mission statement

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This is my last blog for the current year 2015. I started blogging this year about my thoughts on financial wisdom and management for everyone. I started with retirement planning, how you can plan your life such that you never have to worry about retirement. My main objective was to take the financial worries and fear out of your life which I think is completely unnecessary and still so many of us suffer with it throughout our life. I personally suffered financial worries for the initial part of my life and hence it is a matter close to my heart. I want to cure and eradicate this disease completely to the extent possible for me.

Beyond financial worries & wisdom
In my search for financial wisdom, I got much more than what I was looking for and that is what I would like to discuss today. What can be better than a life free of financial worries? Well .. a life with a purpose and a personal mission statement.

How?
Try out a small experiment. Assume that you have completed everything in life that you need to do. All your responsibilities have been taken care of. Family, kids, parents, relatives, friends, loans, everything has been taken care of. Assume that everything you wanted to achieve has been achieved by you. You wanted to buy a car, house, become the CEO of your company, accumulate wealth, become famous, learn something ... everything has been achieved by you. Assume that all your desires have been fulfilled. You wanted to marry your love, visit some place, take a long vacation, do scuba diving, take a trip in outer space, buy a fancy art ... all of your desires have been fulfilled. Assume that all your problems have been solved. Bad relationship, health issues, day to day chores, pending work ... all your problems have been solved completely and permanently. There are no more problems in your life now.
Now close your eyes, relax for a moment, clear your thoughts, look deep into yourself and ask yourself this simple question "What do you really want?" Now that you have nothing to worry about, what do you really want?
Think ...you have a long life ahead of you, there are no worries in your life, all your responsibilities have been taken care of, everything you wanted to achieve for yourself and others has been achieved. Now what do you want to do with all this time in life that you have in your hand?

Think .. keep on thinking
Think about it, keep on thinking. If anything comes in your mind that falls into the above category of worries, assume it has been solved. Think more. If what comes to your mind is a responsibility, assume it has been taken care of. Think more. If what comes to your mind is something you wanted to do or achieve and haven't done yet, assume it's done and already achieved. Think more. If it is an unfulfilled desire that comes to your mind, assume that it has been fulfilled and keep on thinking about what do you really want? Don't worry about possibilities and probabilities. Assume everything is possible and assume luck is always on your side, now think what do you really want?

Seek and don't give up
Friends, seek this answer because once you find the answer to this question, it will become your mission statement for life. It will be that something which if you accomplish, will take you to a state of complete satisfaction. On your last day as a living entity, it will give you complete satisfaction about the life you have lived. It will be the purpose of your life. What you were born to do and not what you were forced to do. Think about it, keep on thinking friends until you get this answer. Think about it whenever you get time. Think about it as often as possible until you get the answer.

My Experience
It took me about 7 years to get this answer. It also took me several personal failures and a few minor victories to get this answer. It took me a long time of complete existential crisis to get this answer. It made me completely restless and think continuously about what am I doing in life, why am I even alive at all? And finally I got it and I reached that state of personal satisfaction knowing that the rest of my life will go in this journey that I was born to take.
The most important part of the above discovery were those few minor victories that gave me the confidence that I could achieve my goal in this life, my mission statement. As far as I can remember, I have always been happy, satisfied and worry free irrespective of all the day to day odds and evens in life, ever since. I could be superficially sad or angry on some days but deep inside I am always happy and satisfied.

Mission Statement
Once you have discovered the purpose of your life, come up with a mission statement. A statement that defines exactly what you felt when you first discovered the purpose of your life and then write it down and always hold on to your mission statement. Keep it close to yourself, keep it a secret. It is your personal mission statement. It is between you and your life. You don't need confirmation or appreciation from anyone else on this. It is a very personal matter. Guard it very closely. Friends your mission statement cannot be anything small or trivial or something that can be achieved immediately. It has to be something great. Something that will last and be with you, your entire life. Something that will give you complete satisfaction about the life you are living and have lived. Your mission statement cannot be about your family and kids. It is about you, just you. Friends, stop living for others in the self-sacrificial sense, stop living for short term gratifications, stop living with worries, stop struggling for trivial achievements, discover yourself and live a full and happy life!

What's wrong with an ordinary life? 
Nothing, except that it's ordinary whereas each of you were meant for something great. 

the truth is out there

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The truth is out there but very difficult to find. In this age of information unfortunately the virus of lies and propaganda has taken the dominant position. Truth is rarely spicy and exciting and remains silently buried. On the other hand, lies can be made as spicy and exciting as desired by the presenter and spreads fast in the world of headline news, micro tweets and picture posts where convenience and time takes priority over facts. Truth unfortunately lies in the details and not at the surface and is difficult to dig from the heap of lies, is time consuming and almost never convenient or entertaining. However success can be achieved only if you can achieve truth. Success cannot be achieved based on lies and false information.

Role of news media
Today conventional media is full of lies and propaganda. Presented by average Joe and sexy Jane they feed you with nothing but lies. The news presenters and the entire machinery behind them is doing it for name, fame, money, air time, ad revenues and top slot competition for which they want exciting stuff. True or false, accurate or inaccurate doesn't matter to them. Immediately this might sound as an extreme statement but as you start exploring the facts, you will realize that this is true.

Where is the truth
How do we find truth? First get rid the conventional media. If not intentionally feeding you with lies conventional media is full of reporters with less than average IQ and low ethics who present their opinions and interpretations and not the facts. You want the facts go for non-conventional sources of information. Go to documentaries and presentations by subject matter experts, scientists, researchers and hands on the ground workers. Listen to their interviews, chat shows, listen to their speeches. Take the information directly from the source and that is the only source of truth. If someone is presenting you information and that someone is not the original source of information itself he has most likely messed up the information already and whatever he is presenting to you will lack the essence or will be complete junk. Ironically some countries are proud that they provide complete freedom of speech but it is useless since there is no freedom of facts.

What is news media good for then?
News media is ok to follow when you are following a mechanical news, hard numbers, example Company X reported the following results for this quarter but don't take their opinion on whether the result is good or bad. Listen to the company promoter or research analyst for it. Similarly news is ok to follow if they say rocket xyz was launched successfully or crashed after take off but not if they are giving the reasons behind it. You really want to know why the rocket crashed or got launched successfully, then only listen to the rocket scientist and not to the average Joe or sexy Jane presenting the news. Some journalist and news presenters are good, unfortunately very few, very very very few. Follow them closely once you have built a trust with them. It is ok to rely on them for information. The point is before taking a piece of information first focus on who is presenting it, If the presenter is an idiot then what he is presenting is surely garbage. If the presenter is not the direct source then what he is presenting is either intentionally manipulated or unintentionally inaccurate. If it is directly from the source then it is likely to be genuine. If it can be confirmed from multiple sources then you probably have what is closest to the truth. There are some areas where there is very high degree of manipulation, politics, finance and healthcare are some examples.

How to do it?
Fortunately it is not that difficult now a days. Follow the genuine sources and experts on twitter. There are lot of you tube channels that bring you information directly from the source without having a news presenter or a news broker in between. Follow documentaries, interviews and chat shows instead of news channels. Learn to verify the authenticity of any news by correlating the presented numbers and information and confirming it from multiple sources. Similarly learn to identify lies by looking for contradictions and anomalies. Spend time. You want to get to the truth then spend time trying to get the details on the subject. Don't form an opinion based on  biased information sources, headlines, sarcastic/funny one liners and picture posts. Look for details. Spend time if it needs time.

How it helps?
 It helps your mind in the same way healthy nutritious food helps your body over poisonous and addictive junk food. I follow news around the world very closely to keep track of my investments and I have learnt it the hard way. News presenters are either too stupid to present the pure truth or are intentionally manipulating the information for various reasons. Don't follow or believe them blindly, build your own sources of credible, intellectual and genuine channels of information and follow them. Detoxify yourself from lies of the world. Once you know how to get to the truth, success in life will be easy in whatever field you are working. So it helps in becoming successful and getting a clear picture of what is happening.

I always knew I was going to be rich

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'I always knew I was going to be rich. I don't think I ever doubted it for a minute'
                                                                                                    ---- Warren Buffett

Those are the famous words by one of the greatest legends ever in the world of investments and fund management. Most of us spend our life worrying about money. I have many friends & relatives who are coming close to retirement and they worry so much if they are going to have enough once they have to let go of their job and monthly income. And here we have someone who always knew that he was going to be rich, even before he became rich, much much before retirement, infact closer to his childhood years.
Warren Buffet today is one of the richest man on earth almost as far ahead of the second category of rich people as pluto from earth. Warren is so rich that he had to hire Bill & Melinda Gates to just donate all or most of his money away for charity and they happily accepted the responsibility with great pride. Warren also made several others filthy rich, friends, families, early contributors and a long list of loyal followers & investors. They are all millionaires.

It should be then interesting to figure out how Warren always knew that he would be so rich and successful in life way before he even achieved it. Who else can you think of had so much confidence? Edison, Newton never said that they always knew that they will be the greatest scientist, Steve Jobs never said that he always knew that he will be the greatest technologist, Gandhi never said that he always knew that he will the greatest peace messenger, you never say that we will be greatest parent ever. Then what gave Warren Buffet the confidence to say this?

The answer is simple 
Simple compounding mathematics. Warren knew he had P amount in present (which is not rich) but he can compound it at 15-25% per annum forever from here by investing it. And using a simple formula he could easily see how much he will have as he keeps compounding his P year after year which would become F i.e Future value which after elapsed time t makes him super rich. He knew it and it worked out exactly how he knew it (few things here and there).
If you play around a little with this simple formula using different combinations of P and n, you will be amazed to see how it can transform some very small and humble number in present (P) to some really magnanimous number in future (F) given sufficient time (n)

Compounding formula from wiki

 

I am a Warren Buffet fan!

Of all the many reasons, this is exactly why I became a fan of Warren Buffet. It is one thing to celebrate success for one day after slogging for years like the Edisons and Newtons and Steves of the world and It is a completely different thing to always know that you will be successful and make success a part of life instead of one moment or one event thing. This is where Warren Buffet is far ahead of everyone. He has a successful life and not a successful day or event to his credit. Life is all about inspiration and not material success and Warren Buffet inspires me the most. 

Just look at him, he surely knew everything all along. That's the happiness on his face. So who is the one that inspires you in life? Do you also know if you are going to be rich or successful? trust me it is a good life to know in advance :)

Market bottoms and Everest peak

New highs
Most common investors know the market top very well, because there is euphoria all around, markets are hitting new highs every day, everyone is making lot of money, people are moving around with a broad smile on their face, buying new cars, clothes and planning great vacation packages. Everyone is pumping in all their money into the market to join the party. However very few and almost none of the common investors are able to encash their profits before the market tops out. Market swiftly hits the peak and comes rolling down leaving the euphoric investors with just a number, a new peak at which they pumped all their money in and a peak that now looks farther than the Everest peak.

New lows
On the other side when markets are making new bottoms every day or grinding lower slowly eroding your networth everyday, it is way to painful to monitor it daily. Most investors prefer to forget  about their portfolio during this time and concentrate on important things in life like career and family. Well, until the market comes roaring back again and slowly the news starts spreading and again you start seeing positive news and cheer on some faces and then its time to again start pumping money into the market.

The cycle of highs and lows
Do you see a problem here? these investors are bound to invest everytime at market peaks and lose every opportunity when the market troughs. This happens every cycle and over time these investors lose their money and heart and just stop and try to rebuild their lives by working harder and longer hours in the office hoping to get few extra percent increments at the end of the year to compensate all the loses made in the market. Even worse they start saving on all the necessary expenses also to compensate for the market loses. Slowly they become bitter and unhappy. Now do you see a problem here?

Everest Peak
To reach the Everest peak you have to start at the bottom, go step-by-step acclimating to the thin air as you move up. You cannot directly drop yourself at the Everest peak. To reach the peak in the stock market you have to do the same thing. If you are not prepared for this, you should stay in the valley. The mountain peaks are not for you. Sorry, no better way to say this.
What applies to the market, also applies to each of its stocks. Stocks are genuine businesses. They go through cycles both good and bad. Great businesses run by great people survive the bad cycles and thrive during the good cycles. Great investors do the same.
New highs or new lows, peak or trough, easy or difficult, volatile or stagnated, remember wealth is created by great investors and not by great markets. Don't worry about what others are doing. Not everyone reaches the top. Focus on the Everest peak and stop worrying about the chilly wind and everything else. Enjoy the hike no matter how difficult or grinding it may seem. This is a spiritual victory that is bigger than anything else, not for everyone but just for the very few who can hike up from the bottom to the peak.

what's in it for me

In stock markets investment ideas are generated from news and events. While analyzing the event one of the most useful question is "what's in it for me?" Me being the common shareholder. Let's discuss an example because examples explain things better :)


What about me?
A company just announced a mega asset sale at premium valuation, one of the largest deal of its kind in the sector in a long time, which sounds like a great news .. time to take a big bet .. but hold on, this is not sufficient information for making an investment decision.
To decide whether to invest or not in this company based on this news is to find out "what's in it for me?" What is the promoter of the company going to do with all the cash received from the deal. Let's consider the simplest case first. If the company management says something like they want to use atleast part of the cash to reward the shareholders by paying out a handsome dividend, then sure it is great news. Management is shareholder friendly and is willing to share wealth with the shareholders of the company so there is something in it for you. It is worth an investment consideration.
If the management says that they want to use the entire cash consideration for retiring debt or immediate expansion plan, it will benefit the shareholders of the company not immediately but in long term in the sense that the company will have a healthier balance sheet due to debt reduction or higher revenue due to business expansion hence higher profits and better valuation for the stock price. But this should also raise a red flag, why? Well debt management and business expansion is part and parcel of any business cycle and will always keep going on. How funds are utilized into these things is opaque to the shareholders. If even after such a historic event in the company the management is not willing to share even a small  fraction of their gains with the shareholders in a direct and transparent manner, then atleast you can conclude that the management is not shareholder friendly and will always try to retain the profits within the company. So this is not the best of investment.

If the management is completely non-transparent and tight-lipped about the cash utilization or has a very abstract in-the future plan and is retaining all the cash within the company, the only thing you can be sure about is that "there is nothing in the deal for you" Then all is not well and there are better companies and management to invest your money with. You must definitely not invest in this company. If you already have invested in the company in anticipation of the deal, consider exiting and black listing this company and all other group companies run by the same people.

Beware of the good news trap
Note that many investors fall for this good news trap committing large investments just on the announcement of the good news without analyzing what is in it for them and come back empty handed and disappointed. Sure the news could be great for the company and its promoters, what you need to figure out as a shareholder before investing is that , is the news good for the common shareholder of the company.


So what do we learn from this simple question
Great companies, great management treat each shareholder as equal owners of the company and share the successes transparently and happily and take great pride in it. If a company or its management is not able to prove this then it does not merit investment of your hard earned money. Basic simple check to identify and be part of a great long term secure success story, isn't it ?

not fooled by randomness

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The inter-connection
The exchange is a place that connects everything to everything. In effect it connects you to everything and everything to you. That's not one or two things but several hundreds and thousands of events everyday. Each of these events can impact you positively or negatively. Each of these events can impact you significantly or insignificantly. The events are neither independent nor one off. They have complex inter-connections and have a history behind them. It is important for you to see this connection, to see what is happening around the world and understand what will be its impact. Only then will the insane price tickers on the stock exchange start making any sense to you.

Random or real?
There is a reason behind everything. Nothing is random. But as the number of variables impacting something becomes large, things start to look random because you lose track of the variables and then the equation in your mind becomes incomplete and what cannot be defined by an equation looks random. There are complex theories people use to identify patterns out of randomness like fractals, elliot, fibonacci. These complex patterns are often seen in nature because every event in nature is also a function of large number of variables and hence very complex. But nature has a pattern, we don't see nature as random, right? Something very similar happens in stock markets too.

Beauty of randomness

Something that cannot be defined in absolute terms, cannot be reproduced or mass manufactured but has a pattern to it remains perpetually beautiful because it is unique. That is why nature is beautiful. There are millions of roses but each rose is unique and yet they all follow a pattern. However a teddy bear produced in a factory might look and feel good once or twice but after that it is boring and useless especially when you see hundreds of them racked together in a shopping mall. Similarly stock market is beautiful because everyday in the stock market is unique and every tick in the stock market is unique. There is a pattern but there is no absolute equation that can define the stock market behavior.

Pattern vs points
So how can we use this understanding of pattern and randomness in stock market? For one thing many people waste lot of time trying to accurately predict price points like this stock will hit a target of 32.56 in three days. It is the biggest waste of time and foolishness of the highest degree because like I said above every tick in the stock market is unique and hence cannot be predicted. If you could predict a single price point in the stock market, you can easily become a millionaire by betting all-in on that point however it never works like that. What you can do at best is "understand" the pattern and align yourself with the pattern. It is not intuitive at first because when you think about stock exchange the first thing that comes to your mind is a ticker of red and green numbers and to say that these numbers are meaningless and unpredictable is counter-intuitive. Most of the truth in the world is not what it seems, it is hidden in layers below the visible surface and stock market being as complex as life itself also has similar characteristics.

Lessons so far:
Is stock market random - No
Is stock price predictable - No
Does stock market have a pattern - Yes
Can I predict the pattern - No
Then what the heck?  You can just align yourself with the pattern and enjoy its beauty

How to study patterns?
Patterns can be very simple like continuously rising stock price or continuously falling stock price. Patterns will differ based on the time window you look at. If you use large time windows the patterns are clearer and easier to understand and align with. If you use small time windows the patterns will look erratic, volatile and random or just noise. Try this by refreshing the quote page of a stock every few seconds while the market is open and try to predict the next quote. It is absolutely bizarre. Now try to look at a one year chart and possibly you will see a pattern like rising or falling or range bound. Then try to look at 1 year charts of several stocks and again all the charts would seem random. Here feeling of randomness is due to the lack of knowledge about the events that impacted the stock you are watching. So take one particular stock and start reading about its 1 year history and start mapping the major events to the price movement in the chart and you will start seeing some kind of method to the pattern. Look for dramatic changes or reversals or accelerations in the pattern or trend and try to find reasons behind it and the chart behavior will start becoming clearer to you.

If I had all the time in the world to do this :)
Yes, we don't. Even if we were doing this full time still we cannot analyze things in such detail and keep track off so many things. But the point of this one time exercise is to get your understanding about the stock market right and not to drown yourself in the events of the world. If you understand the stock market as random you will try to take random bets and end up with random often disastrous results. If you understand that there is a pattern, a method to the stock price movement, you will be able to take much more intelligent and accurate decisions and you will be much more comfortable with the fluctuations you see in the market based of how and how much you understand it. You will be able to separate pattern from the noise. So the point of this blog is to understand how not to get fooled by randomness but to understand the patterns that look random.

More about patterns?
Well as far as patterns are concerned, I will have to write a book instead of a blog. Especially the relatively complex ones like elliot, fibonacci and fractals are much more interesting and useful than the simplistic "head and shoulder" and "cup and handle" one's. I have my own techniques which literally enables me to have long and interesting conversations with the stock and market charts  ...but that is for some another day, another time, another blog .. till then don't be fooled by randomness because nothing is random !

envy not jealous less

Envy vs jealousy
Something I didn't know before starting on this blog .. so let's get that clear first, the two terms mean very different .. Envy involves wanting to have something you don't already possess. I'm envious of my colleagues BMW car. (I don't have a BMW car). Jealousy involves wanting to hold on to what you do have. The woman was overcome with jealousy when she saw her husband talking to his secretary.
We will mostly focus on envy in this blog because I have an interesting Warren Buffet story to share on this topic :) , but remember that dealing with jealousy is equally important. I am sure right now several parents are screwing up atleast one of their kids by comparing them math score to math score and class rank to class rank making them feel envious of the other for being more favorite to the same parent. I guess that example explains sufficiently that the lower rank kid's jealousy is going to have far reaching implications both for the kid himself and his parents in the coming 40-50 years of their life together and it is not going to be a pleasant one.

Well let's move on to the easier and lighter topic of envy now.

Owners pride neighbor's envy 

Who does not remember this envy devil from Onida (mirc electronics)? 

Some might say that envy is natural. It helps you get competitive. Some might say that they are content with what they have and they don't envy at all. Trust me it is more prevalent than you would like to believe. Think about it, almost all the ad and marketing campaigns in the tech, consumer, and luxury segment is about how buying a certain product will make others envy you. Look at all the smart phone, luxury cars, real estate, beauty product, deodorant ads more carefully. Slowly and steadily we are being injected with this desire of being better "relative" to others or being the object of envy for others so that the manufacturers of these products can increase their sales volume, revenue and profits. That's how prevalent and exploited envy is. We feel it ourselves and make every effort to make others envious of us and spend a better part of our life trying to achieve such meaningless goals. It is prevalent because everyone goes through the same social pressures. We think, everyone feels it, so its fine, not a big deal, that's the way of life.

Buffet (Stock Market) wisdom to the rescue
Fortunately I came across a video of Guy Spier talking about his $650,000 lunch with Warren Buffet. Guy Spier mentioned in his interview that the lunch date was more of a life lesson for him instead of an investment lesson and thankfully so.
He asked Warren about how to deal with envy, something he was struggling with for sometime now in his professional life. He was expecting a huge dose of wisdom from Warren in reply to his question. He was very serious about it since it was impacting his life and career and happiness. Warren simply answered that he doesn't know.
Guy Spier was kind of disappointed and unsatisfied with Warren's response and was left to introspect on it by himself. He kept on thinking about Warren's response .. and finally after a really long time he got the answer .. Warren Buffet is so much self aligned that envy is something he doesn't know about at all. Envy by definition is an emotion of wanting to have something that you don't have and you see others having it and crave for it. There was no such thing for Warren Buffet. He was perfectly self-aligned. There was nothing that he desired based on what others had. Not just by virtue of being richest person in the world but because he was completely and perfectly self-aligned. Warren Buffet might be the richest person but then he is not Johny Depp of hollywood or Steve Jobs of the tech world and he doesn't care. He is happy most doing what he does best, fund management and value investing, perfectly self aligned.
Imagine the greatness of this man, even by not knowing something, he has such profound lessons to offer. Envy grows on you more and more as you become less and less aligned with yourself and desire to align with someone else or what they possess. In the process you lose sight of what you have  or are capable of achieving while craving for what is not meant for you, which to a large extent poisons your mind. On the other hand if you are completely self aligned, you are in prefect equilibrium, you make the best out of who you are as an individual and what is best for you. In this perfectly self-aligned state of mind you can reach the heights that no one else has scaled in your domain of expertise and liking. Now tell me .. wasn't the lunch worth the $650,000 price tag for Guy Spier? totally worth it ! Fortunately for us it is free :) .. so as far as possible envy not and jealous less .. listen to music and enjoy life !

US rate hike

The biggest sword hanging on the entire "mother of all bull market" theory is the impending US fed rate hike, which is coming soon. How do we prepare for it? Well one possible approach is to study if a similar thing has happened in the past. If yes, what happened then? Fortunately it has happened in the past, so we have a reference point to study .. yay !!

Asian crisis 1997
Last time America raised interest rates in 1994 sparking a financial crisis in Mexico, which could no longer afford to service its debts. A couple of years later the crisis spread to asian countries like Thailand, Korea and the Philippines. Their currencies tumbled, investors fled, stock markets crashed, sparking fears of worldwide economic meltdown. Western stock markets also fell, but rebounded quickly after the Asian countries agreed to fierce austerity programmes. The whole asian crisis lasted for 46 days before recovering to the pre-crash levels. However the austerity measures adopted by the asian countries caused a slump in the commodity market affecting countries like Russia who run their economy on commodity exports which lead to another global panic in 1998. This also lasted around 44 days before recovering to pre-crash levels. Compare this to tech bubble crash of 2000 that lasted for 3 years and the 2008 subprime mortgage crisis that lasted for 1 year followed by the Greek debt crisis in 2011 which lasted for approximately half a year. US interest rate hike does not look like a big deal as long as other countries keep their debt to GDP manageable (for India that is the fortunate case).

What can happen when US hikes rate this time

I think there can be a blip effect (30-50% depending on your portfolio beta) and you have to be prepared for a couple of months of intense pain in the market, possibly followed by an equally sharp recovery. Which means if you have enough cash in hand and deploy it smartly during this blip (if you get it), you would earn enough for the next ten years in just a few months time. If you have atleast a percentage of money in hand during this blip and deploy it smartly to average out your losses, you would recover almost as soon as the blip recovers and be back in business in no time. If you are fully invested before this blip, you might take about a year to recover, still not a very big deal. It will be like a bomb blast, if you got caught at the center of it, it can be fatal (late entrants who rush to invest in wave-5 of the rally) but if you survived the moment, it should be fine from there on.

For the survivors
If this is followed by another crisis situation like Russia crisis the market could stagnate for a few years before getting back to what it does best i.e making you rich. However if this leads to an accelerated bust of the bigger time bomb, .. actually a nuke bomb .. called the global debt bubble .. then we are all screwed. Make no mistake then it won't matter whether you are invested in gold, real-estate, debt or equity, or you are dependent on your salary for monthly expenses, we will all fall down, flat & hard. Only people who will do well are the one's who have hard cash locked in their lockers at home. But you know it, nuclear bomb is usually an "end of the world" scenario so everyone will try their best to not let it happen.

Keep your bomb disposal suit on .. but don't give up the fight
Assuming that a financial nuclear explosion will not be allowed to happen through combined efforts of the world, I think equity is still your best option even today (weighing risk vs reward) and US rate hike is more of an opportunity (if you are smart enough and prepared in advance). Most of the symptoms are already unfolding around the world. Many small countries are on the verge of defaulting or already defaulted. Lot of commodity related sectors are already in deep crisis. However the world is and likely to continue to be supported by few big countries who will keep it going. Forget not, a very big global rally trigger is also impending. If the conflict situation in the middle east comes to an end in couple of years from now, it will trigger a global market rally of epic proportions, this time commodity market included. Luckily we are on the brighter side instead of on the darker side. So let's see how it plays out and be prepared .. keep your bomb disposal suit on for the smaller bombs which will explode, hope the bigger bombs don't explode and are diffused by combined efforts of the world together and wait for the middle east crisis situation to end which will also happen soon. You will love what comes next ..

self-review

One of the things that has helped me the most in my investment journey is self-review. Not once or twice a year, but continuously. My usual investment routine consists of tracking all the latest developments around the world, in the stock market, in specific companies, look for interesting stories and then make calculated bets based on my experience. But anything that gets into a routine, be it life or investments, there is always a chance that you become robotic about it and start missing the finer details often getting off track. Good thing about stock market is that it punishes you as soon as you get off-track unlike life where you can be off track for several years before you realize it and it is often too late before you realize it. Life also punishes or rewards you sooner or later but it mostly works on accumulated debt settlement model, which is kind of irritating. Well I am not a life expert but let's talk about stock market where I do know a thing or two :)

Example explains things better
Recently I had taken a fancy to investing in holding companies that were de-merging their subsidiaries and providing free shares of the de-merged entity to the holding company shareholders as a value unlocking exercise. I made many such successful bets and went crazy on this strategy investing larger and larger amounts of money on every new opportunity making bolder and bolder bets. What can go wrong? I have already made several successful investments on this theme. I was accumulating large quantities of one such company after it came up with a de-merger announcement. For me the rationale was simple, de-merger = value unlocking = profits and hence go blind and big on it. This particular stock soon reached the top investment rank in my portfolio without me realizing it since I was buying chunks of it every now and then. One weekend when I was just reviewing my portfolio casually, this company caught my attention on how it had become my top holding a bit too fast and at a fairly high price compared to what I would normally pay for a company like this. I started thinking about it. Just a blank thought, what am I doing here? I went through the de-merger scheme again trying to analyze the whole deal. What struck me was very interesting. The company was actually hiving off a very high debt, low return subsidiary into a separate company. The newly de-merged entity would be the kind of stock I would never invest my hard earned money into. What the heck? I don't want this de-merged entity at all and I am still pumping money continuously into it? The right strategy would have been to wait for the de-merger to take place and then invest in the parent entity that is left with the better business and has gotten rid of the high debt, low return business by hiving it off. I was doing exactly opposite of what I should be doing. Goes without saying, I took immediate corrective action and fixed it. But it was a narrow escape from a disastrous investment.

What saved me? 
A simple weekend review and a very simple question "why?"

After this experience, I have made it a practice to take a periodic break from routine and not do any investments during that period but just go through what I have, what I have been doing for the past few months, what I am trying to actually do and how. As you can see I have expanded the review exercise by adding lot more questions to it.

Does it help?

Everytime. No matter how many times I do it, every single time. Some of the best ideas have come to me during this review break period. It is never planned. I just take a break. Most of the time when I go on a break I don't even have a review agenda. Often I start with what do I want to review this time? Many times I don't have a clue for couple of days and I am just stuck on this thought. Surely something comes up sooner or later and that starts a chain reaction of review thoughts. I never go back to my investment routine unless and until I have a new thought process to work on or atleast confirm that what I am doing right now is a great idea and I want to scale it up big time. What can be better  than this? You get a break and you get great insights in your break time and you get to go back to your routine all fresh and excited with new ideas to implement. It's a yay moment ! Like taking a break on weekend and being excited about monday ! 

Can we apply this to life?

Like I say always, anything that is applicable to stock market, is applicable to life in general. I am no life expert but I do try it from time to time. Unfortunately, unlike stock markets I never get any bright ideas about life and have to go back to routine .. well maybe some day .. I might .. as long as I keep taking time off to review it ... 

So how are things going at your end ? :)

P.S just a warning .. self reviewing life can be a depressing exercise. Do it only if you can handle it :)

what next

Every now and then, we keep hitting these dead ends in our life. It is like a thick brick wall in front of you and darkness all around. It could hit anyone, anytime doing anything. Everything was fine until now and suddenly you are wondering where you are, what are you doing there? It is a time when you just have nowhere to go, dark all around and an endless brick wall in front of you.
It feels like the only option you have now is to hit your head on the brick wall. Well please don't do that my friend! You have just reached a phase that calls for a big change in what you are doing and the way you are doing things. It is like a multi-level video game where you have cleared the current level and it's time to hit the "next level" button. New setup, new challenges and new rewards await you.
I keep hitting these dead ends every now and then, specifically with respect to my investment activities and spend days just wondering .. what next .. what next .. I don't feel like reading the news anymore, I don't feel like looking at my portfolio, investing or researching anymore. But I am writing this blog because there are two paths from here and I need to remind myself of the right path when I hit this dead end again in life. Happens quiet frequently in my profession, at-least few times a year.

Path-I take a break and come back later
This is one approach, where you can just say "I am done with this .. i need a break" and just stop doing what you are doing. It is a feeling of loss and dejection that the smooth ride has come to an end with this endless brick wall in front of you. It is a feeling about having reached a wrong place, a dead end. You can take a complete break, in a sense walk backwards from the wall you just hit, wander around here and there, clear up you head and start fresh again ... in the sense get back on the path towards the brick wall again, maybe take a different path this time and do it all over again. However remember since you are practically walking the same path again, you will probably reach the same dead end .. pretty soon and pretty easily.

Path-II don't take a break, climb or jump the wall
This is the second approach. Here you realize that you are at this dead end because you have completed the current level. It is an achievement, a big accomplishment, there is nothing more left in this level of the game and you have to hit the "next level" button that will take you to the other side of the wall.

Next Level
Getting to the next level however will require you to be ready for lot of changes. Next level will be a less familiar arena compared to the last level you were playing for a long time. There will be new dangers but it will be exciting, there will be new rewards, better rewards, higher rewards to fetch and you will need to develop a new set of skills to win them and you can be rest assured that it will be sometime before you hit the next dead end.

How to cross dead ends
So what should you do when you hit a dead end again, here is my checklist

• Don't think about taking a break
• Think what next 
• Don't feel at loss when in front of the brick wall, don't go back from there 
• Feel accomplished and press the "next level" button, climb or jump the wall
• Change things, adapt to the new level, learn new skills, take on new challenges and dangers, gather new rewards and enjoy !
• Go to experts, books, videos and listen to people who have covered much longer journeys, completed many more levels and try to get motivation from them, if you lack it 
• Be a happy mario :)

patience

Imagine how the world would be if "everyone" in the world was patient. Take a second, think about everything that is going on in the world, especially the bad stuff and then imagine how the world would be if "everyone" in the world was patient.
True, you got it right. Nothing bad would ever happen. Nothing wrong would ever happen. That is the power of this one quality. You can define patience in several ways as calm, humble, self-restraint, tolerant, gentle, controlled, quiet, but for me patience is about keeping equilibrium under any circumstance. On the other side, opposite of patience can be defined as agitated, frustrated, impatient, intolerant, unwilling, troubled, worried, etc etc and for me all of it is true.

In most jobs you can be impatient and still be successful. Many times it might also be regarded as a positive quality because most jobs work on deadlines, aggressiveness, and competition. However as an investor, you will NEVER succeed if you lack patience.

I am patient .. am i not ?
Most of us can claim to be patient under normal circumstances, but the real test of patience comes when everything around you is in complete chaos. Everyday I meet people who come to me and ask for investment ideas saying they are "long term" investors and they just need good investment ideas and they don't worry about short term ups & downs. Moment the market cracks a couple of hundred points comes a flood of .. oh market is down, what will happen, should i sell, should i buy, i am losing, will there be a recession, will this be like 2008, what do you think, is there a problem, is there something we don't know, what should i do and on and on and on ... My suggestion ... if you suffer so much because of your investments, you should just sell all of it and enjoy life instead. Stock market is not for you. You will NEVER succeed here. Unfortunately cannot say all that and hence have to do what i do best, be patient and stay in perfect equilibrium ... as much as i can ..well .. never mind ..

why impatient?
I did some introspection around this both for myself and for all the worried souls around me and I got atleast one correlation out of it. People who rely on tips from others instead of thorough research of their own tend to be the most impatient and people who do their own research tend to be more patient in volatile markets. Even for people who do their own research, patience lasts as long as things are only slightly out of their way but within what they had imagined as "worst case scenario". Once the market crosses their personal "worst case scenario" starts a panic phase and all patience is lost. For people who invest on tips everything is unknown, so they are happy only as long as they are making profit. They panic the moment things turn around. How can you be patient when you have absolutely no clue about where you have invested your money, why, and what is going to happen? and what is happening now does not feel good ...

How to be patient?
Fortunately within the problem lies the solution. To be patient you need to be knowledgeable about what you are doing. You need to have a broad vision about the possibilities and outcomes and you need to have a action plan for each possible outcome. Once you have this ready, no matter which possibility materializes you will always be busy executing your action plan because you have already thought of it and you are prepared with what you need to do next. Everything is known and everything is as per your plan so there is no need to panic. Always, you just need to work on your plan, patiently...

laziness
But that's a lot of work ! and here comes the bigger problem .. laziness .. and for that my friend I have no solution ... if you are lazy you will perish in the chain of evolution .. as explained by Herbert Spencer in "Survival of the fittest". If you are lazy, that's fine but please don't expect others to do your work for you. Just enjoy a lazy life and be happy. Be patiently lazy .. you see there is no other way ..

superyou

super vs routine
Many times in life we are faced with challenging decisions that has life changing implications however almost certainly those decisions are not easy ones. The implications of such decisions will also never be one sided. If it can change your life in a good way on one side, then it will almost certainly break you on the other side. Unfortunately all the "self made" super-successful people that I have read about and listened to have taken such risks in their life. Others simply avoided it and continued with their routine life. Others are doing good too, but in a routine sense. The rate of success for those who take the challenge is very rare, not just low. Almost all, among the people who decide to take the challenge will fail. Then they rebuild themselves preparing for the next big moment in their life. Very rarely, very few, make it to the next level and they too most likely start preparing for the level after that. It is as addictive as self destructive. It is a lonely journey. You will almost always be on the opposite side of the seemingly happy and busy crowd, all by yourself, all alone. Many times you will find yourself running in the opposite direction from the crowd towards the action, towards the heat, without any superpowers, full of fear, self doubt, and confusion.

However my friend only chance you have to move to the next level in your life is to run towards it, and not away from it like the rest of the crowd. The moment you turn back, you are immediately back to your normal routine life, away from harm but also away from super-success. 

What about the next opportunity? 

There is no guarantee. You will be lucky if you get the next opportunity again if you missed the first one. The point is that such opportunities are rare at lower levels and become more common as you move to the next level. You miss the next level, you will most probably not get the next opportunity. As soon as you move to the next level, you will get many more such opportunities. That's how it works. 

Now the question is, are you ready to take the challenge, face the fear, face the failures to move to the next level or are you happy where you are?

Superyou Vs Superhero

Let me caution you here a little bit. Super-heroism is not always about running towards a collapsing building. Those are just dramatic exaggerations to help you understand the underlying concept of heroism. Heroism is about taking calculated risks, intelligent decisions and solid actions towards fulfilling your dreams by accepting the challenge and not letting it pass. So you to super-you is just a decision away. Take the next challenge and become the super-you !

Why this blog now?

Almost certainly heroes are born out of a collapsing world. A normal world is for routine people. If you are in one of them, don't fear, take the challenge. I guess you get the point if you are following my blogs :) Rise and be the superyou, don't let the opportunity pass !

24-08-2015

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24th August 2015 saw the start of an interesting week in the Indian stock market with a near 200 point fall on Nifty and over 1000 point fall on Sensex. Sensex has seen over 1000 points fall in a single day only 8 times till now, so it was a historically significant event. Almost all the other seven 1000+ points fall happened in 2008, so this 2015 crash understandably caused lot of panic, but as we can see in the chart below Sensex managed to recover almost all of the losses within the next 4 days of trading. Let's look at what we can learn from it and what lies ahead.

Major Sensex Crashes
[21-Jan-2008: 2062, 22-Jan-2008: 2272, 11-Feb-2008: 1007, 17-Mar-2008: 1022, 10-Oct-2008: 1088, 24-Oct-2008: 1204, 27-Oct-2008: 1003. 24-Aug-2015: 1153]

What caused it?
Unlike other major stock market crash where the reason was mostly known like subprime mortgage crisis in 2008, the reason behind 2015 crash is not yet well understood. Lot of things are going wrong around the world like Greek debt crisis, China Stock market bubble, fall in commodity prices (crude oil fall being the most dramatic), deflationary environment in most developed countries around the world, impending rate hike in USA after ending the multi-year quantitative easing program, geopolitical instability led by terrorist groups like ISIS, political non-cooperation between major super powers like USA, Russia and China. These events have been developing over several years now and nothing can be directly linked to the one day stock market crash on 24th Aug 2015.

So what happened on 24th Aug? 
The most convincing argument I found was from this article that I cannot find anymore :( but it mentioned from what I remember that big institutions use interest rate FX swap to make money out of the difference between the interest rate offered on different currencies and sudden devaluation of yuan by China caused huge losses to these institutions on their Dollar/Yuan interest rate swaps which they had to cover by selling their equity positions leading to the flash crash around the world on 24th Aug 2015. The remedial measures employed to fix this is discussed in this article. Similarly this article describes it to some extent with a nice chart on the offshore/onshore USD-Yuan 1 year swap and an unusual movement between the two on Aug 24th. Something like that would make sense for a one day flash crash followed by almost complete recovery. The whole episode of 24th Aug could be more of a trading phenomena instead of a significant change in market fundamentals. I agree that the market fundamentals is bad, but it has been been bad for a long time and possibly 24th August market crash is not directly related to it.

USD-Yuan swap graph reproduced from the article referenced above

It also came into news later that perpetual long only investors like Abardeen Asset management liquidated their holdings in blue chip names like HDFC in the Indian market. What would force them to do something like that?
Another interesting article showing divergent behavior by 30 Year US treasury bond is discussed in this bloomberg article. Here for a short period bonds and stocks show a positive instead of negative correlation which is reverse of what is expected. US treasury yield was expected to fall in the US market due to flight to safety from equity to bonds, but it actually spiked due to US treasury dumping by Chinese government during the same time. The Chinese govt used the dollar proceeds from the US treasury sale to prop up renminbi as part of their strategy to support their currency & market volatility. This led to huge losses across portfolios of bonds and equities for major institutions triggering a sell off. Again some kind of technical adjustment phenomena due to heavy volatility in the currency and bond market along with technical divergence from normal behavior around 24th-Aug

Chart of US Treasury yield reproduced from the bloomberg article referenced above

What lies ahead?
No clue. From the 2008 fall in the markets we can see that initially when the fall started in 2008 the 1000+ points fall were quiet frequent. We had three almost back to back crash on Jan 21st, Jan 22nd and Feb 11th within 3 weeks time frame without any recovery in between followed by a relatively quite period but continuously sliding market and another series of back to back crash in Oct 2008. According to me the markets have already negated "2008 like crash" by recovering almost completely within a week. If the next 2-3 weeks pass without any major incident then probably we can safely forget the "black monday" as a one off technical adjustment event. However this is not to say that everything is fine now. We need to maintain a safe equity:cash ratio in our portfolio for a long time to come. I would say 60:40 is safe and 70:30 is aggressive. This is a major shift in my strategy from being almost fully invested into equities to take maximum advantage from the "Modi led reform rally in Indian markets".
I also have a gut feeling that this year large institutional asset managers who are diversified across geography and asset classes like bonds, forex, equity, debt and commodity are going to report huge losses. As this article points out StanChart was just the first of many to loose billions at the beginning of this year.

Summary
Keep a close eye on the markets for the next few weeks and months and maintain a safe equity:cash ratio at all times going forward until the clouds of uncertainty clear out reasonably. Note that I am not at all pessimistic and hoping that the markets will resume its uptrend reflecting upon the fundamental changes in Indian politics and economy and there will be fewer shocks from other parts of the world that will be handled better by the governments and central bankers.

Note: I have limited capability to understand advanced financial macros and geo-political impact so the above analysis might be highly inaccurate. But when faced with extremely complex events like this, we go with what little we can understand instead of just closing our eyes and forgetting the demat account password :)

Good luck & happy investing ! (In times like these, we do need little bit of luck to not only make money but also to not loose our capital). Be safe :)

References:
Everything you heard about china stock market crash is wrong

market panic

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Managing panic attacks in the market is not just important for your financial portfolio but also for your physical and mental health. There are lot of ways you can do this (some really funny) like forgetting your demat account password :)

This article is for brave-hearts
However in this blog I will cover how to handle market panic for brave-hearts who want to confront the situation head-on instead of escaping from it by forgetting their demat account password.

Whats wrong with forgetting login password till market stabilizes?

Besides the fact that some of the best investment and trading opportunities come up during highly volatile times, the bigger loss is the loss of experience of dealing with market falls. There is no other way to learn it but to stay with the market when it is falling and such opportunities don't come based on our convenience, so we have to take it when the market gives it to us.

So what can we do when the market falls?

Actually lot of interesting things, listed below are just few of them .. read on ..

play with equity:cash ratio
If you are convinced that the market trend has changed decisively and the fall is going to continue for sometime and you are sitting on decent profits, you can consider liquidating part (not all) of your portfolio. This is best handled using a simple ratio, equity:cash ratio. Say in a positively biased market you generally have a 85:15 equity:cash ratio, you can bring it down to 70:30 or even a 60:40 ratio when markets turn volatile and the sense of risk is alarming depending  on the severity of the situation. If it is a major catastrophe, then the equity:cash ratio should be inverse favoring more and more to cash than equity. For advanced players there are other options like switching between equity and debt or forex, etc

play with portfolio composition
If you feel that market can recover quickly anytime, and by moving to cash you will lose the recovery and get kicked out of the equity market at bottom levels, you can instead churn out of high beta high risk stocks and move into defensive, low beta stocks and sectors like pharma, FMCG, diversified. That way you minimize your risk exposure and still benefit to some extent just in case the trend reverses and market recovers

play with your SIPs
If you have SIP, you can SIP the oversold levels hence improving your weighted average acquisition price. Plain SIP is not exactly a great idea and tends to provide inferior averaged out returns. Weighted SIP is a decent mid-way between trading and long term investing, providing more superior returns as you tend more long term.

accumulate your gems
If you are a seasoned player, you will always have favorite stocks, portfolio gems that you are greedy about and would like to accumulate at any cost since you have very high conviction on these stocks and believe these gems will make you filthy rich over long term holding period but these stocks are hard to get at a reasonable price .. well take advantage of the market fall and pick up some, this is the right time to be greedy about such stocks

hedge with put options
if you are comfortable with derivatives you can consider hedging 10-30% of your portfolio using put options in index or specific contracts where you have large exposure

switch sides
something will always be on the other side rising while rest of the market is falling. It was oil in 2008. It could be gold in 2015-2016-2017. If you can see the other side clearly take the opportunity to make a switch. Stock market is about making money not about loyalty and sacrifice. Nothing wrong in making a switch to the winning side and ditching your long term holdings.

Contra bets
If you think the market has already gone below justified levels of correction, you can take contra bets and play with some high beta, high quality, trading favorites for trend reversal, bounce backs or just plain volatility

margin trades
If you are a skilled trader, you can try intraday margin trades leveraging your cash upto 10X times and playing aligned to the market on the down side, hence hedging or minimizing your portfolio losses. Be warned, if you are not skilled at it, you will make losses on both trades and lose much more money.

just watch the stock prices falling
If you think above is too advanced or stress play for you, just logon and observe the market behavior. If not money, you will gain priceless insights on market behavior patterns. You will understand a great deal about stocks and sectors and macro environment impact. The experience will be worth more than money lost or gained and will harden you for the next scary phase. It's worth the time. If you are a seasoned player, it should actually be fun for you.

what you should definitely not do?

Don't buy stocks just for averaging your cost price lower, because you are making huge losses in some counter
Don't play big money in one day or one trade. You have cash capital in a volatile market, that is a blessing, don't give it away easily, play with it
Play both sides, don't play just one side, all buy or all sell. You would otherwise be exposed to very high trend reversal risks
Don't take tension. Decision taken under stress will almost certainly be wrong. Be cold and mechanical, not emotional, that is if you find it difficult to have fun during such times
If you don't understand something, don't do it
Don't just shut down and log off. Be in the market. Always. Be a soldier, never leave the borderline of your portfolio. Gaining insights and experience is far more valuable than money.

Spartans are you ready? 

Now that there are so many interesting things for you to try out when the markets are volatile why would you choose to not do anything and forget your demat login password? Put yourself right in the line of fire and have fun ! Huuuuhhh ....

tradition and sentiments

so this year will you buy gold today or on 9th Nov for Dhanteras?

Legend
From wiki the story behind Dhanteras goes as follows:

"An ancient legend ascribes the occasion to on interesting story about the 16-year-old son of King Hima. His horoscope predicted his death by snake-bite on the fourth day of his marriage. On that particular day, his newly-wed wife did not allow him to sleep. She laid out all her ornaments and lots of gold and silver coins in a heap at the entrance of the sleeping chamber and lit lamps all over the place. Then she narrated stories and sang songs to keep her husband from falling asleep. The next day, when Yama, the god of Death, arrived at the prince’s doorstep in the guise of a Serpent, his eyes were dazzled and blinded by the brilliance of the lamps and the jewellery. Yama could not enter the Prince's chamber, so he climbed on top of the heap of gold coins and sat there the entire night listening to the stories and songs. In the morning, he silently went away. Thus, the young prince was saved from the clutches of death by the cleverness of his new bride, and the day came to be celebrated as Dhanteras."

The above story definitely does not ask for gold to be bought on the day of Dhanteras, but looks like ideally we should already have gold with us before Dhanteras, so that we can put it out and worship it on the Dhanteras day just in case Yama decides to visit us :) 

Tradition
In the Traditions section in the same wiki article, it is mentioned
"On Dhanteras Hindus consider it auspicious to purchase gold or silver articles or at least one or two new utensils. It is believed that new “Dhan” or some form of precious metal is a sign of good luck."

Ok agreed it is considered auspicious, probably you can do majority purchase earlier and a token purchase on Dhanteras to take advantage of the auspicious factor.

Why?
Besides the legends & tradition there is another factor you need to consider. The world knows that Indian public will be buying gold on this date and will be prepared tactically to make good profit on it. The three month MCX gold chart clearly seems to be indicating that.

so will you buy gold today or on 9th Nov for Dhanteras? #justcurious :)

Exit Strategy

Isn't it the most difficult decision? You invested in some stock which is giving you great profits now, so should you book your profits and exit? You invested in some stock which is giving you big loss now, so should you book your loss and exit? You invested in some stock which is going nowhere, so should you exit and invest somewhere else?
Well fortunately the answer is quiet easy. "No" for all the three cases.

The answer to your exit strategy lies in your entry strategy. Why did you invest in a particular stock? Maybe because the management is top quality, or the products are superior, or the brand value is great or the market share is monopolistic, or the company policies are shareholder friendly, or the dividend payout is high or the future plans are game changing for the company. If you know why you invested in a particular stock then you should stick to your investments as long as the reason for your investment holds true and is not violated in any way.

Fundamental violations for possible exit
For example management change putting someone stupid in charge of the company or brand destruction beyond repair due to some unfortunate event for example case of food poisoning after consuming something from a food company or a report exposing unhygienic manufacturing practices leading to loss of trust or data manipulation in a research company or bad customer support leading to customer loss in a service company, or reputation damage due to fraud charges on company officials or loss of market monopoly due to competition from new entrants, or product failure or unfavorable macro environment like severe drought condition for agri-sector stocks or restrictive government policies for power sector stocks and so on.

Noise vs actionable events
Stock market is a dynamic place and stock prices keep fluctuating due to daily market conditions, news flows and pure trading activity. That is all noise. If you are a long term value investor then there is no reason for you to monitor this noise and increase your blood pressure. All you need to monitor is that the fundamental reason why you invested in a particular stock, is it still valid or has been violated.

Simple Profitable Exit Strategy
If the fundamental reason for your investment is still valid, you need to stay invested irrespective of whether the stock price has gone up or down or nowhere. If the basic reason why you invested in the stock has been violated, then there is no reason to stay invested in the stock irrespective of whether you are making profit or loss or nothing in it. simple. Buy carelessly if your conviction holds, sell mercilessly if it does not.

Show the right exit to the unlucky ones
Keep this one simple thing in mind and I promise you next time a person comes to you lamenting that he sold the stock and it went up or he bought a stock and it went down and his luck & life is miserable, you will smile to yourself knowing that you have left these worries far far behind. Don't forget to show your miserable friend the right exit though!

becoming fearless

Many things that stock market teaches us is useful in life in general and one of them is becoming fearless.

My moment of victory over fear
As a kid, like any other I was afraid of the dark and ghosts. I still have memories of a huge brick wall from an old warehouse that was covered with creeper plants and it used to scare the hell out of me in dark, especially on windy days with the swinging creepers. It was right on my way to the entrance of my building from the community gate and hence unavoidable. I used to just close my eyes and run as fast as possible to get past that f****** wall and it was a constant source of tension in my life.
Then one day one of my friends invited me for a horror movie outing Child's Play (1988) I feared the worse but as kids you are also insanely curious about these things. I remember from the very first scene of the movie where a convict escaping from police transfers his soul into a doll, I was so fascinated by the whole thing that I became a lifelong fan of horror movies and have enjoyed almost every movie in the horror category that was ever made .. till date I have a childish fascination with horror movies and my fear of anything has just vanished :)

 So you see sometimes getting past your fears can lead to great things in life.

What do you fear in stock markets?
The most dominant fear in stock market is losing money. While I believe we should not be too attached to money in general, having phobias like these will never let us be successful in stock market. We tend to take irrational decisions to avoid losing money like not committing large sums of money even if we have found a great investment idea. If an investment idea is great and has a reasonable chance of giving Rs 20 return for Rs 100 invested, it will surely give you Rs 20,000 return for Rs 100,000 invested but fear comes in the way of allowing us to commit a large amount to our conviction and we end up losing the opportunity that is rare or we make a meager profit out of something that could have given us a spectacular return. So all the hard work in identifying a great investment idea is practically wasted.
Well I faced it first hand in 2008 when Satyam scandal hit the stock markets. I was heavily invested in Satyam because the stock was available dirt cheap and there was constant assurance from the management and political circles that nothing is wrong with the company. But finally Raju confessed with his famous quote on riding the tiger and not knowing how to get off it. Well he got off but left my neck in the grip of the bloody tiger. I lost a great deal, I lost my money, I lost some money entrusted to me by some relatives and I lost some money borrowed on loan. I spent next two years of my life just paying of these debts using every rupee of my monthly salary and obviously developed an acute fear of committing large sums of money to anything be it real estate or investments or equity.
I don't remember well what exactly brought me back to the stock market but I think it was the shame and insult of loss that I suffered during that time. My only hope of redemption was to get it back from the same place I lost it all. I am happy to say that I deal with large amounts of money today with an ice-cold attitude, without fear and it is today one of my greatest strengths in stock market. I have recently bought an apartment for myself in Bangalore too committing to one of my largest investments and it makes me very happy.

What do you fear in life?
Well a life without fear is a free life. It gives you a different kind of happiness and pride about yourself. If you fear anything in life, you will always be restricted and you will never realize your full potential. Risks are constant in life, they will never go away. It is upto us and only upto us to learn how to tackle and win over it. Don't go down frozen with fear, give it a try, give it a fight. If you fear unwanted attention and physical harm get physically strong, practice combat till you are confident of winning your battles. If you are afraid of exams and interviews just prepare and go for the toughest one's till you have conquered one. If you are afraid of work spend as much time as possible in your workplace, do your things slowly but win over the faster one's by spending more time on it. If you are afraid of your boss, just catch him and keep talking to him until he starts running in the opposite direction from you. If you are afraid of traveling alone then book a ticket to a far off place and just get out. I guess you get the point. Face your fears head on and you will be amazed at yourself!

Happy fearless life to all of you !

expect the unexpected

You are hearing some positive news about a company from everywhere, the products look good, the marketing looks good, the management guidance looks good, the analyst review looks good and as a result you conclude that the company will post good financial results and hence it makes sense to buy truckloads before the results are declared. Then comes the result day when your prediction will come true and your investment will give you great gains. The news is out and the company has indeed declared great results, you are the new oracle of stock markets after all you predicted the future that this company is going to post good results this time. Time to look at the stock price and book hefty profits on your trade. And just as you open the quote page the first three words that come out can only be expressed in abbreviation here, WTF?

What went wrong?
You forgot that the product, marketing, management guidance, analyst review was available to everyone in the stock market and everyone had concluded just like you that the results are going to be good. The smart one's just went a step ahead and concluded that lot of investors will buy into the stock at premium valuations in anticipation of good results and they prepared themselves in advance to profit from your readiness to pay a premium that is greater than fair value even after taking into account the expected great results. So what really went wrong are quiet a few things. You didn't do your math, you got the news right but not the numbers, you got carried away by the market frenzy. You committed the cardinal crime of thinking that you are the only smart person in stock market.
Every stock no matter how good becomes expensive beyond a certain value. Although let me warn you that the reverse is not true, some stocks no matter how cheap may not be a good investment because they are simply bad stocks and their value is zero which cannot be traded.

The method of discounting
Well the official term in the stock market for such an incident is called "discounting" The result was expected to be good and it was already discounted in the stock price so when the results were declared as expected, the market was not impressed and hence the sell off. If the results were better than expected, it could have run up more. If it was as expected it might fall a bit due to profit booking and if it was below expectations it could have taken a severe hit.

Moral of the story
In stock markets don't expect the expected but expect the unexpected .. always !