2013, 2014 and rambling thoughts on trading and investing.

So another year goes by and its been a good year by all standards for the market and a mixed one for the economy.

Nifty should end the year up about 7% and the Bank Nifty down almost 9%. So the star of the year has been CNXIT up a massive 60% followed by CNXPharma up a not so modest 27%. And its not a surprise that stocks in these sectors would have outperformed others by a margin. But hey - a reader may say. whats the use of telling me now? Why didn't you tell me at the beginning of the year. Well the simple answer is - because i didn't know. I had an idea but then i have lots of ideas and not all of them go as per expectation.

And now what about next year. Well the same .. IT and Pharma will probably go the way of FMCG in the last 3-4 years and get over extended and smart money will distribute these stocks and get on to another theme. What could those be. Going by the events and trends it looks like Retail, Auto Anc ( has not done too badly this year too), Metals and Oil and Gas could be the sectors to look out for this year.

And how to play these sectors: Simply buy the leaders in these sectors when they breakout and start showing strength. But  wouldn't they be overvalued when that happens, would be the refrain. Why cant i just buy them now. Well they may be overvalued a bit when they break out but it is also because there is demand for them. Do you want a stock in demand or out of demand? 3 years ago my answer would have been the later but today its the former.

So learn to look a simple bar chart and figure out the support and resistance areas and go long with a sensible stop loss on the first breakout. Its that simple so don't over complicate it. Even investors should look at a weekly and daily chart and buy something thats going up or sideways but completely avoid something that is heading down.

Like any endeavor be it sports, academics, art, business - don't think your self to be a genius if you get 5 right in a row and a loser if you get 5 wrong in a row. Over the longer term if you are still in the game , you will make money. But to be in the game over the longer term - u need to focus on position sizing and risk management. Entry and exit are over played. You may be sure of making 20-25% during the year but no one knows the path. And position size and stop loss is what will save you and keep you in the game.

1. Be patient but not gun shy. It is not about how many times you are right or wrong. Its about how much you make when you are right and how much you lose when you are wrong.
2. Plan the trade and trade the plan. Does any one go navigating without a map. A trading plan is your map. If you don't know where you are going then any road will take you there. 
3. Know your exit before your entry else you will be stuck in the chakravyuh. The easiest person to fool is the world is yourself.
4. Back test and back test and more back test but when you take your strategy live, don't doubt it.
5. Trading over a shorter time is all about luck but trading over a longer time is nothing but skill. Same goes for investing
6. Please don't trade or invest if you are not able to devote a significant amount of time and effort to research and developing a trade plan and then executing it. Show me any one profession where the amateurs take on the pros and expect to win. In this profession most of the pros also don't win, so forget about the amateurs making money consistently and beating the market. Amateurs make unforced errors but pros win points.

Trading and Investing is very simple but to trade day in day out or invest with a deluge of information, cues and volatility around is another ball game. Warren Buffet's rule about not losing capital applies to both trading and investing. As Larry Hite says if you dont put your chips on the table you dont win and if you lose all your chips , you cant play. So focus on position sizing and risk management. Read up Van Tharp on position sizing.

Good trading or investing is very boring. Go bungee jumping for excitement.

Above all know yourself. Not everyone can be a successful doctor, lawyer, engineer, entrepreneur , artist etc. No reason why this  doesn't apply to trading and investing. With discipline and proper execution one can do a good job. But please don't shy away from the hard work if you want to make it. As Sachin said, "My friends used to tell me that I missed out on a great movie or an outing etc. I told them that they missed out on playing a great game of cricket." So if you like investing or trading do it but if you dont enjoy it or want to buy on tips or rumours then please dont be in the market and invest or trade as a hobby. Remember hobbies dont make money, they cost you money.


Read lots of good books over the year. My top ten for 2013 would be:


1. Following the trend by Andreas Clenow
2. The Success Equation by Michael Mauboussin
3. The Inner Voice of Trading by Michael Martin
4. Trade like a Stock Market Wizard by Mark Minervini
5. New Trader , Rich Trader by Steve Burns
6. The Playbook / One Good Trade by Mike Bellafiore
7. Anti Fragile by Nassim Taleb
8. The Emotionally Intelligent Investor by Ravee Mehta
9. Diary of a professional commodity trader by Peter Brandt
10.Warren Buffett by Jeff Mathews


Have a great 2014.











  

Market View and Thoughts - 1st November 2013

No other better time than this to pull out Sir John Templeton's famous quote out of the hat. "Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria."

From a new low on 28 Aug 2013 of about 5100 odd we are now at 6300 odd and Sensex has already crossed its all time high. We got a repo rate hike on 29th Oct and market went up (some say it was actually an easing as the operating rate currently is MSF and not Repo but then didnt he do the same thing on 20th Sep - Hike repo and cut MSF). So mood changes are quite swift. But some people did see a move coming even though it was hard to say which side. For the first six months of the year we had a very sedate Vix and hence the moves were slow and few. Post Fed tapering talk in June/July the vix spiked up and it showed that bigger moves were on their way. Most of the time Vix up move suggests a down move  as down moves are usually more swift and sudden, but not always. We can have upside as well as downside volatility. 

Now for a bit of history - in Jan 2008 when we had the reliance power ipo, mood was euphoric, retail was gung ho - after hitting the new all time high we corrected from 21,000 to 15,000 in 9 trading sessions. So all the ingredients for a top were there. It doesn't seem like that this time. But let me say that I dont know. And that keeps me nimble and humble. 

Is it a new bull market? It doesn't seem like. So then it must be if it doesn't seem like. You know what - Again, I don't know. And neither does anyone else. Everyone is just going to guess and outguess and double guess. So then how do we invest or trade in this scenario. The good part is that it doesn't change much. While investing just buy the companies doing well and expected to do well and while trading follow your system. Don't trade or invest blindly purely on views. Sure somethings will change tactically between investing in an overall downtrend or an overall uptrend but the broad strategy is to buy strong companies (strategy) with good technical strength (tactics). 

To confirm if this is actually a new bull market or uptrend it will take some more doing. So I would wait for the nifty to go another 300-400 points from here and then make a new low above 6300 and bounce back from there. Thats when I would say that the market is now in a new uptrend. But then people who have the urge to buy at the bottom and sell at the top will end up doing the exact opposite i.e. end up buying at the top and selling at the bottom. As for me I am happy to catch a part of the move in between and willing to be wrong at the turns. 

So what to do - keep investing in good cos. Dont try and play catch up by buying beaten down names in the name of High Beta - there is a very reason why they are beaten down. Manage your risk and the return will take care of itself. Not the other way around. Most of all decide what format of the game are u playing - Test, ODI or T20. The game is still cricket but the rules, strategy and tactics are different. 

Look forward to comments.

Happy Diwali.