How Frustration Causes More Harm Than Losing Money While Trading

Frustration is the antithesis of confidence and euphoria. It can cripple you and distract you from your sense of persistence and determination. Unlike other teachers, I don’t put a negative connotation on euphoria – as long as you don’t abandon your trading rules, have at it. You can avoid frustration in the first place by “not” having expectations of the outcomes of anything (or any trades). This is not the same thing as Expected Value, but an emotional expectation about the result of something you’re endeavoring – such as trading.


One sure-fire way to decrease frustration in your trading is to make sure that you’re protective stop is not placed inside the 20-day ATR of the instrument that you’re trading. For example, say you’re trading an instrument that has a 20-day ATR of 15 points. If you’re long and the current market value is 535 and you’ve placed your stop at 530 because you have set 5 points as your max loss point, you are more than likely to get stopped given that you’re stop is well within the ATR. Many times, traders with smaller accounts do just this because they don’t want bigger losses. This is respectable and totally understandable.

In the above example, you can trade a smaller position and give your smaller position a greater latitude by placing your protective stop at 520 (535-15). You can test this strategy. You might find that you are not getting knocked out of as many such trades and, if you are trading in strong trends, take the risk home overnight and let the market forces, time, and leverage work for you.

In our coaching and teaching, we’ve found that traders disregard the daily vol of the instrument their trading as if it was going to change because the trader put a trade on. This leads us to believe that the feeling of frustration is going to be an integral part of a particular trader’s emotional system until they change their trading behavior.

We can’t change the nature of things. The instrument that you’re trading isn’t going to change how it behaves just because you’re in the trade. Chart readers put faith in patterns without knowing the expected values of the trades, but put the trades on anyway. In order to avoid the frustration that you get from having blind faith, you can always backtest your rules or stop trading pattern altogether.

Let the feeling of frustration become an “early warning system” for you to put a halt to whatever you’re doing, especially if it arises from your trading. Frustration can lead to “revenge trading” and most people who did so, didn’t want to burn through their trading capital because they were angry in retrospect. Most find this out too late.

Frustration stems from your behavior, not the instrument that you’re trading. If you’ve put faith or belief system in a chart pattern but you don’t know the expected value of the trade, you can eliminate the frustration by putting an “emotional stop” in place and not do the behavior in the first place. You can’t experience frustration from paper trading, but you can get a bumper crop of it from trying to day trade.



Which Stocks Do Mutual Funds Own The Most?

This is a list of the top 10 stocks invested in the best performing large cap mutual funds over the past 5 years.  A glance at it shows how a majority of the funds have similar portfolio of stocks in it.  E.g HDFC bank is a part of the portfolio of all the 5 top funds.  Other companies like ITC, L&T, Maruti Suzuki , Indusind Bank, Grasim and SBI are repeated in 3 of the funds.  This is not to say that these stocks dont form a part of the rest of the funds too.  Maybe they are a fractional portion of the portfolio of the other funds. Since its difficult to go through all the stocks that is a part of a mutual fund portfolio, i have only looked at the top 10 stocks that make up a fund portfolio.

mutual funds
Also the percentages in the brackets beside the mutual fund names are the returns the funds have given over the past 5 years.  It ranges from 20.90% to 23.05% which is not much of a variation over 5 years. Looking at the variation of growth and the stocks that form a part of the portfolio which are more or less similar, does it make any sense to spend hours and weeks trying to zoom into the mutual fund you want to invest in?  I dont think so. Also, if you are planning to replicate the portfolio of the mutual funds into your own stock portfolio, i think you can follow them. Looking at the stocks in the mutual funds, its a good indication that the mutual funds are confident of the performance of companies like HDFC Bank, ITC, Grasim, Indisind Bank, L&T, Maruti etc.

Also, if all the mutual funds are more or less buying the same stocks, does it justfiy the mutual fund companies taking a significant chunk of money as fees? More or less the funds are choosing the same stocks. As an investor, i prefer to go the direct way.  I buy the mutual funds directly from the mutual fund companies.

E.g if i want to buy the Franklin India Flexi Cap fund, i go directly to the Franklin Templeton India website, create an account with them, give my bank details and buy the units.

Why go direct then?  Lets take the same fund Franklin India Flexi Cap.  When you buy the fund in the traditional way, the expense ratio is 2.30% and when you buy direct, its just 1.48%.  The 0.82% might not look big initially.  But if you are buying the units over a long period of time using the Systematic Investment Plan (SIP) method, the expenses add up to a significant total.  Hence, if you can manage to do the work diligently and afford to spend around 10-15 minutes of your time, you can automate the process and relax.


Warren Buffett Finds Stocks Fairly Priced Now

Warren Buffett said stocks have “moved a long way” in the past five years, going from “ridiculously cheap” to “more of less fairly priced now.” “We don’t find bargains around but we don’t think things are way overvalued either. We’re having a hard time finding things to buy.”  Warren Buffett said stocks have “moved a long way” in the past five years, going from “ridiculously cheap” to “more of less fairly priced now.” “We don’t find bargains around but we don’t think things are way overvalued either. We’re having a hard time finding things to buy.”

warren buffett

In a live interview alongside Bank of America CEO Brian Moynihan on CNBC’s “Closing Bell,” Buffett also said the U.S. economy is continuing the “gradual increase” we’ve seen since the fall of 2009. “It just creeps along.” Buffett said it appears the Federal Reserve’s quantitative easing hasn’t worked as well as chairman Ben Bernanke would like, but he doesn’t think its been harmful either. In fact, he said the economy might be doing even worse if there was no Fed asset buying. “Maybe if they hadn’t been doing it, you’d have seen ever less than 2 percent (growth). Who knows?”
Buffett said we could be seeing the same slow rate of increase for “quite awhile” but noted that he doesn’t spend a lot of time trying to predict what the economy will do.  Ask who should be the next Fed chairman, Buffett said he would have asked Bernanke to stay in the job. “When you have a .400 hitter in the lineup you don’t take him out.”

“He may want to leave, but I think he’s done — since the panic of five years ago — I think he’s done a terrific job. And I think he ought to get a little bit more of a chance to play out the hand.” Even though he thinks it is unlikely Bernanke will be staying, Buffett said he has no second choice.

Read rest of the article here


Is Coal India, Reliance Power Reloaded?

The BSE Sensex was around 18000 when Reliance Power came out with its IPO in February 2008.  The crash that followed the listing brought the markets down to around 8000.  It was the bloodiest bloodbath i ever experienced as an investor in the market.  I took that opportunity to buy a lot of good companies at ridiculous prices; and raked in good profits when the markets bounced back a year later.

More than 2 years later, we are staring at a similar situation.  The markets are hovering close to 20500.  The Public Sector Unit, Coal India is set to come with its mega 15,000 crore IPO.  The markets are at their all time highs. The pundits have been predicting a cooling down for some time now.

Will we see a correction again post the Coal India IPO launch?  Am watching from the sidelines to pick up some good bargain.

Above images courtesy: Topnews


Just Read – Common Stocks & Uncommon Profits – Philip A Fisher

Happened to lay my hands on the audio file of this book and managed to finish the audio / book in 2 days flat. Its obviously an advantage getting the audio of books so that i can just transfer the files to my mp3 player and listen to them on my travels to work. Holding a book in hand; trying to read them during rush hour is a chore and these audio books are indeed coming handy for me.

Philip Arthur Fisher was an American stock investor who wrote this book Common Stocks and Uncommon Profits way back in 1958.  Just like Benjamin Graham’s bible of investing, The Intelligent Investor, this book is also considered to be a must read for anyone planning to invest in the stock markets.

Philip Fisher is considered a pioneer in the field of growth investing. Morningstar has called him “one of the great investors of all time”. In Common Stocks and Uncommon Profits, Fisher said that the best time to sell a stock was “almost never”. His most famous investment was his purchase of Motorola, a company he bought in 1955 when it was a radio manufacturer and held until his death in 2004.

Perhaps the best-known of Fisher’s followers is Warren Buffett who has said on some occasions that “he is 85% Graham and 15% Fisher”.  (source: Wikipedia)

Fisher goes on to give a lot of Do’s and Don’ts for investors.  A few of the Do’nts include

  • Dont buy into promotional companies
  • Dont ignore a good stock just because its traded over the counter
  • Dont buy a stock just because you like the tone of its annual report
  • Dont overstress diversification
  • Dont be afraid to buying on a war scare
  • Dont fail to consider time as well as price in buying a true growth stock
  • Dont follow the crowd

Fisher also goes about sharing his ideas of how he goes about finding a growth stock.  Fisher talks about using the Scuttlebutt method to investing.  This means that the relative points of strength and weakness of each company in an industry can be obtained from a representative cross-section of the opinions of those who in one way or another are concerned with any particular company.  Also he talks about talking to the vendors, customers etc to find the correct information needed for your investment in that particular company.

Common Stocks and Uncommon Profits
Author – Philip Arthur Fisher
Pages – 271
Publisher – John Wiley & Sons

Above picture courtesy: Nickgogerty


Equity Updates – Asahi Songwon Colours

Sold off Asahi Songwon for a very good profit.  The below shown chart should give you an idea of how much the stock grew in the past 1 year.

Also bought more stocks of MIC Electronics & Graphite India

This year the dividend payout has been pretty good. Add to that bonus shares from both Dabur (1:1) and & TVS Motors (1:1)


Its been a while

The new year has not been off to a great start, at least blogging wise for me.  For some strange reason, iam not even checking my blog, visiting any other blogs or even commenting on them. Contrary to the economic conditions worldwide, am swamped with work.  On my way back home, am so tired that i hardly can open a book and read.

The songs in my Creative Zen play in my head as i doze off.  Fortunately, i haven’t missed out on my bus stop.  Eitherway, the bus interchange is quite close to my home and even if i don’t wake up, the driver will kick me out once the bus reaches the interchange.

Before i could realise, the 4 day weekend passed by.  Did nothing constructive. Just lazed around at home and watched 6 movies.  Some of them i have updated at the Movies page.

I have almost stopped reading the newspapers thoroughly.  With layoffs to the emergence of Talibans in Mangalore, the Thuggerays in Bombay to the incessant coverage of Manmohan Singh’s health conditions, its getting routine and boring.  With so much of bad news around, i hardly need any more in the papers to feel more glum.  So, i have made it a point to no longer read any news in detail that sounds negative.

The only positive thing that happened is that South Africa beat the hell out of the Aussies both in the test and one-dayers.  Pricky Ricky Ponting’s face was well worth watching during the match.  Everything that he is laying his hands on is turning into cow dung.  Looks like Australia committed the same mistakes that West Indies did in the 90s after a superb 80s.  By not managing to get effective players to replace the likes of Waugh brothers, Taylor, Warne, McGrath, Slater, Hayden etc the Aus team is now in a serious rut.

Warner and Shaun Marsh are great prospects, but Aus doesnt have a bowling lineup that can bowl out an opposition twice in a test match.  In McGrath and Warne they had 2 of the most lethal and consistent bowlers.  Of course such players are born only once in a generation, but for sure there has been no good nurturing of the kids to replace the giants.

Compared to them, i believe the Indian team has done a better transition.  With Kumble and Ganguly gone and with Dravid almost out, India has lost a majority of the Fab 5 that it boasted of.  The one day team has no one from the Fab 5 except Sachin Tendulkar and unlike the past when we switched off the TV when Sachin got out, today hardly anyone blinks.

From the boring domination of the Aussies at the beginning of this decade to a much more rounded competition (South Africa, India and Australia), i believe we could be looking at much better matches ahead.

Also once Muralitharan and Jayasuriya hang their gloves, Sri Lanka would also be on their way down.

So, what have i been doing in the past 2 months ever since the markets crashed and the economic gloom all around? Invest in the stock markets of course.  Some of the best companies are available at dirt cheap prices or at the lowest ever prices in their lifetime.  I know of a lot of people who are staying away and waiting for the markets to stabilize (am not sure what that means), but am buying.

I have started buying small amounts in L&T even though am not really appreciative of the L&T management trying its luck in the Satyam muck.  I have also started buying into Tata Motors.  Also have averaged out my investments in Reliance Communications, Punj Lloyd, Suzlon & Praj Industries.

Disclaimer:  I would like to hereby declare that all the investments that i write in my posts are not to be taken as an advice.  Iam not responsible for any losses that you might make by following  what i have mentioned in this blog. Please approach a Certified Financial Advisor for more info or do your own research before investing.