Choosing my SIP Dates

Having decided that I’m exceptionally poor at picking stocks, for the last year or so I’ve been investing mostly in Mutual Funds. I invest a total of Rs. 12000 every month in three different mutual funds. The three SIPs take the money out on 2nd, 9th and 27th of each month, I think.

On a number occasions in the recent past, to my bad luck, the stock markets have chosen to move up heavily on the day that my SIP is due. For example, the markets hit a trough two days back, and chose to go up by 700 odd points yesterday – when my SIP was due. Of course, I understand that the concept of investing on a fixed day each month is to average out these daily movements and ensure that I buy on an average at the average market rate. Nevertheless, so far the luck has mostly gone against me.

I’m wondering if it would be a good idea for me to lock in the previous day’s prices in case I get the feeling that the market may go against me on the deduction day. For example, two days back I had a good idea that there was a good chance that the markets might shoot up yesterday, and I would’ve been quite happy investing at the July 1st levels. I wonder if it would’ve been a good idea to go short long on a market index “stock” such as Nifty Bees on July 1st evening. I would clear out this position on the evening of the 2nd which was when the level at which my SIP investment would be made would be decided.

Most of the MFs I invest in invest mostly in blue chip stocks, so I don’t think there’s too much of a basis risk by hedging using a market index. The only problem i have is that Nifty Bees aren’t very liquid, and don’t get traded too much. Also, I don’t know if short selling is allowed in this (can someone let me know?) “stock”. If not, can you suggest some kind of an alternative investment that I can make one day before my SIP day (I mean I need to sell short) which is more liquid? ( actually the short position thing in nifty bees doesn’t matter. I own a significant amount of that stock so I can sell some of it and buy it back without actually being short)

Let me know if this kind of a strategy is sound.

(if you aren’t able to leave a comment here, mail me at skthewimp [at] yahoo [dot] com)

Update

Oops. What I meant was I go long in the market on the eve of my SIP and clear out the position when my SIP actually kicks in. I don’t know how but I got confused between long and short. It reminds me of this story in Hull where he talks about a trader who wanted to close out a long position in cattle and instead went longer, and had to go somewhere in the rural US to actually take delivery of cattle.

Letting Bear fail

This is a tubelight post. Was supposed to have written this two months back.

I sometimes wonder if the US Fed did the right thing by encouraging JP Morgan to buy out Bear Stearns rather than to just let the latter fail. I know letting it fail would have had significant negative impact on the already struggling financial sector. But wouldn’t it have sent out a nice message for the longer term? That nobody was too big to fail? Wouldn’t this have significantly improved the quality of derivatives contracts in the long term?

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Oily predictions

I propose a new business model. Make a seemingly outrageous long-range prediction. It could just be anything, but you might want to stick to the financial world. Once you have decided on the prediction to make, think up of about six possible reasons why this prediction could come true. Given that the prediction in itself is outrageous, it shouldn’t be hard for you to come up with six outrageous reasons to support the same.

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Buying pickles in Sringeri

That’s what i did immediately before I proceeded to the VidyaShankara temple to look for porn. I spent half an hour at the Sri VidyaShankara Home Products store buying pickles and other assorted condiments. I ended up buying a bottle of Appe Midi Mango pickle (made out of whole uncut tiny mangoes). Then one bottle of Amla (nallikai) thokku – a kind of chutney made with full amlas. My mom later told me she was keen we bought this because I usually don’t eat the fruit in amla pickles, and that it’s good for health.

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Tracking your portfolio

Another amazing insight from fooled by randomness. The essence of this is that if you are a passive investor, the more often you track your portfolio, the more your headache. Suppose you have invested in a portfolio where the expected annual return is R%, and the volatility is V%. The insight is that the more often you track your portfolio, the likelihood of the portfolio delivering a positive return between two observations falls extremely quickly.

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Accountants and Engineers

I’m currently reading Nassim Nicholas Taleb’s Fooled by randomness. Have read some fifty pages so far. Like his later book The Black Swan, this too contains totally awesome fundaes. And contrary to reports that I’ve heard, it’s extremely easy reading. Either it’s because of my familiarity with derivatives or because I’m just coming off Chaos by James Gleick, which I found extremely difficult to read, and struggled to finish.

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interest rates derivatives revisited…

so my favorite topic of interest rate swaps has made front page news today (in the Business Standard). apparently the food corporation of india (FCI) entered into a swap with Barclays in which FCI received fixed and paid an interest rate linked to the yield on Indian GSecs. now it so happens that reverse repo rates have gone up by much more than Barclays had projected (thus driving up yields on GSecs), and poor FCI is now getting mothered.

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