Latest stories

Anatomy of a loss

By Rohit Chauhan
In General thoughts
10 hours ago
2 Min read
A

When a thesis breaks down, my gut knows it immediately. After years of investing, i know when it is not working

The problem at this point is loss aversion and the discomfort of being wrong

My immediate reaction is to look for a silver lining and give the thesis ‘time’ to play out, in the name of buy & hold or some other rationalization. Once I get into this mode, it becomes a hope trade with years of opportunity loss.

In the last few years as I analyzed my stats, it hit me that this was costing me 2-3% of annualized performance. A great book which helped me move forward was ‘thinking in bets’ and the quote in the book – ‘When you cut losses, it always ‘feels’ early. I have taken this maxim to heart

This is what I do now –

  1. Allow myself to be angry at the company, management, myself, the world, my dog ..whatever comes to mind
  2. Allow myself to feel stupid
  3. 1 and 2 happens quickly now. I exit the position after the initial emotional reaction – call it ripping the bandage
  4. Immediate relief after the exit
  5. Allow the mind to clear up (which feels great)
  6. Get on with finding a new idea – better yet, I have a pipeline of ideas and the next one is ready for replacement
  7. A month or two later, when the emotions are gone, I sit down and analyze what went wrong and try to draw lessons from it

I used to go through  self torture each quarter after a few of my thesis broke down. Now I expect atleast 30-40% of thesis to break each year. I just repeat the 8 steps above and move on

Read on

Returns is half the battle

By Rohit Chauhan
In General thoughts, Quick thoughts
3 months ago
1 Min read
R

We posted the following note to all our subscribers

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We wrote a post on social media about the futility of investing based on macro risks. We have always believed in it and the proof is in front of you. We are up XX (returns cannot be disclosed due to SEBI regulations) since we started the advisory 12 years back and have invested through the ups and downs.

Imagine the opportunity cost if we had acted on all the macro risks.

We rarely write about macro events, except when there is panic. In those times, our role is that of your financial therapist.

As a fiduciary, our role is not limited to generating high returns. It is equally important to keep you focused on the long run and remain invested to benefit from the compounding. That is more than half the battle in creating wealth

Read on

Is it a good time to buy ?

By Rohit Chauhan
In Investment process, Portfolio management
4 months ago
3 Min read
I

This is the most common question from our subscribers and prospects. This question is also a waste of time unless you are a swing trader who can go from full allocation to cash at a moment’s notice

The correct question is – Is my asset allocation, right ?

If you ask this question, the answer is nuanced and personal. Let’s take an example to explore it

Let’s say you are a professional who has a steady income and manages to save each month. If you budget your finances, you can estimate the level of cash you will save by the end of the year. If you are conservative and comfortable with 50% allocation to equity, then add equities if you think the market is cheap or find stocks within the buy range (subject to size limits)

Invariably your equity allocation will reduce when the market drops and you will buy cheap as you rebalance. Conversely as the market rises, the allocation will cross the 50% threshold and you can sell, aka rebalance to get back to the 50% allocation. In other words, you buying low and selling high automatically

You don’t get bragging rights, but will end up doing well over the long run

Your goal should be to figure out your equity allocation instead of worrying about market levels

A process and not an event

A good time to buy assumes that there is some special day when the stars will align and you can deploy all the cash. A lot of investors kept asking this question for the last few months, waiting for the perfect time and have missed a 25% rally from the bottom

We don’t subscribe to this approach

Our model portfolio is conservative by nature and we allocated more to equity as the market offered good opportunity even though we maintained a higher cash level.

The managed accounts are more aggressive and have a lower cash level. The downside is that managed accounts are more volatile, but also benefit more from an uptrend

Our entries and exits are graded and slow, with a certain allocation to cash to manage the volatility and risk at the portfolio level. The same concept can be used to define your asset allocation. Revisit this allocation every few years to adjust it based on your life circumstances. Once that is done, it’s a matter of rebalancing your portfolio from time to time

Read on

Resilience

By Rohit Chauhan
In Quick thoughts
6 months ago
2 Min read
R

our recent post to subscribers:

The war in the middle east has opened a pandora’s box. Even if the war ends tomorrow, the rules of the game have changed

There were several red lines in the conflict, which have been crossed. The elimination of the leadership in Iran, direct attacks on the other countries in the gulf and now the closure of the strait of Hormuz. This means that we can expect higher risks and volatility in the future

We have no geo-political expertise to know how this will play.

Our approach to the risk and uncertainty in life at the micro and macro level has always been the same – build resilience

Invert the problem

How does one get impacted by the smallest of problems? Let’s invert the problem and the answer is quite simple

Have a high-cost lifestyle with no financial buffer, bad health and poor relationships

Any combination of the three will lead to fragility at the personal level and result in bad decisions. We cannot control the macro but can influence our personal situation. We have agency over it

Build resilience

Our suggestion is to follow the old fashioned virtues – have financial cushion, avoid debt, take care of your health and have good relationships

Take care of the above and you will have the fortitude to weather the turbulence with ease. If you have a large cushion, you may even be able to turn it to your benefit.

We have  always been over-cautious in our approach to investing and have maintained a larger than necessary cash buffer. We plan to deploy it over the coming months as prices get attractive

If you have any questions or concerns, write to us. We will collate all of them and respond via a common post

Read on

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