Union Budget - 2010

As I was thinking of the upcoming Union Budget and how I should position myself for it, one thought that struck me was the kind of expectations traders have from the budget this time.

Unlike 2009, when it was touted as the "Biggest Budget Ever", the expectations from 2010 are almost NIL. That in my opinion might actually be very good for the market and may be a bullish sign. I am never comfortable forecasting the markets, so I will stop there. 

Trading is much simpler & easier when compared to forecasting. So, let me stick to my trading & leave the complex and difficult job of forecasting to the "experts".

I have some hedged positions in commodities & investments in stocks. Have no positions in Nifty.

Looks like a busy weekend ahead.

Like all great things in life, markets are beyond language!

I have been reading quite a few reports on "how china will crash", "Why the US will default on its debt" and "how we will eventually slip into a Great Recession or Depression" finally leading to yet-another mother-of-all-crashes. Heard of "double-dip" and other such theories? "V-shaped", "W-shaped", "Square root symbol shaped", "Inverse Square root shaped" etc.

For whatever they are worth, there are as many theories of the "eventual collapse" as there are economists & analysts.

The opinions & analyses presented in these reports is so out-of-sync with what is actually happening on wall-street. Markets have been very resilient and have refused to crack even after so much persuasion by the doom-sayers. Makes me more & more bullish as a trader as I go through yet-another report on why "stocks are doomed" to retest 2008 lows! Have been reading them for quite a while now, almost 10 months.

It's like saying, "Everyone except me will make the same mistake again."

It is important to remember that the market & its participants are not as dumb as the analysts believe and do learn from their previous mistakes and may not repeat the same again, atleast not in the same fashion.

Markets normally do not need to be told on "when to fall" and "how much to fall". They will do it when they have to in their wisdom, when thats the right thing to do. After the last of the bears covers the last of his shorts in desperation (fear?) with a market-order and goes double long (greed?)!

I believe, like all great things in life, markets are beyond language and cannot be explained in a few sentences and/or in a few equations of a report.

As far as my positions are concerned, I am long on commodities. Have no position in Nifty futures. Have investments in stocks.

Stay relaxed, stay focussed & stay profitable!

Do I know how to take a loss?

This is the SINGLE most important question you will ever ask yourself as a trader. Be honest & Answer it.

"Taking a loss gracefully" is a skill that is developed over a number of years. It's not easy. And it's the most important skill in trading.

Ironically, the average trader never even bothers to ask this question. He is always after the next best strategy or trading system that will make a guaranteed profit. So why even think about how to take a loss?

Taking a loss is an art. Easier said than done.

A loss can be financially damaging & psychologically devastating. So, it's v.very important that you know how to take it when its small.

If you are playing chess with the Grandmaster, Viswanathan Anand how many games do you expect to win out of say, 10 games?

Even if you are a Grandmaster yourself, 6 out of 10 should make you very happy. Right?

Then, how can you expect to win & make a profit each and every time you trade? Trading is probably the most difficult game on earth.

Remember, "that trader" on the other side of your trade might have devoted a better part of his career & life in mastering this game for decades.

In trading, always expect to make a loss. That way it is much easier to take it when it comes.

Never let a loss eat into your capital. Never. Take it when it's really small.

Pls read the last 2 lines once again, they are the "holy-grail" of trading.

GOLD - The Ultimate Brand!

Back after a long weekend. Just bought some Gold futures as I see a little bit of upside here. No other trading positions as of now.

A few thoughts on Gold:

After buying the shiny yellow metal, I was wondering as to why people buy gold! What is it in Gold that has caused it to capture the human imagination for hundreds of years. Recently, even the central banks have started buying hundreds of tons of the yellow metal.

I just think it is the best brand-building exercise done over hundreds of years and Gold may just be the greatest brand ever!

Otherwise, why would one buy something which has absolutely zero economic utility? It is very difficult(almost impossible) to assess the "fair value" of Gold by any of the traditional valuation methodologies. The P/E (Price/Earnings) ratio of Gold is infinite since it has no earnings! What is the book value of Gold? Anyone?:)

Consider Silver, also a precious metal and has some industrial application.

I sometimes feel Gold is just perception & nothing else.

Gold is not consumed in any manner. One buys it just for the sheer pleasure of buying and possessing it. Amazing, Isn't it?

True, Gold acts as a store of value but it is very hard to imagine people using Gold to buy and sell goods/services in this modern age.

Please do share your thoughts on Gold in the comments section.

Blame it on futures traders.

With soaring food inflation, some people have already started blaming it on futures trading in commodities. Commodity futures trading has always been a favorite whipping boy for some sections of the media & a few unemployed politicians.

As far as I know, there is no credible research that suggests that futures trading causes higher prices. Sure, they can cause spiky price moves but that can happen on the up as well as on the downside and get faded away pretty quickly. And this can happen in any market that is leveraged. Not just commodities. The price of crude oil went as high as $150/barrel and came crashing back to around $50. The lesson: Prices driven up purely by speculative futures trading without fundamental support cannot hold for long.

If any, a liquid market generally causes better price discovery. Look at what happened to some high-profile IPOs in the past. The illiquid grey market price and the very liquid futures price on the listing day. Which price was closer to fair value?

Globally, futures in Agri-commodities have been trading without any problems.

The govt. has already banned futures in a few agro-commodities in the past but that didn't stop those commodity prices from soaring.

If the market crashes, we blame it on short-sellers and ban them. If the market soars, we blame "excessive speculation" in futures and ban them again!

It is time for us to rethink & stop skirting this very important issue of food inflation by simply blaming it on hoarding and/or futures trading.

The food inflation in our country may be pointing at deeper supply-side issues than we are ready to accept.

Would love to hear from you on this issue. Do share your thoughts on the same in the comments section.

A little cherry picking in stocks.

I have been doing a little bit of cherry picking in stocks as I am not sure clueless of the short-term direction of the markets. Have been busy searching & buying companies with good earnings growth, good earnings growth & good earnings growth!

Raamdeo Agrawal once said,"Stocks are slaves of earnings!". How true!
Mr. Raamdeo Agrawal is Director and Co-Founder, Motilal Oswal Financial Services.

I have no significant futures positions as of now.

Markets choose to implode...because the bubble never got big enough to burst!

I can't help but inform you that Nifty might slip to 3700 or thereabouts in the next few sessions(God knows, how many) i.e. if you believe some of the forecasts by various market pundits. I neither support nor reject their view.  But if and when that happens, please do remember to give them their due credit as "they were the first ones who told you so....":)

It was a good closing for the week for me as I covered most of my shorts in Silver, Copper & Nickel. I covered my Nifty shorts yesterday much sooner than I would have liked as it was becoming too volatile and unpredictable.

Anyway, I have no business staying in something which I am unable to understand. Right? Markets are tough. Why make things more complicated? There are lots of markets to trade and so many opportunities out there. Spot the easy ones and go after them. That's the way I like it. It is much easier to handle that way.

I still have a few shorts in commodities but that's because even a few of them can make a large difference if there is a panic sell-off.

Have a wonderful weekend!

Is fundamental trading possible?

The other day I was watching one of the "fundamental" analysts on the blue channel who says that things are likely to improve in the coming months and the markets have been over-reacting on the downside. This after reminding us & the TV anchors of her "market prediction" a week earlier on the same channel of the imminent market collapse as the fundamentals are "stretched". "Stretched" at 5200 nifty and cheap at 4900? 300 pts on nifty an over-reaction?? My calc tells me its not even 6%. Oh, then by the same logic wht abt the over-reaction on the upside of abt 100% in the last 9 months!

I am not against fundamental analysis or anything like that. Far from it. I believe, fundamentals are the most important criterion for investing in stocks or any other asset.

But to change them on a daily basis just to make them fit to our trading plans without any fundamental shift at the ground level makes them look more like funny-mentals rather than fundamentals.

I have always felt that fundamentals do not change perceptibly on a daily basis and generally take some time to get discounted. Markets don't fall 50% in a single day, jst because they are overpriced by 50%.

I think the analysts know this too. I wish they were atleast honest with themselves.

Trading based on fundamentals is as bad if not worse than investing based on charts.

Just my humble opinion.

Would love to hear from you on this subject. Please do share your thoughts in the comments section.

I hate blog titles!

I always have a very difficult time finding an appropriate title for my blog especially when it is about the future direction of the market. I wish we never had titles for blogs.:)
To put in less than 10 words or so as to what the market is going to do tomorrow or day-after is simply over-simplifying things. The market is simply too big to fit into the title of a blog or any article, for that matter.

Thank God! I don't have to search for a title atleast to this post.:)

It was just the kind of weak day where you short the Nifty by noon and decide whether to carry-forward or not by evening. I chose to keep it for tomorrow.
The initial weakness in the morning gave me the much needed clarity to open up my shorts again. Will have to wait and see as to whether my persistence pays-off this time.

Nickel, I squared-off.

Will leave you with the Ball of the century from Shane Warne. Enjoy watching!

Markets Stabilise. I Cover.

I covered my short positions in all counters. Its always a very pleasant feeling to book profits after sitting patiently for more than a week now in those positions. Crude I closed at a small loss.

I also initiated a small short position in Nickel today.

In others, I will try to re-initiate shorts if weakness is back in the coming days.