Tuesday, April 23, 2013

Why following Warren Buffett won't be good for (y)our trading

For Reader's note : I guess it is better to put disclaimer before starting this article. Please read this completely before coming into conclusion. If you are too sensitive about Warren please read why following Warren Buffett is not good for my (means Guruprasad) trading.

Warren Buffett is an icon of Value Investing and he is so successful that most of the books on value investing has been written based on his success with stock markets. After reading  few books I come to conclusion that Mr. Warren Buffett could never be my role model to make money in markets.

There are  many reasons and I'd like to put all those reasons.

1. Warren Buffett was born at right time and at right place to reap the success of capitalism whereas I've not got that kind of luck.

2. Warren Buffett is a genius, hard worker and he could do complex mathematical calculations in matter of time whereas I'm a mere mortal and have got failed in my Math Examination ( I got failed in my Higher Secondary Final Examination).

3. Warren Buffett is a king of complex analysis and he could easily anticipate things that are no way near to my imagination. I don't even know what would happen to companies that are bought by me in markets ( I don't even know what would happen to those companies the very next day of my purchase).

4. Warren Buffett is a greatest stock picker and I'm a worst stock picker.

5. Warren Buffett is a guy who could easily pick up a phone and could make a call to CEO of a company which he would like to invest for his next winner. I can't even make a call to a GM of a company and even if I make a call only an employee from investor relations could attend my call and answer my questions regarding the company which would be of no use because it was already known to thousands of other people who intends to make investment in a particular company. 

6. Warren Buffett could be bailed out by Federal Reserve whereas in my case I've to pay myself for my mistakes. I know few of you guys might not accept this. In 2008, Warren Buffett had stakes in lot of financial institutions that are on the verge of collapse(WFC is a prime example). He simply lobbied with others and protected his investments. I don't care whether you guys accept this truth.

7. Warren Buffett is so influential and his word could make a stock run in few percentage points whereas no one knows me. Not even a neighbour knows that I trade in stock markets and trade for living. 

"The most important thing is to have a method for staying with your winners and getting rid of your losers."-Gary Bielfeldt

If a trade doesn't look right, I get out and take a small loss.-Gary Bielfeldt

I make my living by trading on stock markets. I've my method to trade stocks and this article clearly states that I'm not a value investor because I don't even know how to value stocks and I don't even know what would happen to the companies that are bought in stock markets. I don't have the knack of anticipating future course of markets and business of companies that are traded in stock markets. 

In order to overcome my weakness I simply follow simple mathematical calculations of 30 Day Simple Moving Average for Short Term Trading, 50 Day Simple Moving Average for Mid Term Trading and 10 Months Moving Average for Long term trading. I normally trade on 30 Day and 50 Day and seldom trade on 200 day average. 

If it goes below any of these averages I simply short the stocks and have stop loss and If it moves above any of these averages I simply buy the stocks and also have stop loss for those trades. 

If my trade doesn't move for a week I simply cut my position and look for another trade. I firmly believe that this seems to be best method for mediocre like me to make money in stock markets. 

I still read Warren Buffett. Now a days I don't have any expectations or false thinking on  becoming next Buffett. 

I never pretend to be a value Investor because I simply cut my losses short and accept that I've made mistake. I know that I'm not a value investor like Warren Buffett. This understanding helps me to accept my mistake and make decent money in stock markets. Most importantly I love the fact that I'm a mediocre and an obscure stock picker.

Monday, April 15, 2013

Infy - This is going to be test of skills and nerves

I wrote about Infosys and today huge short covering happened. I have made some adjustments and have kept the profits. I'll put that in post. I guess INFY would make me to work till this expiry. Trend is clearly downside. But lets wait and watch how things work. 

Friday, April 12, 2013


My Trades as of Thursday 11.04.2013

Infy - 2804 May Long

Infy - 2184 April Short

Infy - 2700 Call Option Sold at 190

Infy - 3000 Call Option Sold at 35

Infy - 2800 Put Option Sold at 115

Infy - 2600 Put Option Sold at 35

My loss on Friday 12.04.2013

I cleared my Infy May long  position 2434

I covered my 2700 call option at 5

I covered my 3000 call option at 1.50

I covered my 2800 put option at 358.50

I covered my 2600 put option at 172

Let us calculate the profit and loss ( Loss indeed)

2700 Call Option 190 - 5 = 185 Profit

3000 Call Option 35-1.50 = 32 Rounding up Profit

Total Profit = 185+32 = 217

2804 - 2434 = 370 Loss on Futures

2800 Put Option 358.50-115 = 244 Rounding Up Loss

2600 Put Option 172- 35 = 137 Loss

Total Loss = 370+244+137 = 751

Total Net Loss = 751 - 217 is equal to 534 is the net loss

I kept my short in Futures. I shorted April Infy Futures at 2815 and now Infy is trading at 2300. This is 515 Points.

I sold 2400 Call Options(3 Lots) and got 200 Points ( Price rates) assuming that I would be keeping it till expiry. I might cover it around 3 bucks, but I would be writing further calls for 30 bucks and 20 bucks to compensate loss of 3 bucks. I always approach Infy in cautious manner and would write calls only above 100 points to safeguard against any knee jerk reaction. On top of that my loss on put option could go down if Infy goes up during the day.

I sold 2450 Put Options at 65 and in Total I've got 265 Points.

While doing all these, Infosys was trading around 2450 and May month futures was at substantial discount (Eventually got adjusted during the close)

How I calculate 

2815 - 534 = 2281 has been taken as my shorting price.

2815 is the price which I originally shorted Infy.

I reduced 534 loss and made my price as 2281.

In 2281, add 200 Points and it would come to 2481. I sold 2450 Put option at 65 which means my price of short has gone to 2515.

Now Infy is trading at 2300 and in my future position I'm in profit of 215 Points

In my 2450 Option there has been a loss of 150 Points. In total I've got 65 Points which would give me a profit of Rs.8000. 

While making the decision I was in the loss of more than 20K, but eventually sat and made the decision. I believe I hold my nerves and made my calculation and eventually got it right. Its a bit of luck and calmness that made me to turn around my position in my favour. The game is still not over. Let's see how Infy reacts till expiry.

I guess at this point of time I have got the grip over my position and hopefully would continue till expiry. I learnt hell lot of lessons in this trade and I'll line it up.

Lessons learned in Trade.

1 . Never write options during the event that would have parabolic outcome. Candidly speaking I never expected 20% drop in Infy and that's why it has happened.

2. Its always better to trade after results. One could always have visibility and more probability to trade the stock after results.

3. Don't panic while you are in loss. Be Calm and see how you could reduce it than simply losing patience.

4. Have self belief. Nothing is end of the world. But make sure that you have total risk management in place while making a trade.

5. Please be careful of people who say its easy to make money trading on results. Its always expect the unexpected.


Infosys is one of the India's largest IT company and it has tremendous craze among IT employees and students in the campuses across India. It also has craze among traders and I've not seen anyone going short in that counter.

Infosys – I always try my hand during the time of results and not even once I got it perfectly right in my call. I might go on right path with long but I always have an option (derivative instrument) attached to it (meaning – I limit my profits by simply writing options).
Before going to the main picture I’ll tell you what happened last time. I went long and ofcourse I wrote an option and I limit my profits to Rs.100 (Rs.12500). I never anticipated huge short covering rally and that exactly happened in Infy. LIC made blockbuster profits by selling Infy around Rs.2900 levels which they bought atleast 30% below their selling rates.

During the result day I went long through futures and wrote call options. By this strategy I made Rs.10k and in total I made Rs.25k. If I didn’t fucked up with the hedge I could have made more than 50k and that is how I work in the markets. I’m too much afraid to carry unhedged positions during the times of big results like Infosys.

This time initially I went short around 2818 and wrote 2800 Put Option at 115. After couple of days I went long on May month futures at 2804 and wrote 2700 Call option at 190. After a day I wrote 3000 call option around 35. Yesterday I wrote 2600 Put Option at 35.
By this time you know how I’ve been fucked up in my position.

I was expecting neutral results from Infy and I thought it would only by 5%-10% (on the worst case) move on either side. Today morning I watched the results and I thought Infy could correct not more than 7%-10%. In that anticipation I go to my office and I had a shocker awaiting me.

When I made calculations I was sitting in the loss of 30k. How to recover?

I sat down and made huge calculations and eventually I believe I got it right. What I do is the lesson that is important for me.

I myself couldn't believe I got right and eventually got it right and I was actually sitting in the profit of Rs. 8 k. I'll explain in part 2 of this post.