The Art of asking smart questions | When do you really graduate as an investor?

Time for a thread🧵🧵🧵🧵🧵

Retweet for Max reach!!

You graduate as an investor when you start asking things like the quality of revenue, incremental quality of earnings and the competitive landscape. Eg:- One API player will grow earnings because of shortage in market for those

APIs but the other one which will grow because of being the lowest cost producer. The markets often give higher Valuations to the latter player.

Another example that comes to mind is Balkrishna Industries vs other tyre players.🚜🚜

Given the fact that it is the lowest cost producer and has the highest margins. It always gets a premium to the other players in the tyre space. Whether at peak or at trough.

One more example is that of APL Apollo, same business got low valuations during the last cycle and collapsed by 50%+ when their EBITDA per tonne reduced. In this cycle, the value added proportion has increased.

Lets discuss how to invest in equity directly, the end to end picture, taking as an example my largest holding: RACL ⚙️ 🖥️

🧵🧵👇👇

I am not a financial advisor & please don’t treat any of this as financial advice. Also, please dont think of whatever i say here as gospel or the absolute truth. This is only my perception of the truth.

I am not your Guru.

A little bit of framework/paradigm building up-front, please bear with me.

Here is the 1 tweet summary. 1000s of hours of reading, writing & contemplation.
Then, decades of patience. If we get both the steps roughly right, then some 💰💰.

The first step a Direct Equity investor with little knowledge has to do is to perceive their world accurately.

We do this by seeing interviews by experienced investors, books they're writing & reading company communications.

When we perceive our world through reading & listening, we go from being an investor with little knowledge to an investor with some knowledge. We are building mental models by learning from experienced investors

See how many our investor became :D

Mutual fund returns shown by investment platforms and newspapers mislead you.

Why should you think twice?

[A thread] 🧵

“XXX mutual fund has delivered astounding returns of 80% in the last one year.”

You may have read thousands of such headlines and claims online.

They tell you only half the story.

Mostly, investment platforms and newspapers report trailing returns.

To calculate trailing returns, you have to pick a mutual fund’s NAV from two specific dates.

And calculate how much the NAV has increased during the period.

Example:

NAV of ‘ABC’ fund on 1st Oct 18 = INR 100
NAV of ‘ABC’ fund on 30th Sept 21 = INR 175

3-year CAGR = 20.51%

But there’s a problem with trailing returns.

You have to calculate it point to point.

If you change the dates, the returns may fluctuate.

I was watching a video on Fundamental Analysis where the speaker presented a Company's price chart and his theory of how price moves in cycles.

Something clicked and I could correlate the same concepts is being used in the Financial Space

A Thread 🧵
RT if you ♥️

This was a F2F video from @elearnmarkets by @vivbajaj

Mr. Shailendra Kumar explained how he aims to catch a company during the improvement phase and ride it through the rest of improvement, re-rating & story phases.

This curve appears more than you would imagine in any chart!

This is the same curve as interpreted by Stan Weinstein in his Stage Analysis Method.

He looks to Enter stocks in at the break of Stage 1 or at early Stage II, riding the entire momentum and exit at Stage 3.

Sounds Familiar? Lets do more.

Richard Wyckoff interprets the same curve as Accumulation - Distribution stage

The Wyckoff Method seeks specific conditions for positioning usually before Phase A of distribution begins, to be precise, during Phase C / Spring in the accumulation phase.

Same to Same

Then, A relatively unknown guy called
Ralph Nelson Elliott, who developed the Elliott Wave Theory which is based on another unknown guy's theory called Dow Theory, which as it turns out also has a certain shape to his theory on how price moves in Long run!!!

Coincidence?

Few weeks ago @Ronak_Unadkat Sir conducted an exclusive session for me & @adityatodmal to explain how he trades.

He was kind enough to share all his trade strategies and was patient enough to answer our doubts.

Thought of making a 🧵for the benefit of the larger audience here.

Sir's Option Selling Logic 🧵:
• Reversals in Intraday Option selling
• Strike Selection & SL
• Hedging for any Black Swan Event
• Positional Option selling
• Ratio Spreads
• How to manage the positions
• Capital mgmt

In collaboration with @AdityaTodmal

How to play reversals
• Always look at the chart as a starting point
• Spot the Swing low
• Sell Strikes 300-400 points below that swing low
• Buy a proper hedge

• Example on how to play reversals on Intraday
• Instead of the selling the support strike sell a bit far

• As the strike is far from the support you get enough cushion

• As soon as the SL is hit, you can exit the positions

• without your strike coming into ITM

As promised stock trading setup for Intraday is here as per my little knowledge and will come with more different ideas in future ..tagging some good handles so more people can benifit from it @ArjunB9591 @AnandableAnand @ManekAgicha @bhatiamanu @bankniftydoctor
1/n

Let's get started...here idea is to share a setup for people who are trading randomly like bought this bought that and made loss ..instead it is always a good idea to have system so atlst you can manage your risk trade well ..so let's start with required thing in trading 2/n

To trade stocks ,say intraday or positional you need three things:
1 ) direction
2 ) momentum
3 ) location
To make it rule based system we will use some tools too..
Indicators here we gonna used here are my favorite MACD and second one is RSI. 3/n

Our first requirement to trade is direction ..we will decide the direction by looking at MACD ..i have lot to say about MACD ..we will talk about MACD after but let me clear one thing about this macd is most people look at macd is 4/n

If crossover is positive then trend is bullish and crossover is negative side then trend is bearish ..this totally wrong perception.let me tell my way of looking at it .."AS LONG AS SIGNAL LINE AND MACD LINE ARE ABOVE ZERO LINE ,TREND IS BULLISH ". 5/n

Index Funds have been a red hot equity passive Mutual Fund strategy in the last 10 years!

A thread🧵explaining why index funds should be a part of ur equity MF portfolio!

Hit "Retweet" to educate maximum investors

Let's go👇

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Passive vs Active Mutual Fund Strategy

Active Strategy:-

Active investing, as its name implies, takes a hands-on approach and requires that someone act in the role of a portfolio manager.

The goal of active money management is to beat the stock market’s average return

(2/18)

Passive Strategy:-

Passive investing entails a non-active role on part of the investor.

When you invest in a diversified portfolio with low costs and a long-term horizon, it tends to deliver returns comparable to the market average.

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What are Index Funds?

Index Fund invests in stocks that imitate a stock market index like the Nifty, Sensex.

These are passively managed funds which means that the fund manager invests in the same securities as present in the underlying index in the same proportion.

(4/18)

The relentless rise of Index funds:-

The assets under management (AUM) of passive products will grow eight times from the current levels of ₹3 trillion to ₹25 trillion by 2025

Passive assets will grow to constitute 37% of the overall assets in the MF industry by 2025

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From selling snacks on the street to building a multi-billion-dollar empire

Mega-Thread on the story of Haldiram's

Would appreciate a Retweet or like as it helps us educate more investors and inspire us in producing more such content.

1) Ganga Bhisen Agarwal, affectionately known as Haldiram by her mother, started The Haldiram Empire in 1937 before India gained independence.

2) He was born into a Malwadi family in Bikaner and married Champa Devi.

3) He started out selling Bhujia, as per his aunt's recipe in his father's namkeen and snacks shop.

4) However, he and his wife later fled home owing to a family quarrel.

5) Later he started by selling on the street mong daal namkeen prepared by his wife.

6) Haldiram opened his first business in Bikaner in 1946. He began selling his Bikaneri Bhujia there.

7) He recreated the Bhujia by including moth flour and made it thinner. His sales and income improved dramatically because of all of these adjustments.

8) Later on, Haldiram attended a wedding in Kolkata, and only he got the idea to set up his shop there.

9) With this step, the first branching out of the Bikaner Bhujia business was started.

Ever wonder why a price corrects after opening gap up or price moves up after a dip.
Have you noticed this in stock market?

This phenomenon is called Climax.

This thread would on
"How to trade Climax"

Like 👍& Retweet 🔄for wider reach and for more such learning thread.

1/12

So far, nobody shared or discussed Climax phenomenon and this was just a mere observation for us.

If you haven't seen any example of climax yet, then let's see an example:
This happened with Tata Steel today in intraday today.

2/12

Climax is the last/ending phase of the trend in stock market.

There are two types of climax based on the trend in market:
1. Bullish Climax
2. Bearish Climax

Shared example of both below.

Let's dig into each of these and see what would be a trading setup.

3/12

Bullish Climax:
As name suggests, it is the ending phase of bullish move/trend. After this price starts downtrend.

Setup:
1. Price should open gap up by over 2%
2. Mark mid point of opening candle. Go short if price is below this.
3. Opening candle's high would be stoploss

4/12

Use this climax trading setup only in #Intraday and use 5 mins time frame chart.

Let's see an example of a bullish climax that happened in Tata Steel today.

Entry got triggered (1317) at 9:20pm when the candle was below the reference point. Trailing SL got hit at 1286.

5/12

Commandments of Investing Success!

Some of the key principles of investing that have helped me in my journey.

Retweet for Max reach!

🧵🧵🧵🧵🧵🧵🧵🧵

Commandment 1

Investing is a game of probabilities and not a game of possibilities. First thing that is the most important is to adapt your investing philosophy to your own circumstances. Eg:- if you are able to give less time to research then it is foolish to buy

concentrated positions or companies that are just emerging with a higher allocation.

Commandment 2

This is the one where I have been burnt in the past. Hopefully I have learnt my lesson, always pencil in conservative growth estimates. Let the business beat your low

expectations and then take a victory lap. At the end you are here to compound your capital and not look like a hero.

Commandment 3

Have both concentration and diversification work for you. Make a portfolio of 12-20 stocks. Look for different themes. Concentrate in your top

Positions (10-11 stocks) and the other stocks should be like football players who are warming the bench and willing to play as soon as they get on to the pitch to replace any stock (one) who is injured or cannot continue to play.

20 Timeless Financial Lessons from the book:

"THE PSYCHOLOGY OF MONEY"

– Thread –

1. Our current relationships with money are based on our past experiences & We should avoid living in that illusion.

2. One can be wealthy without superior intelligence of financial education. You just need right behavioral skills.

3. Both luck & risk are an integral part of finance.

You can make good decisions that lead to poor financial outcomes vice-versa.

4. Saying “enough” is realizing that an appetite for more will push you to the point of regret.

5. Financial success is less of a science & more of a soft skill.

6. Buying impressive items to gain admiration & respect from others is a fool’s pursuit~ These things can not be bought.

7. Don’t move your goalpost to suit your current needs.

Once you have more money & power. It's easy to get lost in ambition so stick to your goal.

8. There are certain things which are never worth taking a risk like Character, Family, Friends & Freedom, Happiness.

Getting a lot of hate and negativity in DM's regarding whatever I have said on 9:20 straddle.

A thread on my opinion, and an experiment that I did.

Going to be a long one, I hope you don't get bored.

1/n

I ran a random simulation on excel, which would toss a coin 726 times (because there are ~750 working days in 3 years and I had data for only 726 days).
Each output would print either Heads/Tails.
I have defined Heads as bullish, Tails as bearish.

2/n

If the outcome is heads, I would buy ATM CE at 9:20, and if tails, I would buy ATM PE at 9:20.
Basic 10th math - 50% chance of a coin toss returning heads or tails. So if I can get a R:R of > 1:3, I might be able to make this random simulation profitable.

3/n

So the other parameters were :
1. Only 1 trade at 9:20 everyday, with fixed SL and target.
2. SL 50% of prem, target 4X of SL.
Ex : I buy ATM CE @ 100, my SL is 50 and target is 200.
3.If neither SL or target hit, exit at 3:25.
Here are the backtest results 👇👇

Just one trade every morning, no analysis needed, with fixed SL and target in system. Completely random simulation, could've resulted anything, but it is giving a CAGR of 80% !!
Would you trade this backtest result?
If you didn't know the logic, why wouldn't you trade this?

5/n

#RSI is a common indicator which most of us use in the stock market.

This learning thread would be on
"𝙐𝙨𝙚𝙨 𝙤𝙛 𝙍𝙎𝙄"

Like👍 & Retweet🔄 for wider reach and for more such learning thread in the future.

Also, an investment strategy is shared using RSI in the end.

1/16

Setup 1:

RSI- commonly used to show whether price is overbought or oversold.

General rule:
𝐑𝐒𝐈 > 𝟕𝟎 -- 𝐎𝐯𝐞𝐫𝐛𝐨𝐮𝐠𝐡𝐭
𝐑𝐒𝐈 < 𝟑𝟎 -- 𝐎𝐯𝐞𝐫𝐬𝐨𝐥𝐝

One becomes cautious once price becomes overbought and optimistic when price becomes oversold.

2/16

Let's understand this with an example of Laurus Labs:

1. It was in overbought zone and after a few days when a small dip was seen from 693 to 588 (15% downside)

2. It was in oversold zone and after a few days when a small rally was seen from 59 to 107 (82% upside)

3/16

Well, this looks very easy, but it is not.

When a price is in overbought zone and is in momentum, then it can move up without taking a dip and exiting or shorting stock would prove wrong.

When IRCTC was in overbought zone, price went up from 2718 to 6396 (135% rally).

4/16

Similarly, for oversold stock.

When a price is in oversold zone and is crashing, then it can move down without taking an upmove and buying stock would prove wrong.

When DHFL was in oversold zone, price went down from 126 to 11 (91% crash).

5/16

Mega Thread on Exit Strategies (Long-Mid Term Portfolios) 👇

We talk about systematic exit a stock portfolio in a bear market in this 🧵

Most have made good profits in stock positions and its always good to be aware of what can be done when markets turn bearish

Read on.
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1. Death Cross (50MA Crossunder 200MA)

This is a popular method to judge whether the stock/index is in a bear or bull market.

Book profits at a death crossover

My view: Not the best way of exit, there are better, more refined ways.

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2. MA based Systematic Exit

MAs used:
21MA - 1 mnth avg.
65MA - 3 mnth avg.
150MA - 6 mnth avg.
250MA - 1 year avg.

Exit 25% if 21MA below 65MA
Exit 25% if 21MA below 150MA
Exit 50% if 21MA below 250MA

This method handles short term correction while having skin in game
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3. ATR based Stop (Supertrend, Chandelier Exit, Chande Kroll)

For positional exit, ATR based trailing stop can be used.
ATR multiples are 3(aggressive), 5(conservative) are used

My preference is exit 25% on ATR(20,5) breach daily, full position on ATR(20,3) breach wkly

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4. Ichimoku KUMO Breach

The KUMO cloud offers good support areas.
Exit 25% on breach of top of cloud
Do nothing while price inside the cloud
Exit FULL when price breaches cloud on downside

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🧵 Thread on NINE PERSONAL FINANCE RULES WE ALL MUST KNOW

1) Rule of 72 (Double Your Money)
2) Rule of 70 (Inflation)
3) 4% Withdrawal Rule
4) 100 Minus Age Rule
5) 10,5,3 Rule
6) 50-30-20 Rule
7) 3X Emergency Rule
8) 40℅ EMI Rule
9) Life Insurance Rule

Share this🧵 if you 👍🏻

1) Rule of 72

No.of yrs required to double your money at a given rate,U just divide 72 by interest rate
Eg,if you want to know how long it will take to double your money at 8% interest,divide 72 by 8 and get 9 yrs

At 6% rate,it will take 12 yrs
At 9% rate,it will take 8 yrs

2) Rule of 70

Divide 70 by current inflation rate to know how fast the value of your investment will get reduced to half its present value.

Inflation rate of 7% will reduce the value of your money to half in 10 years.

3)4% Rule for FinancialFreedom

Corpus Required=25tms of your Estd Annual Exp.

Eg-if your An exp after 50yrs age is 5L and you wish to retire corpus req is 1.25crs.

Put 50% in Debt & 50% in equity.

Withdraw 4% every year,i.e.5L

This rule works for 96% of time in 30 yrs period

4) 100 minus your age rule

This rule is used for asset allocation.Subtract your age from 100 to find out,how much of your portfolio should be allocated to equities

Suppose your Age is 30 so (100-30=70)

Equity:70%
Debt:30%

But if your Age is 60 so (100-60= 40)

Eq 40% & D 60%

19 Lessons From "The Psychology of Money"

A book by @morganhousel

This book really had a big impact on me.

It's great for beginner and advanced investors.

And even anyone that wants to do better in life with money.

Truth is it's not that complicated.

1. Skills Needed

Financial success is a soft skill.

How you behave is more important than what you know.

You don't have to be a genius to be successful with money.

A Janitor that invested consistently through life ended up with $8m upon retiring.

On the other hand a highly educated CEO went broke in the 2008 Financial Crisis.

Why?

One wasn't trying to outsmart the market while the other was constantly trying to.

2. No One's Crazy

We make money decisions based on our own unique experiences.

These decisions make sense to us in a given moment.

If you live through a period of high stock market returns it seems normal to put your money in stocks.