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Sunday, 18 April 2021

The Perils of the 2020 Rally

We all will remember 2020 as the year of the Covid pandemic. When the first realisation hit our markets, lockdowns became a reality, markets fell off the cliff. The economies across the globe have remained weak. Every country has tried, based on its capability, to pump in liquidity and prop up their individual economies. In the last year, the US Fed has nearly doubled its balance sheet to more than $7.7 trillion through around $3.4 trillion in bond purchases. That extraordinary intervention, along with near-zero interest rates, has a single point agenda - to keep money flowing through the US banking system. As per data from IMF, countries have given stimulus between 2.5% to 10% of GDP.

This has resulted in an across the board asset price bubble. Nearly every asset class has been on the rise for the last year. Bitcoin, equity markets, oil, metals - you name it and they are up. The main reason is that there is a lot more money in the hands of people and it is flowing into various asset classes.

The second thing that has happened, at least in India, is a very large migration of mutual fund investors to direct equity. 10.8 million new demat accounts were opened by investors in India post-April 2020. Retail holding in NSE listed stocks is currently around 7%, which is an all-time high. Since July 2020, mutual funds have seen an outflow of 45,000 crs.

I believe that the market condition when a person starts his investing journey has a very large impact on the kind of investor he ends up becoming. For example, most people who started in the 2000-2007 period, ended up becoming growth-oriented buy-on-dips investors (I would put myself in this camp). People who started post-2008 to about 2013-14 were value investors. It is because those factors worked well in the period when they took their first steps.

What I fear is that the influx of a large number of new investors in the markets coinciding with a huge market rally despite weak economic conditions, sends the wrong message to this set of new investors. They may come away with the realisation that markets never go down and central banks can and will always support the market so there is nothing to worry about. And sometime in the future, this is likely to come back to haunt them.

This article first appeared on https://www.cnbctv18.com/views/the-perils-of-the-2020-rally-8953391.htm

Friday, 16 April 2021

Weekend Reading

Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. If you like this collection, consider forwarding it to someone who you think will appreciate it.

1. Antiscience is rising and needs to be curbed
Antiscience has emerged as a dominant and highly lethal force, and one that threatens global security, as much as do terrorism and nuclear proliferation. Antiscience is the rejection of mainstream scientific views and methods or their replacement with unproven or deliberately misleading theories, often for nefarious and political gains. It targets prominent scientists and attempts to discredit them.

Public refusal of COVID-19 vaccines now extends to India, Brazil, South Africa and many low- and middle-income countries. Thousands of deaths have so far resulted from antiscience, and this may only be the beginning as we are now seeing the impact on vaccine refusal across the U.S., Europe and the low- and middle-income countries of Africa, Asia and Latin America. Containing antiscience will require work and an interdisciplinary approach. The stakes are high given the high death toll that is already accelerating from the one-two punch of SARS CoV2 and antiscience. Antiscience is now a large and formidable security issue.

2. The Rise and Fall of the Missed Call
The missed call emerged in India as a critical means of communication for those who counted every rupee spent on recharge credit. But the practice soon spread, became trendy, and, even as call rates plunged in the 2000s to among the lowest in the world, evolved into a general tool of convenience: a missed call could mean “I miss you,” “Call me back,” or “I’m here.” The fact that the missed call demanded only basic numeric literacy made them accessible to the third of India’s population that was illiterate. In 2008, one study estimated that more than half of Indian phone users were in the habit of calling people with the expectation that they wouldn’t pick up.

The internet revolution has brought about vast benefits for India: digital connectivity defines nearly every aspect of Indian life, a trend that has only accelerated during the pandemic.

3. Irrigation has been stopped in Taiwan to make semiconductors (apparently mankind can live without food but not without their cell phones!!)
Chip makers use lots of water to clean their factories and wafers, the thin slices of silicon that form the basis of the chips. And with worldwide semiconductor supplies already strained by surging demand for electronics, the added uncertainty about Taiwan’s water supply is not likely to ease concerns about the tech world’s reliance on the island and on one chip maker in particular: TSMC.

More than 90% of the world’s manufacturing capacity for the most advanced chips is in Taiwan and run by TSMC, which makes chips for Apple, Intel and other big names.

In recent months, the government has flown planes and burned chemicals to seed the clouds above reservoirs. It has built a seawater desalination plant in Hsinchu, home to TSMC’s headquarters, and a pipeline connecting the city with the rainier north. It has ordered industries to cut use. In some places it has reduced water pressure and begun shutting off supplies for two days each week. Some companies, including TSMC, have hauled in truckloads of water from other areas.

But the most sweeping measure has been the halt on irrigation, which affects 183,000 acres of farmland, around a fifth of Taiwan’s irrigated land.

4. We are breathing in microplastics
Take a deep breath. While you might feel clean air passing through your nose, tiny bits of plastic from packaging and soda bottles that we throw away all too often might be hitchhiking to the depth of our own lungs.

A recent study examined the sources of atmospheric microplastics that are increasing at an alarming rate of around 4% per year. The study discovered that India, Europe, Eastern Asia, the Middle East, and the United States are among the hotspots for terrestrial microplastic sources and accumulation.

Moreover, closer to home, these plastic fragments have become so pervasive that they are embedded in our fields, water supply, and even in the air that we breathe. From the human bloodstream to the guts of small insects in Antarctica, they are leaving a trail in every corner available.

While there is a consensus that inhalation of plastic particles can be irritating for internal tissues of organisms, further research needs to be conducted in order to understand whether plastic is more toxic in comparison to other aerosols.

5. Jamsetjee Jejeebhoy - one of India's first crorepatis (in the 1820s!)
Opium wasn’t just another trade good for the British Empire. It was the necessary corollary to another commodity: tea. The British were importing tens of millions of pounds of tea from China every year. There seemed to be no end to the demand and everyone involved was making huge profits. There was just one problem. They didn’t have the cold hard cash or rather, cold hard silver to pay for it.

With all of the Empire’s physical currency disappearing into China, the British were running a huge trade deficit. They needed something that the Chinese wanted as much as they wanted tea. Opium was the answer. And it was essential to keeping the Empire’s entire economy afloat.

By the time he was 40, Jamsetjee Jejeebhoy had allegedly made more than ₹2 crore — in the 1820s. He was already one of the richest men in the entire country, but he had his eye on even greater prizes.

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For technofunda investing and positional trading, subscribe to our Hitpicks advisory service on www.intelsense.in
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Our Quant systems are also found at https://intelsense.smallcase.com

Wednesday, 14 April 2021

Launching Quantamental Q10

As promised during the annual review, I am launching the Q10 Quant strategy.

The details are available in the deck 

To summarise:
  • Q10 now offers a lower minimum investment requirement at a lower subscription fee.
  • Q10 invests mostly in large and mid-caps with somewhat lower returns and somewhat lower drawdowns compared to Q30 over a market cycle. It is also likely to be more volatile.
  • As of now Q10 is going to be offered only on the smallcase platform for new subscribers and may be added to Intelsense direct option in future.
  • https://intelsense.smallcase.com/smallcase/INSMO_0004
  • It is available for free for all existing Q30 subscribers who have subscribed directly on intelsense.in.

Quantamental Q10 - Introduction by abhishekbasumallick on Scribd

Monday, 12 April 2021

Using Technofunda Strategy for Investing

Technofunda investing is a combination of technical analysis and fundamental analysis. Practitioners of technofunda investing usually approach it in one of the two ways - i) look for strong fundamental stocks and then look for good technical patterns or ii) look for chart patterns and then study the fundamentals of the stock.

Nearly all fundamental investors are averse to using technical analysis and vice versa. Personally, I treat both forms of analysis as information streams. And the more the merrier. If I can use the fundamental information about a company's business and combine that with what is happening in the demand-supply of the stock, then the results are superior to using either one approach exclusively.

So, why don't more people do that? Firstly, the time frame is different. Fundamentalists usually are looking at a longer time horizon of a year or more whereas technicians typically look at holding for a few days or weeks. Very few technicians have a longer time horizon. Resolving this time horizon mismatch is something that has to be done first.

Secondly, there is a lack of knowledge and trust in the "other" discipline. Fundamentalists view charts as squiggly lines. And technicians view fundamentals as superfluous newsflow. It is at the core of their respective studies. The way I resolve it for myself is by telling myself that fundamentals cause the stock to perform over time and technicals cause the demand and supply conditions for the stock price movement. Both of these factors need to align for a long sustained rally in a stock. 

I add a layer on top of technofunda which helps with holding performing stocks for longer periods. This approach is known as trend following. Trend following is usually associated with following the price. Although I use that to an extent, I tend to focus more on the fundamental trend following. This is a simple concept of continuing to hold stocks where the results are continuously good and are in an uptrend. Some of the biggest winners in the stock market come from these stocks. In fact, nearly all of the long term well-performing stocks fall in this category. I call them compounders. Because they tend to compound capital superbly well. If you make a basket of stocks filled with such stocks, the only active decision to make is when to sell. You do that when the fundamental or technical trend breaks down.

This has been one of the best ways I have found to get good returns while being invested in good quality companies.

Sunday, 11 April 2021

Quantamental Q30 Hits a Century

Q30 Quant Model Portfolio crossed a major milestone earlier this week. It crossed 100% returns on the starting capital as at 1st March 20. The total absolute returns as on date is now 105% since inception on 1st March 20. Please note

  • These are model portfolio returns on starting capital of 100 as on 1st March 20, with no capital added thereafter.
  • For standard comparison with other portfolios, it does not include brokerage, slippages or dividends received from stocks or liquid bees.
  • The returns in your portfolio is a function of when you started, when you added or withdrew capital, whether you have been exactly cloning the model portfolio and a minor impact on account of brokerages/slippages which is also partly offset by dividends. 
  • The drawdowns throughput this entire period has been under 8%. Which is simply incredible and a reflection of the year it has been. As we move forward, across market cycles we would obviously see much higher drawdowns. The trick is to stick with the process across market cycles and not try and outsmart it. Anyway we can always take such calls in discretionary investing. When it comes to quant, follow the system. The system is the edge!

For further details and subscribing to Q30, visit https://www.intelsense.in or http://intelsense.smallcase.com

Thursday, 8 April 2021

Weekend Reading

Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. If you like this collection, consider forwarding it to someone who you think will appreciate it.

A fascinating account of the first Big Bull of India
Premchand Roychand was one of the most influential businessmen in 19th-century Bombay. A man who made a fortune in the stockbroking business and came to be known as the Cotton King, the Bullion King or just the Big Bull. He was also the founder of the Native Share and Stock Brokers Association, an institution that is now known as the BSE. 
Premchand began his “successful career as a broker under the shade of a stately, spreading banyan tree at the western end of the beautiful Horniman Circle garden in South Bombay where wayfarers, cotton and opium brokers, clerks and strangers came to quench their thirst". Around 22 such brokers began trading under the banyan tree and formed the Native Share and Stock Brokers Association, each contributing Re1.
“Of all the ‘Share Kings’, the most fabled figure was Premchand… whose exploits would help create another stereotype: he would be the first of many famous Bombayites who believed that profit held primacy over principle. The ingenious merchant was a promoter and shareholder in the Commercial Bank and Mercantile Bank, and associated with about seventy mushroom companies. He also took control of the Bank of Bombay. He had a sharp eye for the loophole and regulatory grey area."

Great thinkers aren't afraid to be wrong
High-ability individuals tend to underrate their relative competence, and at the same time assume that tasks that are easy for them are just as easy for other people. The smarter you are, the less you think you know -- because you realize just how much there is to actually know.
Because wisdom isn't found in certainty. Wisdom is knowing that while you might know a lot, there's also a lot you don't know.
Wisdom is trying to find out what is right rather than trying to be right.
Wisdom is realizing when you're wrong, and backing down graciously.
Great thinkers aren't afraid to be wrong. Great thinkers aren't afraid to admit they don't have all the answers. Great thinkers aren't afraid to say "I think" instead of "I know."

Doctors move to a subscription model
Helping someone become healthier doesn’t always require a billable treatment. Sometimes, it just requires expert planning and recommendations.
That’s why doctors increasingly want to practice a different kind of care, known as value-based care. The idea of value-based care is that patients or payers pay doctors to make patients healthy rather than treating them for individual ailments. This often means charging a monthly or annual flat fee in exchange for comprehensive care. Essentially, doctors use those dollars to care for a patient however they see fit. In some models of VBC, doctors can suffer penalties when patients don’t get better. 

Will the future car come from an auto or an electronics manufacturer?
The stakes in manufacturing vehicles are higher than what technology companies are accustomed to. “The automobile is very different from a lot of electronics gear,” said MacDuffie.  “It’s a heavy, fast-moving object that operates in public space and is dangerous. It can kill people. It can injure people. It can damage property.”
In that setting, the automotive industry clearly faces complexities and responsibilities with which technology companies are not familiar. 
“We’ve heard Elon Musk talking many times about ‘manufacturing hell’ and saying there’s nothing harder than mass-producing at scale.” In a recent interview with auto manufacturing expert Sandy Munro, Musk said: “Prototypes are easy and fun, and then reaching volume production with a reliable product at an affordable price is excruciatingly difficult. Our production is hell.”
Even as some tech companies have ambitions of becoming automakers, not all of them are prepared to put in “all the hard work” that Tesla has invested in that endeavor, MacDuffie said. If the tech firms don’t take similar steps, they will be forced to work with existing automakers that bring that expertise.

Things to remember in a crazy market
FOMO brings about a lot of emotions — greed, envy, regret — that make it difficult to make level-headed decisions with your money.
You wouldn’t be human if you didn’t have these feelings right now.
Investing in risk assets means occasionally seeing your gains evaporate before your eyes. I don’t know why and I don’t know when but at some point a large portion of my portfolio will fall in value. That’s how this works. 
The current cycle won’t last forever just like the last one or the next one.
Being contrarian will always make you feel like you’re smarter than everyone else, but the crowd is right more often than it’s wrong when it comes to the markets.
No one is able to consistently get in at the bottoms and out at the tops. Hindsight makes it look easy but it never is in the moment. 

For building a solid long term portfolio, look at subscribing to www.intelsense.in long term advisory.
For technofunda investing and positional trading, subscribe to our Hitpicks advisory service on www.intelsense.in
For momentum trend following systematic trading, subscribe to Quantamental at www.quantamental.in 

Tuesday, 6 April 2021

Thursday, 1 April 2021

Weekend Reading


Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. If you like this collection, consider forwarding it to someone who you think will appreciate it.

1. The new kid on the audio block - Clubhouse
Clubhouse, as you have no doubt heard, is an invitation-only audio social network that has drawn millions of people eager to socialize and listen in on an endless stream of conversations, as if all the text on Twitter, Facebook, and Interview magazine had acquired vocal cords. 

Thought leaders, politicians, and A-list celebrities have headlined countless Clubhouse rooms. More prosaic sessions include scammy get-rich-quick pitches and endless hand-wringing about current events. Some of the discussions have become notorious, with charges of racism, anti-Semitism, misogyny, and disinformation. All of which has generated yet more curiosity about the app.

Clubhouse arrived at a perfect moment. It delivered spontaneous conversations and chance meetings to people stuck at home. For those weary of tidying and curating backgrounds for Zoom, its audio-only format is a virtue. Even being iPhone-only and invitation-only hasn’t held back its popularity. New users often become obsessed with it, spending 20, 30, even 40 hours a week on the app. Discussions are popping up in German, Greek, and Burmese. In early February, the app even earned the badge of respect accorded to free speech-ish platforms such as Google, Facebook, and Twitter: It’s been banned in China.

2. China tries to boycott US brands
Western brands are suddenly feeling the wrath of the Chinese consumer, the very shoppers who for years have clamoured for their products and paid them vast amounts of money. Egged on by the ruling Communist Party, Chinese online activists are punishing foreign companies that have joined a call to avoid using cotton produced in the Chinese region of Xinjiang, where the authorities are waging a broad campaign of repression against ethnic minorities.

It isn’t clear what the long-term impact might be on Western companies that depend on China to make or buy their products. On Thursday, there was still a steady stream of shoppers at several popular H&M and Nike outlets in Shanghai and Beijing. Previous state media-driven pressure campaigns against companies like Apple, Starbucks and Volkswagen failed to dent Chinese demand for their products.

3. There is no correlation between earnings and stock price returns
Researchers have demonstrated that the relationship between economic growth and stock returns was weak, if not negative, almost everywhere. They studied developed and emerging markets across the entire 20th century and provide evidence that is difficult to refute.

Their results suggest that the connection so often made between economic developments and stock market movements by stock analysts, fund managers, and the financial media is largely erroneous.

From 1904 to 2020, earnings growth and stock returns moved in tandem over certain time periods, however, there were decades when they completely diverged, as highlighted by a low correlation of 0.2.

The perspective does not change if we switch the rolling return calculation window to one or 10 years, or if we use real rather than nominal stock market prices and earnings. The correlation between US stock market returns and earnings growth was essentially zero over the last century.

4. The fonts used in luxury watches are not fit for purpose
In reality, only a small and decreasing number of watchmakers go to the trouble of creating custom lettering for their dials. More often, watch brands use off-the-rack fonts that are squished and squeezed onto the dial's limited real estate. Patek Philippe, for example, has used ITC American Typewriter and Arial on its high-end watches. Rolex uses a slightly modified version of Garamond for its logo. And Audemars Piguet has replaced the custom lettering on its watches with a stretched version of Times Roman.

That watchmakers use typefaces originally created for word processing, signage, and newspapers highlights a central paradox of watch design: These tiny machines hide their most elegant solutions under layers of complexity, while one of the most visible components – typography – is often an afterthought.
Even subtle tweaks to a typeface can elevate a watch, but the brands who fully invest in custom lettering view it as a distinguishing factor in their timepiece's design. 

5. Bitcoin consumes more electricity than Argentina
"Mining" for the cryptocurrency is power-hungry, involving heavy computer calculations to verify transactions.
Cambridge researchers say it consumes around 121.36 terawatt-hours (TWh) a year - and is unlikely to fall unless the value of the currency slumps.

The online tool has ranked Bitcoin’s electricity consumption above Argentina (121 TWh), the Netherlands (108.8 TWh) and the United Arab Emirates (113.20 TWh) - and it is gradually creeping up on Norway (122.20 TWh).
The energy it uses could power all kettles used in the UK for 27 years, it said.

For building a solid long term portfolio, look at subscribing to www.intelsense.in long term advisory.
For technofunda investing and positional trading, subscribe to our Hitpicks advisory service on www.intelsense.in
For momentum trend following systematic trading, subscribe to Quantamental at www.quantamental.in 

Tuesday, 30 March 2021

Book Notes - Momentum Masters

This is a great book for traders and investors alike. @hitesh2710 suggested I read the book sometime back. Unlike a lot of other books, this one is packed with practical advice from successful practitioners. Because it is written in a Q&A style, it is very easy to read and brings together the answers of all the 4 participants together so that you can understand the similarities and differences in their individual approaches.

Below are my notes & highlights from the book. They are a bit exhaustive and hence a bit lengthy.

  • The first thing I do is look at earnings released and news items that may affect my holdings, and I also look at premarket futures to get an idea of how the market will open. I then review all my current holdings and update my stops and set alerts; I set audio alerts on my buy candidates at price levels near my target purchase price and also at levels near my sell stops.
  • Everything I do is thought out; I don’t like surprises, so I try to work out as much as possible in advance so I don’t get blindsided and caught off guard. I do this work outside of market hours to remove emotion.
  • I usually don’t do much in the first 45 minutes of trading because there are many false moves and reactions to overnight news.
  • I know what and where I’m going to buy before the market opens, so there are no surprises, and I just act without thinking. I start in the morning by checking all my open positions. 
  • Everything I need to know is based on the stock’s price behavior and volume; the rest is pure noise.
  • If a market is going to move, then big funds and institutions are going to drive it. The bigger players have to buy and sell often during days or even weeks. Individual traders have a significant advantage over the big traders, because individual traders can move in and out of positions much faster. So they can change direction very quickly when market conditions change, and to me, that’s a tremendous edge.
  • The big money is made in the longer-term moves.
  • Bottom line, if you hone your timing and talent to spot the setups and if you have the fortitude to stick to the rules, it doesn’t matter if you start out small; you have a true edge that few traders possess, especially if you do your homework every night and on weekends.
  • You shouldn’t be afraid of thinly traded stocks; you should embrace them. Some of the biggest winners are small companies that you’ve never heard of before. But you have to be careful and only trade a position size you can get out of safely. A small position is better than no position, especially if the stock has the potential to skyrocket.
  • All the biggest-moving stocks I’ve owned during the past 20 years, where I’ve made 95% of my money, were ones hitting new highs from very solid bases.
  • The best time to buy the large-cap names is coming out of a bear market or a deep correction. With small caps, I tend to trade them close to new highs because they’re less efficiently priced, so I don’t have to “beat the crowd” and try to buy lower.
  • By definition, if a stock is covered by many analysts and watched by thousands of traders, then it has a far less probability of being inefficiently priced and thus yielding a quick alpha move. It doesn’t mean the stocks shouldn’t be traded or purchased at certain times; but in general, if you’re looking for alpha, you should be discounting the larger capitalization.
  • It is rare when you have a market where you can have both longs and shorts. In a market that is trending in one direction, that’s the side you should be leaning toward. Markets moving sideways can be very tough to trade both ways.
  • Even though my intuitive feel is pretty good, I have learned not to trust my opinion, because it will eventually be wrong. If you have a strong conviction on a trade, it will be difficult to trust the market and divorce your idea.
  • I will only add to positions that are moving higher and performing well. Positions only become bigger with appreciation and follow on purchases after new bases are formed.
  • The overall market must be showing strength with higher highs and a significant portion of those market stocks marching into new highs as well. Many strong bases on the charts, as well as strong expanding earnings on a high number of those stocks, are critical indicators of the overall health of the market and ultimately my portfolio.
  • The only way to consistently outperform is to be concentrated in the names that are outperforming.
  • There should be a period of a week or more of very quiet and very tight price action before a stock makes a move. 
  • Many of the best trades occur when you have fundamentals, technicals, and a bullish general market all in your favor. So I try to focus on companies that have solid fundamental and technical characteristics during a healthy market environment. However, life is not perfect. Stocks that set up well technically, in a manner I refer to as “unexplained strength,” are often good riskreward plays because they are less obvious and not as likely to be “crowded.”
  • So, yes, I will trade stocks with a lack of apparent fundamentals when the chart is really strong. Most of the time when I ignore surface fundamentals, the stock is in a very high-momentum situation, and the chart is saying that something really big is definitely going on.
  • I define an uptrend as a stock with its 50-day moving average above its 200-day moving average and both are trending higher. Even stronger uptrends can be defined as the 20-day moving average above the 50-day, and the 50-day is above the 200-day moving average. 
  • The most important indicator is the overall market trending up with higher highs and higher lows, and the same goes for the stocks that I look to buy. Next would be a well-defined base and then the strength of the group.
  • A breakout is a stock emerging out of a base or sideways consolidation. I like a base to be at least four weeks or longer. As the stock breaks out, the volume should be larger than average. The volume should increase at least 25% or more. The best moves start with very big increases in volume of 100% or more.
  • You want a stock to rise on higher volume and pull back on lower volume because the buying and selling by institutions is what moves stocks in the market, and the institutions can’t hide the fact that they have to buy in size. The most important area to concentrate on is what volume is doing at key points like breakouts to new highs, breakdowns from bases, and even when a stock undercuts a previous low.
  • I want both the fundamentals and the technical characteristics of the stock to be in an uptrend. I have much more confidence in holding a stock that has good fundamentals than if I’m buying based solely on a good chart. There are so many stocks to choose from, why not go with the one that has the best characteristics.
  • I am usually more successful if I spend a number of hours researching the fundamentals, listening to conference calls, investigating the company’s website to really get to know where the company has been and its future plans.
  • You want to watch the general market but not to the point that you sell all your stocks when your indicators flash a downtrend.
  • I think most traders would do much better if they completely ignored the “market” or the major indexes and just focused on the stocks themselves.
  • Stock trading is about anticipating coming movements and then waiting to be proved right or wrong. Even if I turn bearish on the market while I’m holding longs, I will usually let the stocks stop me out. I don’t usually sell everything on my “opinion” of the market. I simply tighten my stops and let the price action take me out of the positions one by one. Very often a handful of my stocks will hold their stops, and I’ll even get through a market pullback still holding names I had before the correction began.
  • If things are working, I get more aggressive. When my stock trades are not working well, I cut back my exposure and the number of commitments. This is a very simple method but very effective. If you scale up when trades are working and scale back when things are not working well, you ensure that you will be trading your largest when trading your best and trading your smallest when trading your worst.
  • In a year, you really only need one or two really good stocks to have great performance, but you must handle them right. You must add to a stock after it has built a new base following its first move up. You can add to it again on subsequent bases. On a longer move, you can build the size of the position into 20–25% of your portfolio. A position of that size should only be achieved through price appreciation and by adding more on subsequent bases.
  • The problem about setting price targets is that the best stocks usually end up going a lot further than anyone expects.
  • I don’t usually make all-or-nothing decisions, especially on winning positions, but instead I scale in and out of them. If something has had a big move and is extended and looks like it is starting to pull back, I might sell a portion of the position, but I never want to lose a position in a stock that looks like a leader. Once you sell out the entire position, sometimes you can miss the next move higher.
  • During the beginning stages of a new bull market is the best time to hold, and in the late stages of a bull market—usually after several years—is the best time to trade shorter-term
  • During the beginning stages of a new bull market is the best time to hold, and in the late stages of a bull market—usually after several years—is the best time to trade shorter-term moves and sell into strength.
  • I also had to learn to practice patience. The fear of missing out is a strong emotion when trading. It is the root of many trading failures. I have two main rules: (1) no forced trades. (2) no big losses. You must develop “sit-out power,” the ability to wait for correct setups and not force action and take subpar trades.
  • Minervini: 
    1. Think risk first. Always trade with a stop loss and know where you’re getting out before you get in. 
    2. Keep losses small and protect your breakeven point once you attain a decent profit. 
    3. Never risk more than you expect to gain. 
    4. Never average down. 
    5. Know the truth about your trading—study your results regularly.
  • Ryan: 
    1. Cut your losses and keep them small. 
    2. Be extremely disciplined. 
    3. Trade smaller if you have a number of losses in a row. 
    4. Never let a good gain turn into a loss. 
    5. Move money from your losers to your winners.
  • Zanger:
    1. Never let a stock get below what you paid for it. 
    2. Never chase a stock that is up more than 3–5% above its pivot or breakout area. 
    3. Avoid options. 
    4. Reduce position size after a good move up. 
    5. Hang on to those winners and let go of the laggards.
  • Ritchie II: 
    1. Always trade with a plan, specifically one that evaluates risk in every possible way for an individual position as well as your entire portfolio. 
    2. Always reduce trading size after a big loss or losing period. 
    3. Shift capital to ideas and strategies that are working and reduce it from ones that aren’t. 
    4. Guard your emotions with equal value to the way you guard your capital. 
    5. Bring your “A” game every day.

Thursday, 25 March 2021

Weekend Reading


Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. If you like this collection, consider forwarding it to someone who you think will appreciate it.

1. Ignore the forecasts. No one knows anything about the future.
People pay far too much attention to experts who predict/forecast/comment confidently simply because confidence convinces. The audience is looking for a buy in and nothing helps get that more than the confidence of the expert talking.

Also, in these days of social media, many a time we are simply looking for confirmation of something that we already believe in. If the expert ends up saying something along those lines, he tends to become our go to man. Our echo chambers are really small.

People making a living out of the stock market (or any other market for that matter) have an incentive in saying that the future will be better than the present is. Many analysts make a living by simply doing this on the business news TV channels, on a regular basis.
The media, looking for bold headlines to run, laps it up. And the investors who are more like sheep ready to be slaughtered, follow the sheep in front of them.

2. More people have SPACs than Covid!!
“People used to say that hedge funds are a compensation scheme masquerading as an asset class,” William A. Ackman, the famed hedge fund manager, told me. “You could say the same about SPACs.”

Mr. Ackman himself has a SPAC — in fact, the largest raised thus far. What makes his vehicle different, aside from its $4 billion size, is a unique arrangement that makes it tougher for him to score a big payday unless the subsequent merger is successful. “Every friend is launching a SPAC,” Mr. Ackman said. “It’s like everyone who had an internet company in 2000. It’s like, ‘Oh, yeah, I got one, too.’”

3. The fragrance of Kannauj
It is said that perfume flows through the drains of the ancient city of Kannauj in Uttar Pradesh. And this is no exaggeration.

In the perfume capital of India, which is home to about 300 small, medium and large distilleries, a pleasant fragrance constantly lingers in the air and the remnants of roses and other flowers are strewn across the city, including in the drains.

The centuries-old tradition of distilling perfumes or ‘attar’, also pronounced itr, in Kannauj dates back to the Mughal courts, and this legacy continues. The old-world perfumery still uses the traditional method of distilling perfumes that are based on essential oils and not alcohol.
Woodsy, floral, musky and androgynous, attars are markedly different from alcohol-based perfumes. They’re made from essential oils extracted from flowers and other ingredients, which are dissolved in water or oil rather than alcohol. And this makes them more fragrant and easily absorbent.

4. AI is the future of intelligence warfare
Since 9/11, America’s intelligence agencies have become hardwired to fight terrorism. Today’s threat landscape, however, is changing dramatically, with a resurgence of great power competition and the rise of cyber threats enabling states and non-state actors to spy, steal, disrupt, destroy, and deceive across vast distances — all without firing a shot. For the U.S. to avoid the risks and maximize the opportunities of this technological era, policymakers need to act swiftly to ensure the Intelligence Community adapts, integrating AI into all of its processes in ways that augment human capabilities and reflect American values.

Advances in technology like artificial intelligence tend to be a double-edged sword for intelligence collection and analysis: They generate opportunities for gain while also exposing the nation to new risks. Exponential improvements in pattern recognition and the optimization of digital weapons that AI makes possible mean that the United States as well as its competitors and adversaries are able to make better decisions, faster. With data and threats moving at the speed of networks, intelligence must rely on AI to help humans keep up.

5. Facebook helps spread misinformation
Stopping the spreading of false information has been the biggest challenge for Facebook, especially after the debacle of Cambridge Analytica. In late 2018 the company admitted that this activity had helped fuel a genocidal anti-Muslim campaign in Myanmar for several years. In 2020 Facebook started belatedly taking action against Holocaust deniers, anti-vaxxers, and the conspiracy movement QAnon. All these dangerous falsehoods were metastasizing thanks to the AI capabilities.

Over the last two years, the team has built out an original tool, called Fairness Flow. It allows engineers to measure the accuracy of machine-learning models for different user groups. They can compare a face-detection model’s accuracy across different ages, genders, and skin tones, or a speech-recognition algorithm’s accuracy across different languages, dialects, and accents.

Fairness Flow also comes with a set of guidelines to help engineers understand what it means to train a “fair” model. One of the thornier problems with making algorithms fair is that there are different definitions of fairness, which can be mutually incompatible. Fairness Flow lists four definitions that engineers can use according to which suits their purpose best, such as whether a speech-recognition model recognizes all accents with equal accuracy or with a minimum threshold of accuracy. But testing algorithms for fairness is still largely optional at Facebook. None of the teams that work directly on Facebook’s news feed, ad service, or other products are required to do it. Pay incentives are still tied to engagement and growth metrics.

For building a solid long term portfolio, look at subscribing to www.intelsense.in long term advisory.
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Friday, 19 March 2021

Weekend Reading

Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. If you like this collection, consider forwarding it to someone who you think will appreciate it.

Baa Baa Black Sheep

Black sheep have been both loved and loathed in equal measure over the centuries. In terms of wool production, black sheep among a white flock were problematic. Black wool is difficult to dye, and so a black sheep in a white flock destined for cloth would have represented a financial loss. The coat color of wild sheep is usually a dark body with a pale tummy, but over the centuries shepherds strongly selected for a uniform white coat, which was easy to dye. The gene for dark fleece didn’t disappear, however; it is simply recessive—in other words, a white sheep can carry the black fleece gene within a flock, but you wouldn’t be able to tell which animal it was until it produces a black lamb.

The arrival of a black sheep from a white flock must have left ancient shepherds scratching their heads, bewildered by nature’s alchemy. And so perhaps it’s no surprise that black sheep became the target for superstitions and peculiar folk remedies.



A ad-free search engine from one of the builders of google search

During his 15-year career at the search startup that became an Internet giant, Ramaswamy built, scaled and ultimately ran Google’s $115 billion advertising division. However, he finally left in 2018 after becoming disillusioned that Google’s obsession with growth was affecting everything from search quality to consumer privacy. Then the 54-year-old did the completely unexpected: Launching a startup to build an entirely new search engine from scratch — but this time without data tracking and without ads. In other words, without the things that make money.

Neeva users will pay between $5 and $10 a month to get the search results they want rather than what advertisers want them to see. The challenge, obviously, is getting folks to pay for something they are used to getting for free.



The secret of Nanda Devi

Elite climbers were trained by the CIA and paid huge sums of money to carry an atomic-powered spy gadget to the top of an undisclosed peak. The stage for the 007-esque drama was the Himalayas. Somehow this plutonium-powered device was lost or stolen, now either providing the fissile juice to a secret Pakistani nuke or threatening every man, woman and child in India with deadly radiation in the form of contaminated run-off into the Ganges River.

The peak ultimately chosen was Nanda Devi. The peak, India’s highest, rose from a pristine bowl of alpine meadow bordered by a jagged rim of summits. In 1965, at the start of the CIA field operation only six climbers from various expeditions had stood on Nanda Devi’s summit at a cost of three lives. Indeed, only as late as the 1930s did humans even penetrate the Sanctuary.

The CIA planned to intercept radio telemetry signals between the Chinese missiles and ground control. A transceiver, powered by a plutonium battery pack, would beam information to a CIA listening station, where data analysis would reveal the range, speed and payload of the Chinese missile.



"We will be watching you!!"

Sharp Eyes is one of a number of overlapping and intersecting technological surveillance projects built by the Chinese government over the last two decades. Projects like the Golden Shield Project, Safe Cities, SkyNet, Smart Cities, and now Sharp Eyes mean that there are more than 200 million public and private security cameras installed across China. China’s 2016 five-year plan set a goal for Sharp Eyes to achieve 100% coverage of China’s public spaces in 2020. What gets reported to police by the Sharp Eyes program isn’t just limited to crime. One Pingyi resident in the state media article spoke of reporting a collapsed manhole cover, while another mentioned that they had suspected a multilevel marketing scheme happening in a nearby building. The MLM organization was reported to the police, who allegedly broke it up with warnings and fines.

Though the system primarily relies on facial recognition and locally broadcast CCTV, the city of Harbin, for instance, published a notice that it was looking for predictive policing technology to sweep a person’s bank transaction data, location history, and social connections, as well as make a determination as to whether they were a terrorist or violent.



The devil is in the zipper!

A ‘pro tip’ for evaluating the quality of a piece of gear is to look at the small details, such as zippers and stitching. Cheap-minded manufacturers will skimp on those details because most people just don’t notice, and even a cheap component will often last past a basic warranty period, so it’s an easy way to increase profits without losing sales or returns.

If a designer does bother to invest in quality components, that’s a tried-and-true sign that the overall product is better than the competition.

Zippers are a classic example when looking at backpacks, clothing, and similar gear. And although there are a few other fine zipper brands out there, the king is YKK Group — to the point that the first thing some gear reviewers look for is the “YKK” branding on the zipper pull tab.


For building a solid long term portfolio, look at subscribing to www.intelsense.in long term advisory.

For technofunda investing and positional trading, subscribe to our Hitpicks advisory service on www.intelsense.in

For momentum trend following systematic trading, subscribe to Quantamental at www.quantamental.in

Tuesday, 16 March 2021

Life as a full-time investor


Once upon a time, I had a full-time job. I used to go to the office and do the “office work” and in the evenings and weekends, I used to hone my investing skills. After about 15 years of such existence and having reached a semblance of financial independence, I started toying with the idea of leaving my job and becoming a “full-time investor”, and FTI, in short.

In the investor circles, there is a perceived highbrow feeling that I get whenever I spoke to an FTI. In conversations, the FTIs would make me feel that unless you were part of the FTI crowd somehow you were not a serious investor. Which of course is really stupid. I know so many great investors who are happy and probably better off because they are part-time investors. Having a stable income from a job can be a very liberating thing. You can focus on identifying a handful of companies every year and then let those investments work the magic for you. Of course, if you yearn to be a day trader, having a job is not going to work.

As a full-time investor, the first thing that hits you is the amount of time you have at your disposal. And unless you are disciplined it can derail your efforts very quickly. Distractions in the form of Whatsapp, Twitter (ever notice how many so-called investors tweet so many tweets during the day?? I wonder what they actually do for work or is it all just an exercise in social media outreach) can take you down a rabbit hole and you realise that you have spent a few hours and accomplished nothing.

But having this additional time can be a boon. You get time to reflect on different businesses. You get a lot of time to learn different things. I focused a fair bit on reading much more diversely. You can slow down and learn things slowly, at your own pace. Macroeconomics, quantitative theory, technical analysis, geopolitics were topics I started picking up slowly.

My strategy is to break up my work into three distinct parts. I had two till some time back and added the third (will come to that shortly). Here are my parts of work:

  • Passive (reading, monitoring portfolio and watchlist stocks, learning new things, listening to podcasts)
  • Active (Writing, Coding, creating summaries of stuff which I have read or listened to, running screeners)
  • Thinking (the new addition)

I wasn’t keeping aside time for thinking. And the challenge was unless I actively keep aside time for thinking about making decisions like if I want to make a switch in my portfolio, I was leaving it aside for it to come and hit me while I was pursuing my active work like writing about my portfolio picks.

I started marking my days of the week based on themes of study. So, Monday and Tuesday are for Quant & technical analysis, Wednesday is earmarked for general reading including macro, geopolitics etc, Thursday and Friday are kept aside for looking at interesting businesses and business models. These theme-based days help in focusing attention and making progress in each area.

My biggest challenge was that I simply overworked and overstimulated myself. Previously, office work and investment study were different. With now both coinciding, I ended up doing investment work for 12-14 hours a day without a break, seven days a week.

For twenty years, my “hobby” or “passion project” was investing. Now that is the primary focus. So, after many years, the search is on for building a new hobby. Reading fiction, watching movies, sports have started taking up more time in the day which provides a mental break from investment work. Hopefully, once the pandemic is behind us for good, then I can resume playing again. Losing the battle of the bulge for the last twenty years, seriously considering taking up some sports or activity that will focus on the health and fitness aspect.

Looking back I feel lucky I started the advisory because it gives me some purpose and work to do. Otherwise, I would probably have just sat the whole day reading and writing!! Running the advisory, interacting with investors, reading and responding to their questions gives me an immense amount of pleasure and most of the time helps me in my learning process as well.

Thursday, 11 March 2021

Weekend Reading

Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. If you like this collection, consider forwarding it to someone who you think will appreciate it.

Why Valuations Probably Won’t Matter For a While

  • Markets are in an uptrend
  • Easy money is here to stay for a while
  • The government isn’t going make the same mistake it made following the last crisis by pushing for austerity
  • The consumer is in better shape even after a pandemic-induced recession
  • Housing prices are on fire
  • And there is a light at the end of the Covid tunnel.

On the other hand, valuations are stretched, we are coming off a 10+ year bull market that never truly got reset during the pandemic plunge and there is a speculative frenzy among investors that hasn’t been seen since the dot-com bubble.

Markets, in many ways, are insane right now.

Yes, fundamentals will always matter eventually when it comes to the markets but the next 18-24 months is setting up to be one of the better economic environments we’ve seen in some time. But there is just so much money sloshing around that it seems like any correction will see buyers step in.



Is Tiny Cars the future of EVs?

Having decided that the future of mobility is electric, the Chinese government has subsidized sales of standard electric cars since 2010. With close to 1.18 million sold in 2019, China accounts for just over half of electric-vehicle sales globally. The country has set a top-down target for electric vehicles to make up 40% of car sales by 2030. Tiny cars, which first began appearing in the early 2010s, have more than double the sales of regular electric cars but have never benefited from subsidies. Nor do advertisements for them air on television. As they don’t technically require licenses, tiny cars tend to be popular with migrant workers, who struggle to pay for driving lessons and other car-related costs. The elderly, too, find tiny cars attractive since, up until October of last year, people over 70 could not apply for a driving license in China. They’re also convenient for anybody who wants a car to pick up groceries or their kids from school: No tiny car is longer than 1.5 meters, and their speed tops out at between 40 and 56 kilometers an hour. They’re for the short trips of daily life, not for traveling from one side of the city to another.



The next big risk

A few years back that some hackers managed to get a hold of the Swift credentials of Bangladesh Bank, the central bank of Bangladesh, and caused several tens of millions of dollars to disappear from Bangladesh Bank’s master account at the Federal Reserve Bank of New York. Some of the money was recovered, but some of it seems to have disappeared into casinos in Macau—walked out the door and was never recovered. In this case it was not a failure of the Federal Reserve. Someone managed to get access to the Swift credentials of a bank that had an account at the Federal Reserve, and they drained that bank’s master account.

As we discovered in the pandemic, there’s a lot of systemically important companies. It suddenly became obvious to everybody. Without Amazon or Google or our internet service provider, our problems would become even greater.



What's the dumb thing you can do here?

In a new interview, billionaire Thomas Tull — who runs a holding company called Tulco modeled in part after Buffett's — described just a piece of advice from Buffett that shifted his approach to investment decisions. At a meeting in Buffett's office in Omaha, the legendary investor shared the lesson during a two-hour conversation, which Tull said he'll "treasure for the rest of my life." The lesson involved an approach taken by Buffett and his longtime business partner, Charlie Munger.


"There was a moment," Tull says. "Where I was describing and talking through the business model [of Tulco] and how I thought about something."


"I said, 'What we're trying to do is be smart about,' and [Buffett] stopped me and said, 'I gotta be honest, for years, Charlie and I have always asked, 'What's the dumb thing we could do here?'"


"I kind of laughed, and he said, 'No, I'm dead serious. We always ask. We don't want to be in the clever pile. What what could we do here that would be the dumb thing, and how do we avoid it?'" Tull says. "Honestly, it actually has had a fair amount of impact on the way that I assess and think about situations."



The future of education is online

In 2011, Stanford professor Andrew Ng—along with the help of Daphne Koller—posted videos of his course on machine learning. Within weeks, there were over 100,000 learners who viewed it.  To put things into perspective: Ng’s on-campus course would involve about 400 students per year. This meant that he would have to teach for 250 years to get the same levels achieved on Coursera.

In today’s economy in which the skills needed to succeed are rapidly evolving, education is becoming more important than ever. As automation and digital disruption are poised to replace unprecedented numbers of jobs worldwide, giving workers the opportunity to upskill and reskill will be crucial to raising global living standards and increasing social equity. Online education will play a critical role, enabling anyone, anywhere, to gain the valuable skills they need to earn a living in an increasingly digital economy. In 2019, the spending on global higher education was $2.2 trillion. As for the online degree category, it was $36 billion in 2019 and is forecasted to hit $74 billion by 2025.


  • For building a solid long term portfolio, look at subscribing to www.intelsense.in long term advisory.
  • For technofunda investing and positional trading, subscribe to our Hitpicks advisory service on www.intelsense.in
  • For momentum trend following systematic trading, subscribe to Quantamental at www.quantamental.in