A Simple Investing Tip for 2021

Dec 28, 2020

Rahul Shah, Editor, Profit Hunter

Today's piece has been inspired by a tweet from a certain Ryan Bitcorn Selkis.

Ryan has argued that after spending 7.5 years in crypto currency trading, the only core competency that matters is surviving.

Cockroaches are great survivors of nature. Hence investing like a cockroach will make you rich. That's it.

What's with the cockroach analogy you may wonder?

Cockroaches are nature's ultimate survival beasts. They are neither the strongest nor the most intelligent creatures. But boy are they adaptable!

They've been around for about 300 million years and have outlived most species in almost all environments - mainly because of unique survival mechanism they are gifted with.

The point that Ryan is trying to make is that when it comes to cryptos, your number one goal should be to survive any catastrophic fall in prices.

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If you are able to do this and if you don't blow up your corpus, there's a very strong chance you will make good money over the long term in cryptos.

Now, one of Benjamin Graham's lesser known but most insightful works is a speech he gave back in 1963.

In the speech, Graham valiantly tries to make a stock market prediction but gives up the effort.

He is forced to reach the honest conclusion that whether a market is clearly overvalued or clearly undervalued cannot be known with certainty.

You won't be able to get the answer from an expert like himself or anybody else.

This harsh reality makes him utter the following words.

  • My opinion then regarding the present market level must be rather inconclusive, and I shall base my later prescription of policy on the assumption that investors cannot have a dependable view on the market's future action in the next year or so, but that a large and disturbing decline is likely to take place again sometime in the future, and that we should be prepared in thought and action for it, it is a necessary assumption for investors to make, and for sensible speculators too if there are any such.

Well, that's Benjamin Graham recommending you to behave like a cockroach and always be prepared in thought and action for a disturbing decline in the stock market.

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For if you survive a market crash with minimum damage, you can always recover and make good money in the long-term.

I am talking about multiplying your money over 3x over the last 6-7 years, all by trying to survive a market crash and keeping at least 25% of the corpus in fixed deposits at all times.

Yes, that's right. In my Microcap Millionaires service, I am never fully 100% invested in stocks.

My maximum allocation is 75% with the remaining 25% in fixed deposits or bonds. If the markets turn expensive, the 25% to fixed deposits goes even higher with a maximum limit of 75%.

And the strategy has worked like charm.

It has been able to side-step the 2018 crash in small caps and also the huge crash earlier this year. It has come out of both these meltdowns with minimum damage to the overall corpus.

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I have seen many a smart investors doing fantastically well when the market goes up. However, since there are not adequate safeguards in place to protect their corpus during a brutal crash, they end up giving up all their gains back.

This has been the story of millions of investors who made good money in the bull market for mid and small caps back in 2014 to 2017.

And then they gave it all back over the next couple of years.

Therefore, the best way to deal with fluctuations of this kind and to ensure that one bad year does not completely erase the good work of a decade, an insurance against a crash is must.

And no better way to do this than to keep some corpus in fixed deposits at all times and keep shifting more as markets keep getting expensive.

So, if you are not doing it already, it perhaps makes sense to take a leaf out from the humble cockroach's book.

Good Investing,

Rahul Shah
Rahul Shah
Editor, Profit Hunter
Equitymaster Agora Research Private Limited (Research Analyst)

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1 Responses to "A Simple Investing Tip for 2021"

Haresh Shah

Dec 30, 2020

Dear Mr. Rahul Shah,

Hello!

This is a request if you can put together all contents that helps to understand charts.
I did search and found one such illustrative and educational article that you had published
way back some 5-6 years or so.

It would be a great help to members and would surely go a long way to build strong bridge between
EM team and the members. you can even mail me the links on my email id so that i will download it for future usage and reference.

warmly, Haresh Shah
Member to Hidden Treasure-Stock select- Exponential profits and so on.

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