In general, I have observed that it is easy for us to say, “I can do this”, “I will do this”. We tend to always say “yes” or “may be” for almost anything. Whether directly or indirectly, we hesitate to say “explicit no” for various reasons. Some of the reasons are; we want to keep doors open for us in future, we are not sure of certain things, many times somebody said so it could possibly have some bearing, on many occasions its just does not effect me so haan bolne mai kya jata hai, etc, etc. Same way we apply similar philosophy for investments (or trading).
Almost all of us have some strategy, some technique, and some approach, that we believe works. I am in the same boat. We jump on to something at a drop of a hat hoping it will work. Here also, the opinion or reason is so strong, we find it hard to say “no”. Reading few lines we tend to believe it will work.
I receive emails requesting my thoughts or opinions about a particular stock. Many times its just a one liner asking about the particular company, many times with certain news events, and many with little blurb about the company. If I do not respond in less than a week, then you should consider it has been ignored. Lately, I have bunch of emails regarding real estate companies. Is there an reason why suddenly so much interest in real estate companies?
I was pondering what to do with these emails. I decided to jot down few lines to discuss what are “explicit no” for me in my investment thought process. So here I go:
No margins based investing: This is a no brainer. One of my trader friend asked me, “…so you avoid it”. My response was, “I do not even think about it. It is not in my investment vocabulary”.
Do not short stocks: In my view, shorting of stocks is a form of speculation. I do not understand the logic behind shorting stocks. What I mean by this is, it is designed for folks who create this hysteria of end of the world and then go on to make money. You and me as an individual have no control over this. SENSEX went from 20K to 8K, on what basis? Speculation? or folks who have strength to take it down?
No options, futures, derivatives: Here also, I do not understand the logic or reasoning for such instruments. All these are devised to trade contracts, or linked securities, etc. Why not trade it directly in its original form? Why do you have to create this inter linking or derivates? So they you can earn some fees or commisions? some examples are ULIPs, commodity furtures, Gold/Silver ETFs, etc. These are all focused on some kind of arbitrage.
No mutual fund investing: Whenever I say this, readers of this blog present counter arguments about its benefits. To me, if I do not trust myself with my own money, then how can I trust another fund manager? Sometime in future, when I can find some time, I will discuss in more detail. In the meantime you may read some of my thoughts on various participants in financial services industry. My peeve with them is lack of accountability. They work on the philosophy of; You do not know anything about stock market. So give me your money and I will manage it for fee. But I do not even assure safety of your capital (so what the heck the fee is for ?). I do not take risk on negative. But I take huge bonus on positive.
No sin companies: These are tobacco and hard liquor companies. This is a personal choice and nothing do to with folks associated with this business.
No real estate companies: I own one house and one apartment which is used by my immediate family members i.e. parents, siblings, myself. They are fully paid and hence no loans. Since, I have already spent enough money in real estate, I do not look into real estate companies. No more allocation to real estate. Hopefully this answers why I have not been responding to emails asking my opinion about real estate companies.
Do not hold non-conviction stocks: What this means is, I will not keep holding on to shares of companies that I have lost my initial conviction. Let me explain with couple of examples;
(a) Sometime back LNT wanted to buy tainted Satyam. I did not subscribe to this thought process. Had LNT acquired Satyam, I would have sold all my LNT shares. You may read my thoughts on why I planned the LNT exit strategy.
(b) If I do not think I will buy when 25% down (independent of allocation), then there is no point in buying a given stock in first place. During last year, I bought few stocks like graphite, hawkins, ABCIL, etc. At this point in time, I am convinced that I will buy more if they drop by 25% or more. There are no significant events that puts a question mark in my mind. The events here does not mean business challenges. It means M&A activies, signficiant changes in company fundamentals, scams, etc. I will sell it the day I have doubt about long term expected return. Continue to hold and pondering what to do is not an investment strategy.
As you can see, I do not question the existence of these financial instruments or companies. All of these instruments are devised, created, and traded for specific purpose. One needs tune yourself, orient yourself, and have setup to deal with those type of instruments. Just because it is simple to trade on your computer screen, it is not a justification to use them, and think you can may quick bucks.
Almost all of the items above, in my ”explicit no list”, is driven by my own ability to understand them. Their objective, reasons for existence, and logic behind them does not jive with my comfort factor. They do not jive with my investment thought process. Dealing in them does not give me confidence of success. So I stay away from them. No broker, agent, advisor, planner, friend, family member can sway that.
What is your explicit no list? Why? Can you share them below?
exit strategy, financial instruments, investment opportunities, real estate investments, sin companies, trouble at real estate companies