Suvi Investing Journey

Investment Learning
10

Rather than advising number of stocks etc. let me put something else which may be relevant for you.

Allocate capital, go ahead and allocate more and more.

  1. But make sure you have them plenty when you need.
  2. But differentiate execution from research.
  3. But either never increase your risk or increase risk to the level you can tolerate.
  4. But have a plan to recover losses when you incur them, update a checklist to avoid catastrophic losses.
  5. But maintain metrics to understand what you want to achieve.

First BUT

We are in a place where uncertainty is way of life, market is about roller coaster. That would mean opportunity will be thrown everyday every cycle. Do you have capital allocation plan to grab most of the opportunities? I can share with you what I do:

  • I deploy capital which works for me and withdraws which does not work for me. This means if a stock does not perform for a threshold time (no need to worry about time, once you practice you will come up with your own).
  • I do not invest into a share if the market conditions are against me. I am not of the school stock is cheap. I am here trying to make money higher by selling at a higher price.
  • All money unutilised fetch me 7.1%-8% comfortably from liquid fund with turnaround time of 24 hours. Unless I am not getting that type of return I pull back from portfolio.

Second BUT

Research is good and we love them all. Let us continue to do those good things. But market place consists of many characters with different mindset. How do you ensure your research is complimenting capital allocation?

  • I keep a watchlist of stocks, currently around 61 stocks on watchlist. I try to update business stories, results regularly for all of these stocks to best of knowledge and abilities. But just because my calculation says there is a margin of safety 50% I dont jump and buy.
  • Rather I wait for others to jump in first and then join the party after some time. A multibagger moves from 100 to 2000. I am happy if I can join at 300 and get down at 1500.

Third BUT

Risk first is corner stone of any place where you deal with probability. If you are likely to lose more than you win capital protection becomes paramount particularly when you play with your own money.

  • Unless a purchase gives me profit and makes me risk free I do not add. Meaning if I buy a stock at 100 rupees my first calculation will be how much I can lose say 10%, that means at 90 I will sell the stock. If the stock moves to 130 first thing I do is make the first transaction which I purchased at 100 free of risk , meaning I won’t sell below 100 i.e. my purchase price. The risk that got freed from transaction 1 becomes available for transaction 2.
  • From a freely available capital i.e. say I have 1 Lac rupees to invest. I do not put risk in such a way I get wiped out easily. Say I will try with 1000 rupees risk each time i.e. 1%. At least I can survive 100 times, imagine I put 25000 each time. 4 knockout punches, I am done and dusted. But losing 100 times in a row is far more difficult.
  • I only buy and hold stocks if the risk becomes negative. Majority of stocks I have hold more than 5/7 years were all having negative risk.

Fourth BUT

Losses work geometrically opposite against me, more the losses more I have to recover them. If you lose 10% you need 11% to recover. If you lose 90% then you need 900%, recovering 900% is just madness!

  • My losses are decided on profits I achieved. If my average return in a stock per year is 20% I do not allow losses more than 7-8% average.
  • Whenever there is a slippage out of my control I just go out of market and comes back when I feel comfortable. Even if the entire market has green ticks everywhere.
  • If I am given extra ordinary profit I try to sell into strength. I do not want to sell when everyone is selling but I want to buy when everyone is buying. Say if I make 50% money on a stock I sell at least some profits and locked them.

Fifth BUT

Actual results show the way for a customisation. Do not believe in standard numbers thrown by others, that may be working for them, may not work for you. In short maintain metrics.

  • Maintain your own gains and losses. You will know how much return you can achieve, work on that to improve. Also, it becomes a tool how much losses you can take to survive.
  • Include time element into your calculation, either you rotate capital with low margin or maintain capital for a long period with high margin.
  • Analyse every loss what went wrong?

Money management and risk controls are the most significant subject for me. I would write in detail on the other thread. Small caution there, I do follow different plans for investing and trading portfolio, but principles remain same as I explained above.

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