Monday, November 28, 2016

The market is going down

It's certainly been a long time since the last blog post. Long term investing sure is fun if you like watching paint dry. Luckily for me dear readers, it turns out that I actually do like watching paint dry. And its all the more fun if the paint company in question happens to be a sizable chunk of your portfolio! If you are Indian or invest in the Indian stock market, no prizes for guessing which is this paint company!

Anyway, in the last blog post, written on 31st July, I had commented about the negative divergences appearing in the Indian stock market. Here's a copy of the chart that I had posted last time.

Well, the prediction has played out perfectly and the market has fallen a good 10% from its highs. And here's how the index looks currently.

Pat pat. That was me patting my back. But seriously dear readers, I have to admit here that I didn't expect the market to fall this much. Same why like I didn't expect Donald Trump to be the leader of the free world. Same way like I didn't expect 500 and 1000 rupees currency notes to be banned in India. I guess my predicting abilities do have their limitations. So much for the pats on the back.

Anyway, the same negative divergences pattern is now appearing in MACD in S&P. 

Is the market headed for a fall? I think so. 
When will this fall happen? No clue. Your guess is as good as mine.
How much will it fall? I can give you the next support levels but so can any guy with crayons who can drawn horizontal lines and trend lines.

Come to think of it, I can't tell you much. But what I can tell you, and luckily for me, it turns out that this is the most important thing in investing, is that how I will react and what my reaction is going to be when the market falls. There are very few things that you and I can predict, and even fewer things that we can control, but we certainly have control over how we respond to these events. Do you have a game plan ready for when/if the markets fall 10% from here?

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Sunday, July 31, 2016

The value investor and technical trader in me both agree for a change......

Note: If you are not interested in the Indian stock market, feel free to directly head to the last paragraph. I think it pretty much applies to all markets and asset classes.

If, like me, you are an investor or trader in the Indian stock market, then you have had a pretty good last three-four months. All dips, and there haven't been many, are being bought and new 52 week highs seem to be pretty much the story of, well, everyday. As someone who is an alumnus of Class of 2008 of Stock Market University, I certainly do appreciate times like these. IPOs getting way oversubscribed, newbies giving advice about trading, pundits looking way into the future. These are magical times. I for one, am certainly not complaining. Normally this means conflicting times for the value/growth investor and technical/momentum investor in me. But not this time. Let's have a look at the NIFTY chart. 

You can see the new highs I talked about. But the MACD indicator is telling a different story as far as the last few weeks is concerned. New highs in the index are being accompanied by lower highs on MACD. Its a pretty decent negative divergence that we see developing. This could mean two things, (a) price consolidation (b) time consolidation. When would this happen? While a couple of years I would have tried to time exactly when this would happen, and you could find plenty of such posts in this blog, now, I don't care about exactly when it would happen. All I am interested in is the probability of it happening, and with each new high, the probability of either of the above two scenarios occurring increases.

What am I doing about it? Well, as a long term believer in India's growth story who has a dream of attaining financial independence, I don't have a choice but to be a long term investor in the equity markets. Most of my net worth is in it. But July was the first month in many years, that I have taken money out from the markets on a net basis. Times like this are a great opportunity for removing the weeds from your portfolio and that's exactly what I am doing. I am not too concerned about the index, if anything, I am enjoying the ride, but I am finding it harder and harder to allocate new money in the markets. So I am not going to force it. Taking some existing money off the table and holding on to the new money till the valuations reach a reasonable level is my strategy for the time being. If the markets continue going up, I am going to enjoy the ride. If the market correct from here, I am going to be ready to try and use the opportunity.

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Tuesday, July 12, 2016

The Poverty of the Rich

I am a firm believer of the fact that our entire moral compass is a function of the times, and thus be extension, the society that we live in. Continuing on the same lines, so many of our thoughts, ideas, dogmas, beliefs are just so ingrained in us, ever since our childhood, that we spend our lifetimes without even, forget questioning them but even thinking about them. I read something today morning that made me not only question a very simple concept, but also see it in a whole new light. The concept of poverty.

What is your definition of poverty dear readers? I will first share mine. Not having enough. Having very little. Struggling to make ends meet. Just few of the phrases that would come to my mind if you were to ask me to try and define poverty. And I am willing to bet that most, if not all, of you readers would have also come up with similar answers.

As the regular readers of this blog know, we have been visiting the works of Seneca in the recent months and trying to gain some financial wisdom. And it was while revisiting his works that I found myself changing my mindset about poverty. Seneca quotes Epicurus and states 

"Contended poverty is an honorable estate. Indeed, if it be contented, it is not poverty at all. It is not the man who has too little, but the man who craves more, that is poor."

I was so impressed by these lines, I found myself reading them again a couple of times. I would suggest you readers to also do the same. Being from a developing country, you come across poverty everyday and by no means, do I want to undermine their condition. But what these lines did was made me expand my definition of poverty. Hence, the title of the post. The Poverty of the Rich.

More on Seneca as applied to finance: