Tradevesting — Masterclass
All Investing Wisdom At One Place
Part I — Introduction
Stock market is a game of discipline, emotional control and patience and NOT of intelligence.
Prioritization is important in life — do what is needed.
Don’t track the portfolio, instead track chart patterns and quarterly results.
Focus on the process, not on the results.
Stock price up or down validates nothing, business analysis, financial analysis and technical analysis does.
Goods at the shop don’t get sold immediately.
Not all the stocks in the portfolio can be profitable at the same time. Not every month/year would be same. Not every strategy will work the same way.
Uncertainty in the market is in our favour, we don’t understand the market practically.
97% — 2% — 1%: 99% people lose their money to 1% people.
Jargons don’t earn you money in the market.
Intelligence doesn’t matter much in the market, wisdom does.
Intelligent people work for wise people in real life.
Learn to respect money and appreciate rich people.
Understand money. How to earn it? How to control emotions? How to be different from the crowd?
Who creates fear? 1% of the people? Operators.
Market doesn’t like egoistic people.
Be humble or market will make to humble.
Be disciplined with your approach and accept the results and that the markets behaves in unexpected ways.
No economist is a billionaire, keep aside the theoretical knowledge.
Respect salary, save salary and invest salary.
Everyone is a student in this market.
CXOs are not made by working only during office hours.
Plan and utilize your time effectively (weekends).
Stock market needs similar ethics and commitment.
Understand what wrong others are doing? Differentiate yourself from that crowd.
Leave what 99% are doing, do what 1% are doing.
Leave social media, mobile/gadgets, minimize screentime.
Work on the pillars — wisdom, health, time management, discipline, empathy, self-improvement.
Follow the rules strictly, driving is also a gamble, wisdom is in driving safely with above average speed.
Invest in good books, everything you do without learning is gambling, else its a profession, its an art.
How much 1% would be earning when 99% are the losers.
Stop watching TV, learn to pick stocks, do not look for tips.
Look for information, not for opinion.
Look at the successful people, follow what they do and respect them.
No news can trade in stock market.
Rich people don’t watch web-series, don’t have high-end phones, don’t go on exotic vacations or don’t spend on luxuries.
Kids are learning theory in schools, we need to teach them practicality of life, spend half an hour daily with them, this will be a revision for us.
RK Damani is not even a graduate, degree can’t get you success in market.
High-end cars are not advertised on TV, why?
Don’t get impressed by high package but look who is offering that package.
You get what you focus on consistently. If you think about profits, you will book profits, if you think about stop losses, you will book losses.
F&O is not for everyone, one needs to be almost as disciplined and heartless as a robot.
Say NO to social media, use YouTube and Twitter for learning. Fix the time to use these tools.
Don’t look for tips, understand the basis of the tip.
Being blessed is in our hands: practice chanting, empathy, discipline. Luck is the fruit of our actions.
Everyone is responsible for whatever is happening in their life. Money is not necessary for education.
Doing what 1% are doing is not enough, need to stop doing what 99% are doing.
Don’t discuss your trades with anyone.
Segregate information from opinion and speculation. News is what has already happened. Rely on screener.in, any one business newspaper.
To succeed, we need three things: Time, Focus and Energy.
Stock price movement doesn’t reflect on business, at least in shorter time frame. In longer time frame, price and business do align.
Two biggest reasons for lossed in market: 1. Stop loss 2. Assumption that stock price movement is are reflection of business performance
Understand the reason for low sales and/or profits i.e. raw material cost in manufacturing.
Manufacturing businesses are more volatile than services as:
crude prices up → INR down/Dollar up → inflation up → RBI interest rates up → demand down → fixed expenditures remains same
Market leaders are market leaders for a reason. Hating riches will not make anyone rich.
Praise and respect riches, countries are run by capitalists.
In next 20 years, market will ultimately move up. India’s per capita income is 2.3K $, it is in self-sustainable zone. Indian market will not go down solely due to domestic reason.
There are 3 type of changes in the market: 1. Business change 2. Financial change 3. Stock price change
Speculations — changes in stock price without any change in business and financials. * opportunity to buy *
Who moves the market? — Operators.
Strong hands (Promoters, FIIs, DIIs, HNIs) and weak hands (Retail investors)
HNIs have their own money, FIIs and DIIs invest on behalf of their clients.
Strong hands bring the stock prices down to buy cheap but can’t keep them down as they need to make money.
Rare to find in the market, who makes money and willing to teach.
Paid content is attended by serious learners.
Stock market is a game of psychology and human behaviour.
Operators are drama queens, who are waiting for the retailers to panic and sell.
We need to build our basics stronger, market can go down but can’t remain low forever.
We also should share and help others if we have knowledge and talent.
People lose money in the market because of their ignorance.
Chanting brings luck, drink 4 litre of water daily.
Spend time with yourself, don’t discuss about others.
Self — Body — Mind — Subconscious
Stay humble, respect talent and respect seniors.
Read books about market, spend time alone with yourself.
Market is a practical game, theory doesn’t work beyond a point.
High supply — low price≤==≥Low supply — high price
Crude importers and exporters countries, demand and supply are tightly coupled.
Understand what strong and weak hands are doing. Effect of GST on transport trucks. Real estate prices went down, housing finance business went up.
People don’t want to live longer as they don’t know what to do with it.
Part II — Stock Selection
Revise the classes at least three times.
7 strategies, 3 groups, each strategy for different group.
Groups: V40, V40N, V200
Not all strategies work on every stock. 2 times in 3 years applies to all listed stocks.
Different strategies may suit based on time, experience, appetite etc.
Risk is not of losing money, but of volatility and holding period.
V40 and V40N — same selection criteria
# V40 — Large and mid-cap
# V40N — Mid and small-cap
# V200 — Large, mid and small-cap
Large-cap: Top 100 companies
Mid-cap: Next 150 companies
Small-cap: Rest all companies
NSE has more liquidity, most of the retailers trade here.
NSE ~2K companies listed
BSE ~4.5K companies listed
Market Cap of 100th company in the list can tell a lot about market condition.
Market leader can be in any cap, Large, Mid or Small.
Practical experience of the market is more important and valuable.
6 qualitative conditions for #V40 and #V40N, company should:
- be debt-free.
- be a market leader.
- be in business for last 10–15 years.
- have pricing power (moat).
- have growth prospects for next 10–15 years.
- not be a Govt company.
3 conditions for #V200 (excluding Banking & NBFC)
- Debt to equity < 0.25
- ROCE > 20%
- Net Profit (12M) > 200 Cr
2 conditions for #V200 (for Banking & NBFC)
- ROE > 10%
- Net profit (12M) > 1000 Cr
~ update #V200 list every quarter
We can manually discard any company when in doubt (e.g. Adani).
Trading means buying low and sell high, investment is buying not to sell.
There are short (20D), medium (50D)and long term (200D) traders.
Part III— Two Swing Strategies
# V20 Strategy
- Can be applied on all three groups (V40/V40N/V200)
- 3% in one trade, no stop loss, daily candle-sticks
Executed in 4 steps:
- Group of continuous green candles (lowest to highest > 20%)
- Draw a range from lowest to highest
- Buy as soon as price touches lowest range
- Sell as soon as price touches highest range
Hold it in between, can invest 3% more if same stock (for V40/V40N) has another opportunity, just once.
For V200, there is extra parameter of 200 SMA, lowest low should be below 200 SMA.
Why #V20 works? Strength is given by operators, tend to repeat.
Stock market journey is boring and time-taking, don’t do anything stupid and utilize this time to work on your mind and body.
Rob Booker — Knoxville Divergence (RB — KD)
- Can be applied only on V40
- 3% in one trade, no stop loss, daily candle-sticks
Down-trending (bottom to bottom) and up-trending (top to top) lines.
[Bar Back = 200, RSI Period = 14, Momentum = 20 (default)]
Size of the line is not important, starting point is not important.
Check end of day and buy/sell next day morning.
Buy 3% more for another signal but selling point remains the same.
Value buying parameters: 10 months window (200 SMA), 14 days strength, 20 days momentum (reversal)
Automation is the killer of creativity, there is no substitute to hard work.
A glass of milk without sugar at night and two glass of water in the morning.
Part IV — Complete Financial Analysis
The depth of financial analysis should be limited to the aspects important as business owner for decision making.
Ignore trivial things at home, at office and in life.
Market Capitalization: all shares at current market price (CMP)
CMP is per share and Market Cap is per company.
Multibaggers can be identified using market cap: like Asian paints vs Indigo paints, Britannia vs Mrs Bector Food, Angel One vs 5 Paisa.
Indian economy (2300$ per capita) is in self-sufficient and self-growth mode.
The world is divided in three parts: US/UK/EU, India/Middle East and South East Asia.
- Per Share ← → Per Company
- Current Value ← → Market Cap
- Book Value ← → Share Capital + Reserves
- Face Value ← → Share Capital
Actual Book value can’t be estimated due to current value of Land, Machinery and Brand can’t be quantified/adjusted.
Conviction is built on business understanding.
Huge fixed assets purchased at right time, at the right place create entry barrier.
Paper industry (JK Paper) revived due to packaging, Sugar industry (Mawana/Bajaj Hindustan Sugar) will be revived due to ethanol usage.
Price-Earning (PE)Ratio: (Payback period)
Market Cap/Net Profit ← → CMP/EPS
PE needs to be looked into in conjunction with net profit, how quickly the net profit is growing?
PE originated from US factories as dividend was important then.
Private companies have high PE; for PSUs, PE has its owned importance.
CWIP → Capital work in progress.
Capacity (up) + Inflation (down) = Net profit (up)
Look for forward PE based on next year’s net profit.
For private companies, if PE is low, its good, but if its high, it is not necessarily bad, similar reasoning can be applied for current and book value.
Dividend Strategy:
Dividend Yield → 1.5%-2% large caps (on average)
PSUs give upto 8–12% as dividend, buy high dividend yield companies when its 20% down from 200 SMA, and sell when its 25% up (at same price) with 15% dividend. (e.g. Hindustan Zinc, Sanofi India, REC, Coal India, Swaraj Engines, HUDCO, GAIL, Power Finance Corp, Bharat Petrol Corp, RITES)
Return on Capital Employed (ROCE): earning % on available funds, it includes borrowed money as well, this is not relevant for banking and financial companies.
Return on Equity (ROE): applicable for banking and financial companies.
ROCE > 30% or ROE > 10% means great companies, will keep touching all time high (ATH) often.
15% < ROCE < 30% : means above average companies.
Promoter Holdings: Strong hands vs Weak hands is more relevant. In general, avoid > 30% holding with public (weak hands).
Pledging % depends on the business model, avoid > 10% pledging.
Debt to Equity < 25% (except Banks and NBFCs)
Debt is the root cause of all the problems in life.
Quarterly sales and profits to be compared with same quarter of previous year.
Operating profit margin (OPM %) needs to be compared within same company for previous quarters.
All kinds of manipulations are done in other income and income tax.
Quarterly results needs not to be given much importance, especially companies with 10–15 years of track record.
Check for abnormality in the other income and income tax.
Depreciation ← → Fixed Assets ← → CWIP
Expenditures are of two types: 1. Operating expense (for past, already used or consumed, expenses in P&L) 2. Capital expenditure (for future, will be used or consumed, fixed assets in balance sheet)
Fixed assets means being used, CWIP means non-usable currently.
Depreciation = Asset Cost / Asset Life (est)
Liabilities are payments to be made but are not loans.
Concalls are the most important thing, Concall Notes are also available on screener.
Part V— 3 Great Strategies
Simplify but not oversimplify at the expense of quality.
# Moving Average Strategy
- Can be applied on V40
- 3% in one trade, no stop loss, daily candle-sticks
- Can average if 10% down and sell that portion afterwards
Buy: CMP < 20 SMA < 50 SMA < 200 SMA
Sell: CMP > 20 SMA > 50 SMA > 200 SMA
- Buy or Sell next day morning
- Can buy even if you missed earlier
- Can repeat if price moves in a range
Prefer averaging than taking fresh trade in V40 companies.
This is opposite of golden and death cross strategy.
Stock market is not a business of intelligence, its a business of emotions.
Stock market theory and practicalities are different.
Operators → value buying and price action
Traders → long-term (200 SMA), mid-term (50 SMA), short-term (20 SMA)
Buy when all these traders are in loss and would support, sell when all these traders are in profit and would exit.
Don’t share your knowledge and talent unnecessarily.
# Reverse Head and Shoulder Pattern
- Can be applied on V40 & V40N
- 3% in one trade, no stop loss, daily candle-sticks
- Can average if 10% down and sell that portion afterwards
- Not at life time high
Head should be bigger than the shoulders, neckline (resistances) should be in horizontal line which denotes same operator in play.
Shoulders can be more than one on either side, complex patterns become more reliable. Shoulders size and depth can be different.
Target (regular chart) should be max depth of the head from neck.
Breakout above neckline → Green candle closing
Breakout confirmation → Next green candle closing above the highest level of previous candle
Sell as soon as the target is achieved, buy again if the stock is 10% down and sell that portion afterwards.
# Cup with Handle Pattern
- Can be applied on V40 & V40N
- 3% in one trade, no stop loss, daily candle-sticks
- Can average if 10% down and sell that portion afterwards
- Not at life time high
- Same breakout rule as above
Handle should be at the right side only, cup should be deeper than the handle, target based on max depth of the cup, can be more than one handle making complex pattern, which is more reliable (e.g. rocket and bamboo).
Operators take help of the stop-loss to buy cheap.
How to buy at the bottom of the cup or handle? Check for the fundamentals and build conviction and buy at the bottom, this comes with practice.
Time is money — use it or waste it
Sector rotation is done by operators but will be covered automatically using these strategies.
If more than one options to trade, buy whichever gives you better margin of safety (MoS).
Prefer averaging in V40 companies instead of taking fresh trade.
Part VI — 2 Times in 3 Years
Business understanding is the most critical part of this strategy.
This strategy can give you the most attractive returns of all other strategies.
Ten conditions to meet:
- Stock price should come down > 67% from all time high (ATH)
- We must understand the reason of the fall:
- Sales down, net profit down, hence stock price down
- Sales OK, net profit down, hence stock price down
- Sales OK, net profit OK, still stock price down
3. The reason of the fall should not exist now.
4. There is a proven track record of performance in the past.
5. There should be an improvement in latest quarterly result.
6. There should be a good future growth prospect of its product and/or services.
7. After meeting above conditions, stock price should still be down > 50%
8. We will buy after all above conditions are met.
9. If there are 100% gain within an year, we will book the profit.
10. If there are no 100% gain within an year, we will book the profit at all time high (ATH).
11. We need to be blessed for above strategy to work.
Chanting, meditation, empathy, responsibility, mental and physical health. time management.
Stocks for 2023 : Indigo Paints, Bandhan Bank, General Insurance, JM Financial, New India Insurance, PnB, Ujjivan SFB*, Gland Pharma, Lux Industries, Relaxo, Vaibhav Global, Valiant Organics
Stock-Strategy Mapping
- # 2Ti3Y: All Stocks
- # V20: All 3 Groups (V40/V40N/V200)
- # RB-KD: V40
- # MA Cross-over: V40
- # Reverse H&S: V40/V40N
- # Cup with Handle: V40/V40N
Part VII — Tax Savings
Reasons are created to move stocks prices up or down.
Buyback means company is purchasing shares from retail investors, promoters don’t participate.
Continuous learning is the key.
Strategies are not good or bad, stock groups are good or bad, that too in terms of volatility and holding period.
If we want lower draw-downs (<10%), we only need to work on V40 stocks.
We don’t need to trade in 33 stocks, the numbers can be roughly around 23 as there will be averaging opportunities as well.
If we are not getting enough opportunities within V40 companies, it may mean a correction is due or is around the corner.
2Ti3Y is best if we are ready to hold and sit tight, but business understanding becomes critical in this approach.
We can be in either of these 3 groups:
- only work on V40/V40N
- work only on V40 and 2Ti3Y
- just V20 strategy on V200
How many d-mat accounts?
- Goal-based
- Active Passive trading
- Tax savings
Adult non-working member’s d-mat account can be used in the family.
Assign nominee in case of possible family dispute.
HUF — Hindu Undivided Family (only married male person can open)
CA →Affidavit →PAN Card →Bank a/c →d-mat a/c
Money transferred in blood relation is not taxable.
This can make huge difference in 10–20 years. (1Cr in 10Y, 50Cr in 20Y)
40% CAGR can be achieved in 3 years if V40 and 2Ti3y is applied.
FDs are a waste of time and money, no gain after tax and inflation.
Respect rich people and you will also get rich.
Google may or may not listen to every single word we utter but this universe is listening.
Don’t get jealous, appreciate others’ achievements and get inspired.
Read, listen and watch ‘The Secret’ at least 40 times.
Stock market is a very boring journey, avoid making it interesting by doing stupid things, work on your mind and body.
Don’t get greedy in stock market, work towards increasing your active income by working on your skill-set.
