppose, it is because most market participants are only looking at their absolute profit and loss, which depends upon the absolute movement of share price, as long as the number of shares are fixed. It takes time for them to adjust stock movements to the new price levels.

Is there anything else?


(Left this forum) #64

Thanks for your reply.

There is a C. 100 becomes 95, and you are out. Market recovers back to 100, but you are unwilling to buy at 100, what you sold at 95. Then it goes to 120, justifying your original Investment thesis, but you will no longer have the position.

No ,unwilling to buy at any level is breakage of rules for me. My buy is decided basis: a. market direction b. entry set up. I do not mix trading plan here (position size, risk commitment etc). If I am not able to buy at 100/105 or anything basically my behavioural finance is not supporting my execution.

Now, when 100 becomes 95, what is more likely - B or C. Even if you get back in again at 100, the same situation can recur, causing losses from repeatedly moving in and out.

In general, the tighter your stop loss is, more frequent C will become. Your stop loss has to be wide enough to prevent stopping out, as long as your original reason for taking position is intact.

I do not increase my stop loss to prevent myself stopping out. My stop loss is decided basis: Average winning margin- if I am making 15% with accuracy of 50% I will be hesitant to use a stop loss more than 6-7%. In fact when I start losing or get whipsawed I reduce my stop loss and position size.

If you are getting stopped out again and again there may be issue with entry set up or market condition. By giving extra stop loss I will allow myself more losses for a root cause lying somewhere else. If market is hostile there is no point in fighting, if squat is happening after entry I need to work on entry method.

I read your previous post. We have slightly different definition of risk (mathematically), so there may be some confusion. For me, risk is never negative. You are distinguishing between your original capital and unrealised profit, therefore, allowing negative risk when you are only giving back part of unrealised profit. This perspective can help psychologically, especially if you are highly risk averse. But this separation is not a useful logical concept. Hence, for me, risk is the amount I am willing to sacrifice on my present position.

Risk management is build around inherent risk and residual risk. Risk can not be eliminated fully, can be reduced to a extent which is tolerable. As long as I am computing below its fine, I use the word negative risk due to credit amount in risk. Please feel free to give any other name.

  1. My risk of ruin should never exceed zero.
  2. My residual risk should be tolerable at a position level and portfolio level.

Yes I am risk averse, the first thing that comes to my mind is save capital. I look for low risk and high profit . I do not subscribe to the theory that you have to take higher risk for higher profits. I would say I would like to be opportunist but aggressive with a flair of conservatism.There is nothing unrealised profit for me, every thing is realised. The real money I will get if I sell, inability to sell should not become obstacle.Sell should be driven by rules again, my rules are build around to protect profit once I start moving in that direction. Obviously while repeating the process of protection I can not capture entire portion, I have to give it back some of them.

Of course risk is amount you are willing to sacrifice on every position. When a core portfolio gets increased pyramid it creates a portfolio level and stock level risk. I do agree, the R (risk factor) calculation for me is basis transaction or else I won’t get accuracy. Without accuracy I wont know what is my expectancy. Risk have usages at a whole and granular level.

Short selling

Differences lies in multiple places. Position sizing is a money management subject, please feel free to use your own.

  1. The level playing field is not same. Limited opportunities exist in stock market, easier ones are derivatives and intraday (time bound and restricted to some shares). Stock lending and borrowing is not that user friendly in India.
  2. Short selling set ups are different. Traditional long set up like break out/say reverse break down seldom works due to limited period nature.

Again short selling are more target driven as they lasts short. Pyramid etc are riskier, but if you can follow and manage well and good.

By the way money management depends on the metrics one maintain. I do not follow any theoretical forecasting. If my expectancy goes down my position size goes down, stop loss becomes tighter. Reverse is scaling up. Money management to me is not standardized but customised.


(Gary) #65

Many thanks @The_Confused_Consult for compiling this summary. Some of what you wrote rang bells loudly!


(Left this forum) #66

@Gary24

Wisdom are everywhere. Problem perhaps is the way you and I interpret them. I agree we will not be able to comprehend them fully, but wandering mind and adaptability to change can help us to some extent.

I think the best wisdom come from your own foot print and next is from sources which are easily accessible for you. We some time roam around in vocabulary of books, they are all good but can make you indulged in highly contradictory activities. I still remember Agarwal uncle (the medicine shop owner next to my house in my small town). The wisdom he has imparted is priceless, basically he told me key characteristics of business. Later on when I applied them to investing world some dots can be connected loudly and clearly.

  1. Doing a business is participate in management decisions.
  2. You have to get involved in hiring and firing key personnel
  3. Set up a annual operating plan and manage competitive challenges.
    4. Accept low returns for extended period (delayed gratification) because you know the impact of decisions you have taken and what changes are required further.
  4. Put in more capital for growth of business.

As I shareholder where are you involved? None of them, point no 4 is very important to me. My delayed gratification are some where else, my money management. Some examples in market would be scaling up (not greedy to catch end to end rise), waiting tirelessly for right opportune moment even if they take six months. In personal financial plan it can be postponing a luxury trip etc,

Buying a piece of business is NOT getting into a partnership with company. Otherwise investment banks would not have handed billions to executive where shareholders wealth got destroyed by 90%. Driven by envy, small wanna be investment kings like me fail to see difference between Warren Buffet and me.When he invests he takes position in board, he influences decision. He is truly an entrepreneur and that to of highest standard who used low cost money for high percentage returns. Should I not dream like Buffet? Of course I can, but by becoming an entrepreneur not by investing. Majority of entrepreneurs are investors due to capital allocation. It does not mean every investor has become an entrepreneur.

Difference between trader and investor

If you are entering to stock market by doing technical analysis you are considered as trader (may not be for all, for some in India it is). There can not be bigger fallacy more than this. Traders looks for high inventory turn over with low profits. Investors other hand looks for high return for longer period. Investor also earns income on asset i.e. like dividend, buyback etc. Entry set up has has partial influence with nature of activities you are doing. William O Neil is a classic example who use both technical and fundamentals simultaneously. Second is money management and risk management. It’s has nothing to do with word trading or investing ONLY (applicable everywhere), if you have 10 lac rupees to survive you need to have a plan or you perish. The plan is to mitigate what can go wrong? Money management centers around optimizing returns on available capital. Whether you take a bet weekly or yearly is your prerogative.

Jim Paul has provided definition of traders, speculators, investors etc. I would suggest to read ‘what I learned losing a million dollar.’


(Left this forum) #67

I do not understand investing so well.

You own a thousand heart by this word if not billions. You can safely assume you owned my heart at least (temporarily even). Very few have this gut to say this.

Yes, I am of same view re-balancing is a subject linked to method, money management and psychology. It will never be same for everyone. Possible what I can impress you is building rules to help you further enabling you capital allocation strategy. While building rules some of below things helped me:

  1. My own metrics, this is my holy book. More inputs I give I get more outputs:
  • average winning percentage
  • average losing percentage
  • expectancy of a system
  • return consistency
  • losers analysis
  • mood or health impact on decision making

e.g. if you are keeping a stop loss at 45% you will immediately know whether you are going against your history or not. If your history says you never recovered beyond 20% you should have very strong reason why you want to over ride.

  1. Forces of nature
    All of has to gravitate around forces of nature. We can not draw energy without those forces.
  • mathematics geometrically work against you. Lose 50% you need 100% to recover.
  • average goes down when influential participants take it down. Sensex going down for a prolonged period means 75% are losers. Your probability of winning reduced standing against them.
  • momentum controlled by rules set a direction. Like a motion in physics directed properly become a automobile.

I wish you best for your journey.


(gautham1) #68

You are not alone. I haven’t seen anyone who was able to (successfully) re balance on overvaluation etc. The problem is that its difficult to find another company of same quality at a decent valuation.
I am curious to know if you were able to reinvest the sale proceeds of gruh finance. ?. ( I am not asking where you invested, how it did etc). Please disregard this query if its personal.


(Divyanshu Bagga) #69

I am sure you will. The example was to illustrate the psychological costs, besides financial ones. Most people have finite psychological capital; it would be wise to pay attention on protecting it, just like how you protect your financial capital.

So, you make sure that your average profit, when you win, is atleast twice your maximum loss, when trade goes wrong. That’s good. You will breakeven with just being right one third times. Anything higher, like 50% accuracy, gives positive expectancy - you will make profit for every trade you take, in the long term. But there is a catch - getting 50% accuracy with 7% stop loss requires an edge, which comes from the entry setup.

The issue need not be entry method, but that your system does not adapts to changing market conditions. For example, what happens if the volatility increases? If your stop loss is not flexible, your accuracy will drop.
One obvious solution could be to adjust your stop loss with volatility. By making your volatility adjusted stop loss half the volatility adjusted average profit, you can keep the reward to risk ratio of your system unchanged, while at the same time, you may be able to preserve your accuracy in the face of changing market.

You just said what I have been thinking all along! What Warren Buffett does is investing. I cannot do the same with my limited capital. My profit comes from the price difference in my buying and selling price. Hence, I am a trader, even though I don’t use technical analysis or take short term positions for small returns. Ofcourse, thinking like the business owner helps in finding profitable trades. Therein lies the utility of value investing concepts, even for traders.


(Left this forum) #70

I am sure you will. The example was to illustrate the psychological costs, besides financial ones. Most people have finite psychological capital; it would be wise to pay attention on protecting it, just like how you protect your financial capital.

Its not about breaking rules single time but knowing why you are breaking rules when you take a decision. The game is played if you can contain damages of breaking rules. As long as you can build rules around inherent risks to reduce to a level of mathematical protection you are well in game. Yes, you have to protect; to me that’s part of execution. I am not aware of psychological capital. You have excuse me for naivety. For me everything that is accrued is my capital (unrealised profit, dividend, realised profit etc). Everything needs a protection.

So, you make sure that your average profit, when you win, is atleast twice your maximum loss, when trade goes wrong. That’s good. You will breakeven with just being right one third times. Anything higher, like 50% accuracy, gives positive expectancy - you will make profit for every trade you take, in the long term. But there is a catch - getting 50% accuracy with 7% stop loss requires an edge, which comes from the entry setup.

I gave an example, if you want to know my trading performance here it is today morning (being Saturday I update metrics):

Accuracy: 35%, Average winning margin 13.55%. Average losing margin 4.06%, expectancy 0.227 for a average holding period of 8 and half days approximately.

No, you are mistaken here, expectancy does not require you to be managing 50% accuracy or 7% stop loss. It’s a function of
a. winning amount against losing amount (margin and position size both plays a equal role. Due to privacy I have to black out actual numbers of winning and losing. My average winner -amount to average loser amount is 3.97 despite being winning margin to losing margin percentage is 3.34. The difference 0.63 is due to adjustment to position size, stop loss levels etc).
b. accuracy

  • This is performance of one account, I have to consolidate 3 for getting a larger picture. But for educational purpose this should suffice.
    Either you can increase margin or increase accuracy. In fact my accuracy has seldom gone beyond 45% in my history.

Average losing margin can be managed better by learning how to sell into strength. Selling at stop loss is selling to weakness
Edge can come from many places not necessarily fixed stop loss. I use a. actual based stop loss than a theoretical one. b. understanding your losers to whether you are entering early.

The issue need not be entry method, but that your system does not adapts to changing market conditions. For example, what happens if the volatility increases? If your stop loss is not flexible, your accuracy will drop.
One obvious solution could be to adjust your stop loss with volatility. By making your volatility adjusted stop loss half the volatility adjusted average profit, you can keep the reward to risk ratio of your system unchanged, while at the same time, you may be able to preserve your accuracy in the face of changing market.

As I said clearly lower expectancy can be due to market direction or entry set up. Your entry set up should be flexible to adapt to include both.
If your volatility increases and performance decreases position size reduces so does the risk amount. Expectancy is a function of average winning amount and loss, lower size loss will damage expectancy less. Even cut off expectancy ensures you stop trading. By allowing higher losses when you do poor you are bleeding more. I am not sure whether you maintain metrics. If you are running a business and adding higher losses when you are performing poorly you allow mathematics to hit you more. I am reluctant to use any variables which doesn’t have my own foot print. There can be exception, but again breaking rules knowing KPI is different than standardized rule.

  • I do not believe in a risk reward which is hypothetical. I can tell you what my risk and reward has been all these years. I try to improve on them.
  • if you have never recovered beyond 20% in your history and you are putting stop loss of 35% well you are going against your history. You should have a strong reason to do so.
  • if my risk reward is 3 plus all across I do not want to keep anything close ended. Just because I want 4:1 trade it wont happen.

As I said if you have specific metrics I think these questions would have a different meaning. I believe in real value based forecasting than hypothetical. By the way I know where you are coming from. I do not believe in ATR based stops, or any volatility. I am from the school of those who maintain metrics and use customized numbers.

You just said what I have been thinking all along! What Warren Buffett does is investing. I cannot do the same with my limited capital. My profit comes from the price difference in my buying and selling price. Hence, I am a trader, even though I don’t use technical analysis or take short term positions for small returns. Of course, thinking like the business owner helps in finding profitable trades. Therein lies the utility of value investing concepts, even for traders.

I do not have any problem with value investing or growth investing. I do have a problem with interpretation of value investing or growth investing. These are not straight jacket questions as it looks. You enter into game of probabilities no matter which investing you are doing. A time tested investing philosophy will allow you to increase the probability of winning, no method will ensure certainty!

Take this way, many methods to win, few methods to lose. Develop a method and stick it to it. Measure through metrics, very few maintain metrics to my knowledge.


(Left this forum) #71

I appreciate, your questions are intriguing, seldom I come across this philosophy in this forum. I am not going to tell you this is the best fit method but this SUVI FIT METHOD FOR NOW. :grinning:

I do adjustments at various levels i.e. stock or portfolio. Whether it’s position size or risk size.
Some examples below, to write everything in this thread will become too much for me now.

Expectancy Pos Size
Between 0.4-0.5 1X
Between 03.-0.4 0.75X
Between 0.25-0.3 0.5X
Below 0.25 Fixed
Between 0.5-0.60 1.20 X
Between 0.60-0.70 1.40 X
Between 0.7-0.8 1.6X
Between 0.8-1.0 1.8 X
Beyond 1.0 2X

Market Direction Confirmed Up trend
Stop loss and trailing stop loss Adjustment
Core portfolio 20%
Trading 10%

Market Direction Uptrend in pressure
Core portfolio Normal
Trading Normal

Market Direction Down trend
Core portfolio -20%
Trading -10%

  • As I said these are adjustments to metrics. Not absolute percentage. Say my winning % is 20, I want to keep a stop loss 10%. If the market is in down trend and I want to take a position I will adjust 10% downward i.e. 9% stop loss.

Some key charts I use:

Accuracy for this year:

image

Average winner

image

Average loser

image

Winner to loser ratio

image

Residual risk

image

Expectancy

image

It says everything about my stop loss, expectancy, winning. Of course am I saying this is best method? No, this is what customised for me basis my objective. I will try to improve whenever I can.

I am getting into metrics review next month. I will share more granular level stuffs if that is of interest to anyone.

  • Core portfolio metrics I prepare once in a quarter, a larger one at year end. Let me paste them then.

Thanks again for your questions. Best wishes

More data for you, loss distribution curve of my account. This tells me how stop loss has been managed:

Minus 10 to Minus 5 Minus 5 to Minus 3 Minus 2 to zero
40.30% 23.88% 35.82%

My stop loss for most of the year was between 8% to 5% (considering adjustments to market conditions). 60% losses booked below original stop loss level, selling into strength is another chapter. I am more interested meeting my objective, enhancing it and sustaining it. Everything has to got a number, if we can not have 100% number that does not mean we should have 90% hypothesis.


(Yatharth) #72

I had taken slightly large leverage. Using the proceeds of Gruh, I have made my overdraft zero. As I could not get anything, I am just waiting. However, I think some of the large caps like Yes bank, Motherson Sumi, Eicher Motors and even HDFC Bank provide decent opportunities. I may nibble into these. See, I am looking only for 15% CAGR and I believe that over the next 3 years, any or all put together , these have a good probability of giving this.

Though I like this statement - “Why should we risk what we have for what we do not need”; some of the additional amount I have used in buying fancy small cap names and sitting in 15%-20% loss. Learning … as I should not have done this.

But I am yet to become a serious investor, so making mistakes and incorrect presumptions.


(Divyanshu Bagga) #73

I agree with your definition, but with a slight modification. It should be average winning margin against risk margin. The average losing margin may or may not be indicative of actual risk taken.

Is it rule driven or intuition driven? If this selling is according to the rules of your system, then yes, average losing margin indicates the risk taken by your system. Otherwise you are not measuring the expectancy of your system, but of your performance with the system.

I rarely have to sell at stop loss as well, but it’s better to err on the side of caution and assume the risk taken is given by stop loss margin.

Increasing the stop loss margin does not imply losing more money. The actual amount lost is the product of stop loss margin and the position size. If my stop loss is wider, my position size will reduce accordingly to keep the amount at risk constant.

You got me there. :slightly_smiling_face:
I believe in breaking down the raw data into concepts, and then testing the prediction of those concepts. Thinking in terms of concepts and their relationships allows one to formulate right questions. Without these questions, I will be looking at the solution and yet miss it completely.

That said, I also subscribe to Popper’s philosophy. Their are no absolute concepts; they are only approximations to reality, but the actual reality cannot be deciphered, it can only be experienced for what it is.

I agree, but it is a game of uncertainty, not probability. You don’t know the odds of being right or wrong, assigning it a number gets into recursive problem. You don’t know the odds of picking the right probability value either.


(s) #74

To experienced professional Mr Suvi…Markets behave irrationally … 2017 theme was the party is never going to end. Suddenly the fall brings reality of overvaluation, Global slowdown (though earlier even North Korea Kim Jong, domestic turbulence demonetization, RBI crackdown, Trump’s election win all negative indicators were absorbed in stride ). The market seems to be paralytic now fluctuating between 33k to 34K . Markets have made up there mind on market top for the year as 36 k…What is the bottom looking like. Will 33k hold as bottom. Your expert comments please


(sandriano) #77

Sorry to hear that. May her soul rest in peace.

Roberto el S