Understanding the edge ,incomplete information , learning from history
Survivor takes it all
What is the real edge in investing? Is it the ability to identify themes that are doing well? Is it investing early in high growth companies ? Or is it the ability to keep deploying large sums of capital in hope that things work out?
The edge in my opinion has to be derived by understanding the nature of this game. The world gives very few opportunities for capital accumulation , and by nature more capital is accumulated when wealth is being transferred in tough times , one lesson we have learnt from history is the edge of survival . The mere act of surviving and making less actions in a world of disorder can bring you the unfair advantage that will look so obvious in the next decade.
Survival has the highest terminal value , as it re-enables better decision making and the probabilities of you doing the right things with the right process go up with time of you keep surviving , and remember folks the ocean of capital returns of the equity market is so big that it rewards the survivors , history is the proof !
Use the current disorder to keep building and sharpening the edge , think of yourself as a company you are managing and you have options to survive in a tough cycle in the business , every decision you make/don’t make will be consequential in the future , enable better decision making through a process that has long term positive expectancy , and as I keep saying survive , accumulate and thrive !
We are dealing with a lot of incomplete information when we invest in times of heightened uncertainty and chaos is the world structure , dealing with incomplete information as a part of investing is very crucial , after a point how much weightage you give to probability based optionality
In fact , I have seen investors that deal with incomplete information well are able to see the far better and longer picture, than the one that is too lost in the small moving parts and trying to be a perfectionist
It is largely similar to poker , the goal is to make the highest probabilities based decision with incomplete information but not risking the whole game , this is where it is more of an art than science in tough times.
Understanding the non controllable variables and assigning ways to reduce risk and play the best way possible , knowing that you don't know the other players cards and are okay with it , it is very crucial that you understand this
What history tells us ,
It is important to gauge a crisis as an opportunity if you are playing the long game , if the runway for investing is 10+ years , there is no hesitation in saying that every crisis has indeed been an opportunity for investors , especially to those that can keep deploying at better entry valuations , with chaos , your buying power increases , you can buy more numbers of shares with the same money than you could before , think about it that way , the equation significantly favors the brave and the ones that show the courage to act and keep surviving
Some very interesting notes I always come back to when it feels the most difficult to invest, but that usually is the right time
What Jensen Huang from NVIDIA tells us , a man that has truly re shaped the modern world
Also one thing that is very important to understand if you are playing the long game is Financial loss in the markets is a small loss , really loss is the opportunity loss .
In my opinion , cost of being contrarian and mapping that to the opportunity cost of a back ended and non consequential returns is not worth it , but it is very important to gauge this when you think about portfolio construction and building a portfolio that has positive expectancy that can really change the fate of your capital , the risk of not investing in good businesses in the long term is far higher than the stock going down 10% after you bought it , the quicker you realize this , the more positive expectancy you add
Character , survival and discipline of valuations, and the ability to re read will go a long way
As NIFTY goes down below 22500 as I am writing this , and Small caps collapse , I present my thoughts to you on why this may be a great opportunity for those who are playing the long game ! Perception of risk is always far higher than actual risk when market falls , but few can differentiate it when times are tough , but that is what separates long term alpha from sub par returns !
disc: none of the opinions are a buy/sell reco , these are just biased opinions!
Deep insights
Thanks a lot sir 🙏
This is my part of the story from last week of December.
Right now I haven't started trading from my own account. On last weekend I short listed stocks on my own w/o any indicators or anything-just seeing the trend, strength, setup and volume. I have a twitter post made as well.
I haven't spent a penny on books, one might think it is bullshit then. But I download it for free from LIBGEN as I can't ask my parents to buy it the hardcover as for them it is total money wastage. According to them money needs to be earn but they don't want to read books and spend time to sharpen the process. As Naval says There is no scarcity of knowledge, but scarcity of desire.
People will say we don't have money to buy books. But if the motherfucking desire to be a trader then you will read hundreds of page son your laptop as well, no use of excuses as crutch in life.
I still haven't started trading but the last week I almost saw 2000 stocks and shortlisted around 150 of them which have performed pretty good this week. Even though I haven't made money, I have got the confidence that the first step to filter out stocks is good as 99% of people don't get the first step right.
They enter stocks by seeing tips or advices from twitter and then fuck it up as their own thinking wasn't applied to enter it and they get mentally in a freeze state what the heck is going on.
My father has kept on repeatedly saying to me this year that both you and me can start trading meaning he will give money on his own terms but he wants fast money and not with a process. He knows almost nothing about the process and technicals at all. Sometimes he has said to me even to try out Options trading. But I have said to him I won't do it with you as you know nothing and you are after money instead of building a process which can make you money, even though I had to face the backlash of all this. I have stood affirm to my ground and haven't burnt my hands doing Options trading as I have made a contract with myself that I won't do Options trading from the time I start trading, the only thing I will do is cash stock trading and the focus has to be on building and refining the process & set up and minimizing the loss.
When the euphoria of R Power was going on- he got to know that and he kept on saying to me that we should buy this but I was like what are the cues behind buying this or why are you saying to buy this? He said to me I feel like ki ye upar jayega & I was like ye kaafi galat approach hai.
But then when he was seeing it moving up, he was feeling I would have made the money. Then on 11th June I said to him if you feel like this way then I buying it right now. asked him what is the upside you hope? He straight away said 200-300, then I bought 1500 QTY at 74.18. I was like he needs to learn to learn lesson by doing it the wrong way, happened what I was expecting. It was the top where we bought, it kept falling down. I asked him what to do, he was like rakh le abhi, aayega upr. I said to him you were expecting it go reach 200 and it not even coming back to 74, what the heck is this? A man masked behind his biases selling himself self fulfilling prophecy that it will come back but he doesn't know that hope doesn't make money in market and this goes for a lot of people. Also- all real returns—in wealth, relationships, and knowledge—come from compound interest.
said to him when to sell, he is like ki aab toh loss ho hi gya hai, dekhte hain. I was like this totally the opposite way of trading as we need to set a SL or even pre decide how much loss to take per trade. All of trading is about taking minimal losses & sticking to the plan. Never listened to me and I sold it taking it in my hands at 40 rupees when it was breaking the BOX where around 42 was the low. Lost around 45000 in one single trade. I still feel it wasn't options trading, we would have lost a couple of lakhs for sure.
I am not a trader right now but what I do have is first principles thinking applied in some part of my life and I am well versed with how to approach trading.