Sunday, June 26, 2016

A matter of perspective

Brexit. Greenspan says this is the worst period since he has been in public service. They say it's the worst step backward for Europe since World War 2. And it has far reaching security implications. The pound reached its lowest level since 1985. Take your pick of any of these news items. Either way, its big. Very big. Exactly how big, perhaps we will realize only decades later. The markets reacted the only way they know how to react to news like this. Let's have a look at the S&P and NIFTY (Indian stock index charts) now.

As you can see it was a disastrous day and the markets made their lowest lows since.....(drumroll)......May 2016!! Wait a minute!! That's it?? An event of earth shattering proportions and we have reached where we were last month! Talk about an anticlimax. So, let's just sit back and analyze. The trouble with days like Friday is that everything seems to unfold very quickly. At times like this, it helps to take a deep breath and look at the bigger picture, even if the bigger picture is just a three month daily chart.

The markets, with all the poll predictions, had got complacent about Brexit and what caught on the wrong foot when it actually happened. Hence, Friday happened. While it would take us at least a few years to analyze the true impact and implications of Brexit, the market's reaction from Friday, from the above charts, it doesn't look that bad at all. The S&P is stuck in a trading range for the past three months. Not surprising, if you consider the fact that it is still 10% since February. Brexit or no Brexit, consolidation has to happen after a move like that. And still over MA(200). No damage done so far. If anything, the Indian market chart only looks better than S&P.

All of the above makes Monday an important day in my opinion. A dull boring day would mean that the markets are quite pleased with how they have assessed the risk on Friday. Another day like Friday would mean that markets are still unsure of the impact of Brexit and are still trying to learn how to price it in. Either way, the next 2-3 days are going to be exciting!!

In case you are interested, here is my take on long term implications of Brexit.

Take care and good luck!

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Saturday, June 25, 2016

Tata Motors - Post Brexit Chart Review

Tata Motors' purchase of Jaguar Land Rover in 2008 means that it had pretty much been the proxy for the fortunes of Brexit vote in the Indian stock exchange in the past one week. The fate of the Brexit vote had pretty much been decided when the Indian markets opened on Friday. That meant that pretty much all bets were off on how much the stock would fall when the Indian markets opened. I, for one, pretty much expected all technical analysis to be thrown out of the window with there being panic in the air and blood on the streets. Let's have a look at what the stock did on Friday.

This is simply amazing dear readers! The stock bounced exactly off its strong support level at the 420 level! There have been reports of the company suffering losses of 1 billion pounds in case of Brexit. With all the panic around, there was a serious danger of the baby being thrown out along with the bathwater. In fact, I was expecting nothing less! Still, the stock manages to respect good ol' technical analysis and respect its support level. Makes a move up only to be stopped at EMA(20).

There is something to be said about keeping your cool on days like this and coming out the winning side. And as far as technical analysis is concerned, just one word needs to be said. Respect.

BTW, you can trade Tata Motors even on the US stock exchange. It goes by the symbol TTM.

Here is a post on my views on larger implications on the rise of Trump and Brexit.

Take care and good luck!

Friday, June 24, 2016

On Trump and Brexit

Surely you have read enough on the matter, but I couldn’t help but get my two cents in. While as traders and investors, we can get overly engrossed in the percentage decline in the markets and currencies, the historic Brexit referendum also provides us with an opportunity to step back, take a breather and appreciate the larger picture at play here. We were witness to history being made last night. And I am not talking just about the EU. For the last few years, EU falling apart has pretty much been a question of when, rather than if.

I am talking about the much larger picture here. I truly believe that despite all the challenges we face, right now is the best time to be alive in the history of mankind. I also sincerely believe that it just gets better from here. This belief mostly stems from my faith in man’s ingenuity and spirit of innovation. Our best is yet to come.

But make no mistake, change is coming. It’s already upon us. Numerous studies are predicting that by the year 2030, 50-60% jobs, as we know it, will cease to exist. Just Google it. I shudder to imagine the social upheaval this will cause. Let’s say the studies are off a bit. It’s not 2030 but 2035. It’s not 50-60% jobs, but 40%. That’s still a massive social revolution upon us. And we can already see the first signs of it around us. A growing part of the population is not participating in the wonderful progress that we are making; rather they are hurting because of it. Think automation and jobs. What are we doing to get people ready for this change that is soon coming? In my opinion, nothing. And that’s the part that worries me. It’s not the change, but our level of preparedness, or rather the lack of it, for this certain change.

Now see the rise of Trump and Brexit in this context. These are not isolated chapters in human history. It’s the forgotten man’s chance to raise his voice and make his presence felt. He has been feeling neglected and left behind for far too long. By the way, please don’t misunderstand me. I am an ardent fan of capitalism and believe it to be mostly responsible for the advances that we have made as a society.

And yes, I still believe our best is yet to come. But we are surely in for some interesting times ahead.

Wednesday, June 8, 2016

How much money is enough?

Imagine you are running a race. A marathon, if you like.  It’s a multi-day marathon. You get a couple of hours to prepare everyday and then you start running. Running as hard as you can. And then you take a breather for the night. Only to start all over again the next day. I got to admit here that I have lied here a little dear readers. It’s not a multi-day marathon. It could last years. Actually, it WILL last years. It could quite possibly last your lifetime. Actually, it’s quite possible that you don’t know where the finish line is. You just got to keep running as hard as you can. I know what you are thinking…..this is f***ing crazy right? Who in their right mind would willingly do this? Well, this is you dear readers. This is me. And we do it every single day of our lives.

The title should have given it away. This is us in our endless pursuit of money. Our endless tireless pursuit of money. Maybe it’s not money per se. Call it quality of life or standard of living or keeping up with the Jones, if you will. But make no mistake about it. It all comes down to money. How much time do you spend in your pursuit of money everyday? Probably stuck in a job you would quit today if you only could (As a side note, if you have a job that you love, I just hope you appreciate how lucky you are!). And in calculating this time, don’t forget to add the time that you spend in commute to and from work. Also, add the time you spend at home preparing for work. This is all time that you could be spending with your family and/or spent doing something you love. Now, make no mistake dear readers, I have nothing against money. In fact, if anything, I love money. Heck, this is a financial blog for crying out loud! Let me tell you what I DO have a problem with.

I have a problem in running a race without knowing where the finish line is. Without knowing where the finish line is, the race looks something like this.

So, if you don’t draw the finish line, life will draw it for you. Pretty simple, isn’t it?

Hence, the question. How much money is enough? The problem is that this is a highly subjective question. A man who has a lot of money and poor health, will gladly exchange all his wealth for health and a man who has no money and good health, will gladly exchange his health for wealth. Hence, you can’t have one-size fits all approach. But luckily, this is also the easy part. Just grab a retirement calculator and see where it takes you.

The problem is that the question is also a philosophical one and not just a quantitative one. How much money is enough? But luckily, we have our in house resident philosopher, Seneca (4 BC - AD 65), whom we have been studying in this blog for the past few weeks, to help us answer this question. Luckily for us dear readers, Mr. Seneca did ponder over this conundrum and this is what he has for an answer.

"Do you ask what is the proper limit to wealth? It is, first, to have what is necessary, and, second, to have what is enough."

Now, this answer just blew me away. The beauty of this statement lies in its simplicity. Read it again dear readers. It’s delightfully simple yet utterly profound!! William of Ockham would be proud of it.

Now, you may very well ask, if the answer is so simple, then why don’t more people practice it. I asked myself this question too and found that the answer to this also lies in that line itself. Let’s have a look at it again.

The first extreme or the bare minimum is “what is necessary”. The way I see it, this part consists of our basic physical needs, for example food, shelter, clothing etc. Of course, the definition of necessity will itself be subjective, but since this is the starting point, let’s take this to be the bare minimum. Coming from a country where majority of the population still struggles to live above the poverty line, you get a pretty good appreciation of what bare minimum is. But I am not going to argue with someone who says that a decent internet connection is also a basic necessity as I certainly agree with him! But the point I am trying to make here is that the “what is necessary” part is mainly determined by our physical needs and is generally pretty common to all.

Let’s go to the other extreme now – “what is enough”. In contrast to the previous extreme, which depended on the physical needs, this one is purely mental in nature i.e. it totally depends on one’s state of mind. And that’s what makes it so difficult to implement!! Fulfilling the basic physical needs is the easy part, but putting a limit to what all we think we need is difficult indeed!

The end point being a mental one is hard to quantify. And that’s what makes winning this race so difficult. But the moment you quantify this goal and mark the finish line, you will notice a change in your attitude towards money and you will begin treating money as what it really is – as means to an end rather than as the end itself.

Also in this series:

Take care and good luck! 

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