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You will never see this on any Business channel in India, but...

There has been a spectacular collapse in most major currencies against the US dollar just last month.

Take a look at this table.

Currency

YTD-20

Brazilian Real

-8.46%

S. African Rand

-7.21%

Thai Baht

-5.08%

Australian Dollar

-4.29%

EURO

-3.57%

Russian Ruble

-3.07%

Singapore Dollar

-2.96%

South Korean won

-2.91%

Canadian Dollar

-2.60%

GB Pound

-2.26%

Mexican PESO

-1.80%

Japanese YEN

-1.09%

*-Against USD till Feb 18, 2020

Given that the INR is a highly overvalued currency, can anybody say with certainty, that the INR won't depreciate, and severely at that?

And a history of the INR shows that depreciation tends to be in violent moves, rather than orderly changes

The net result is this: in US dollar terms, the Indian stock market has delivered abysmal returns over the past several years.

Around 2% CAGR over 5-6 years

Around 0% over 10 years

Now that is quite a shocker, isn't it? 

At First Global, our Mantra, since the past 23 years has been global diversification of investments and ideas

Because it is only through Global diversification that you can avoid SCCARS (Single Country Single Currency Single Asset Risks)

From the desk of

Shankar Sharma & Devina Mehra

Want to open your PMS & Global Investing account with us? Email us on info@firstglobalsec.com and we will get you started super fast!!

www.firstglobalsec.com 

 

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Trading is like an MMA fight. A constant battling with your emotions.

Many traders, even experienced ones, often exit their trades before the optimum time. And then there is nothing but regret!

Always understand that most things happen in the subconscious mind. And, our actions are an outcome of the same emotional fight.

But don’t get upset if you have just realized the psychological biases that humans possess. We , at First Global, are there for you.

In this article, we will cover most of the “psychological biases” that your mind goes through when you trade. So, without further delay, let’s get started:

We can segregate the Psychological biases into three main broad sections -

  • Cognitive biases

  • Information-processing biases

  • Emotional biases

Cognitive biases

Things are all around. You take them as inputs and find your own patterns. This way of creating own “subjective reality” is Cognitive bias.


 

 

There are various subheads under this bias. Let’s quickly go through them.

Confirmation bias: As per this bias, investors pay attention to only that information that agrees to their earlier beliefs. It’s like: “I already knew this! “

Hindsight bias: More of selective memory bias. On repetition of past events, you would say, “I would have easily predicted this!”

Illusion of Control Bias: Having control, doesn’t mean it’s a sure win for you. For example, when you take a lottery ticket, and you have given two options. One is to select a random number ticket, and the other is to choose their own numbers. Being humans, you will feel more assured in the later one. That’s just Illusion of Control Bias.

Conservatism bias: This bias is similar to anchoring and adjustment bias. We’ll get into that soon. But, basically, conservatism bias is about the fresh data and relying on the previous data. Few investors who stick to certain investments for long ignoring the recent news and focusing on the initial assumptions are perfect examples.

Information Processing bias

This type of bias occurs when traders process irrationally or illogically. Here are its subtypes:

Framing bias: Most traders set their own strategies involving technical indicators, entry & exit points. However, they are framing their options, limiting opportunities.

Anchoring and Adjustment bias: You buy a stock at Rs. 100. As price drops to Rs. 80, you become anxious as you focus on the loss with reference to the initial buy. And, not on the real cause of the decline and its sustainability. However, you might adjust the loss with your hindsight bias.

Mental Accounting bias: People place a different value on money based on particular criteria that mostly have counterproductive results. Examples are money invested in safe portfolios and speculative portfolios.

Availability bias: Traders can escape this bias by checking the likelihood of winning. It’s like buying a lottery and expecting a win when you have an infinitesimally small probability of winning.

Emotional biases

Loss Aversion bias: One day, you profit Rs. 2000. And, the next day, you lose Rs. 500. Then, you are a victim of loss aversion bias as focus more on the negative side of the picture.

Overconfidence bias: Life is a probability. Then, why stay overconfident on such probabilities, believing it will occur anyhow.

Self-control bias: A bias that asks to control own emotions. Given two opportunities, humans tend to pick the first one over the one that came laterwards.

Regret Aversion bias: You traded in Tata Motors when it was at Rs. 200. And, post your entry, the share price dropped. Now, you are feared to trade again with Tata Motors in that range as your mind recalls earlier losses.

How did you find this short piece? Do let us know! From your Friends at First Global

Want to open your trading account? Email us on info@firstglobalsec.com and we will get you started super fast!!

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Did you Know these Trading Strategies with Ichimoku Clouds?

Technical indicators are excellent price action indicators.

In the 1960s, a Japanese journalist named “Ichimoku Sanjin” brought a special technical analysis tool to this trading world.

It is termed as “Ichimoku Clouds”, meaning “One look, glance” in Japanese.

You just have to peek our the indicator once. You will get to know about future price movements easily. Amazing, right?

It provides trend confirmation, and also at times, act as significant resistance & support levels. Yes. It has everything you are looking for.

So, this article will discuss the two must-know trading strategies using Ichimoku Clouds that you must know as a trader.

Let’s quickly go through the components that make the Ichimoku Clouds.

Quick Overview of the Ichimoku Cloud Components

The biggest and the significant component of the indicator is - Kumo Cloud.

Kumo Cloud can play the role of resistance or support, depending upon the direction from which the price is approaching the cloud.

Other key components include the baseline (26 days price average) and the conversion line (9 days price average).

And, there are two more average lines that act as the borderline for the Kumo Cloud called - the leading span A and leading span B.

Lastly, there is the lagging span (Chikou Span) that provides hints about the current prevailing trend in your trade.

Here are a few basic interpretations from the Ichimoku charts:

  • Price above the Clouds suggest a bullish trend

  • Price below the Clouds suggest a bearish trend

  • Price inside the Clouds suggest consolidation/ range-bound

Tenkan Sen/Kijun Sen Cross

I know these words weird to pronounce for a native English speaker as this is Japanese.

The conversion line is referred to as “Tenkan Sen” while the baseline is named “Kijun Sen”. In general, the conversion line moving above the baseline generates a bullish crossover.

And, on the contrary, when the conversion line moves below the baseline, you can call it as a bearish crossover.

Signals can then be called strong/weak/neutral depending upon whether the price trades above/below/inside the Kumo Clouds.

However, in the end, before locking your perspective, each strategy must be confirmed with the position of the Chikou Span or the lagging span.

If the lagging span stays above the Kumo Clouds, then that means the prevailing trend is an uptrend and vice versa.

Positions can be exited even if a single criterion falls out of place. Look at this HDFC price chart below.

During the end of Oct. 2019, HDFC shares were struggling to make a move from the Kumo Clouds. However, as soon as, the conversion line crossed above the base line, positive sentiment got activated. That can be called as a good entry point.

But, Wait. Do always confirm with the lagging span position. Here, you can notice the lagging span line above the Kumo Clouds. That’s great. Good to go. Now, you can enter the trade fearlessly.

Kumo Breakout

This strategy is mostly used in Daily, Weekly, Monthly time frames.

The funda behind “Kumo trading” or Kumo Breakout Strategy is simple.

When the prices make a breakout from the Kumo Clouds, then that’s a long call. Whereas, when the prices showcase a breakdown from the Kumo Clouds, then that’s a short call.

However, be aware to avoid any “head fakes” that usually occur on the breakout from a flat top/bottom Kumo.

Additionally, have a look for the type of Kumo cloud, whether it is bear cloud or a bull cloud. Observe the respective positions of the leading span A and leading span B that makes the Kumo cloud.

For example, if the leading Kumo is a bear and the Kumo breakout is also a bear, then that scenario depicts a bear breakout. Here, the market sentiment will continue to rule like a king. Excessive volatility won’t affect much.

If things appear differently, like if the leading Kumo is a bear and the Kumo breakout is a bull, then wait for the right one. Simply, avoid trades at that point.

Even here, look for the lagging span position to confirm the call. Below is the price chart of L&T to validate the above strategy.

There are two Kumo breakouts here - one in July 2019 and the other in Nov. 2019. In both the cases, the lagging span remained below the Cloud, confirming downside.

However, always keep an eye over the components and its position, to book profits before it reverses.

From your Friends at First Global

 

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The word Asset Allocation is bandied around rather casually these days. Hence it is important to understand what Asset Allocation is not. 

We see the word asset allocation used quite widely and we should say, somewhat lightly these days with many financial advisors and fund managers claiming to do asset allocation strategies.

Only when one goes somewhat deeper into this one realises that the Asset Allocation being talked about is in the nature of large cap versus small cap Indian stocks or moving from value strategies to growth strategies in terms of stock choice within the Indian stock market. 

This combined with some debt allocation, appears to be philosophy underlying the so called asset allocation strategy.

In fact, some of the investment documents we have seen even cite the same studies that we mentioned in the last blog that mention that 85 to 92% of a portfolio returns come from asset allocation, with specific stock selection contributing only 8 to 15%.

The problem? The studies cited take into account a portfolio consideration set that is across countries and across asset classes - not just couple of asset classes in a single country!

So for asset allocation strategy to really work in your favour, your consideration set must include all assets: Developed Market Equities, Emerging Market Equities, Developed market Fixed Income, Gold and Precious metals, other Commodities, Real estate (REITs) across countries and so on.

Just changing allocation across different categories of the Indian equity market or even Indian equity and debt markets is simply not good enough! 

That is like playing football on 20% of the football field - which it is better than not playing at all...but can it really be called football?

Even within the Indian markets, it is important to look at asset classes beyond just debt and equity.

 For instance, of the last 10 years, in 2 years Gold was the best performing asset class in India (partly due to currency movements) and in another year it was the second best performing asset class. In other years, real estate did extremely well. And now through REITs and some other instruments it is possible to get systematic exposure to real estate as well.

When we, at First Global, talk of asset allocation it means that in your consideration set are practically all the investible Asset classes in the world.

The other key is to have a dynamic and tactical asset allocation model, ie assets are to be reallocated based on the tactical view of various asset classes at any point in time.

Just crude measures like at an age of X years you should have 60% exposure to equity and 40% to debt simply don't work if you are looking to protect and multiply your wealth.

An in-depth understanding of the underlying asset classes is also important. Among other things this is to ensure that the Asset classes are really largely uncorrelated. That comes from data and long experience.

Is your money manager well versed across asset classes, across countries, across currencies?

If not, you need to be very careful because you may be getting trapped into the narrow expertise of your money manager, which is fine for him. 

But can be disastrous for your portfolio.

For example, if one has a positive view on commodities and a positive view on Brazil and Russian equity markets, increasing exposure to both may not be really uncorrelated at all as commodity prices drive many of the large company earnings in these two markets.

Currency alone, or a single country exposure, can also change your portfolio return profile dramatically. But more on that another time.

To conclude, investing is about batting like Sunil Gavaskar: a steady, decidedly "unsexy" approach, careful risk management through diversification across asset classes (Gavaskar played shots all around the wickets, and played well across the world, and played pace and spin equally well). 

Bottom up stock picking is a bit like Virendra Sehwag: brilliant when it works. Terrible when it doesn't. Never steady or predictable. So runs come with high volatility or standard deviation.

Who would you want managing your money: Gavaskar or Sehwag?

The answer is obvious, isn't it? 

From the desk of:

Shankar Sharma & Devina Mehra

Want to open your trading account? Email us on info@firstglobalsec.com and we will get you started super fast!

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We did quite ok in January, 2020.

India Investment Products

The India Super 50 (IS50) did +8.9% in the month of January, '20 with a Sharpe Ratio of 2.8.

The India Multi Asset Allocation Portfolio (IMAAP), delivered +4.75% in January,'20 with a Sharpe of 3.7.

The NIFTY was down 1.7% and the NSE 500 was down 0.1% in January '20. 

So, pretty good.

But the real story is about why we decided to tweak a winning model this year

The way we tweaked our strategy for 2020

In 2019 we did pretty well in our India equity portfolio: The IS50 was up 11% and beat the NSE 500 handily (up just 0.1%).

But it still wasn't good enough for us - not good enough for what we wanted to deliver for your wealth management needs.

That's where our AI- ML models kicked in

Our performance data was analysed by our AI Engine, as it does every single second of the day. 

 Every data point.

Every structured and unstructured piece of data that went into our AI-ML (Artificial Intelligence/ Machine Learning) model was analysed, re-tests were run, tweaks were done, again re-tests, and so on.

And we then settled on a much improved Portfolio Management Model.

The model that would have delivered 20% in 2019. Yep, that's right!

But wait, it gets better.

This 20% would have been delivered on a diversified portfolio of 40-46 stocks! 

(Contrast this with the high risk approach taken by practically all PMS and normal fund managers, where they run hugely risky, concentrated portfolios of 5-10 stocks, in order to deliver even passable returns.)

That shows you the power of our approach. 

A widely diversified, risk mitigated model.

And yet, no give up on returns.

And it is this new, improved portfolio model that delivered the pretty decent +9% results in January 2020.

The First Global Edge: Marrying extreme data science + AI + ML, to decades of Human Intelligence

When you combine Human Intelligence with Machine Learning Intelligence, what you get is an ever improving model and portfolio composition that stays relevant in practically all market conditions. 

Most human beings will not improve beyond a point.

 But human beings combined with machines will keep improving constantly and relentlessly over time. 

That's the First Global edge for you: Relentless Improvement

If you want to know more about our Global and India investment products, please drop us an email on info@firstglobalsec.com, and we will get in touch right away.

From Your Friends at First Global

Want to open your trading account? Email us on info@firstglobalsec.com and we will get you started super fast!!

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“Remember XYZ stock I told you about 3 months ago? It is up 80% since then”, “ABC ekdum solid hai. Just jump in”, “PQR kya lagta hai?” Sounds like familiar party conversation…or something that you watch financial channels for?

If your end game is to have fun discussions at parties, this is fine. But if your purpose is to protect and multiply your wealth, or to optimise your portfolio, you are frankly approaching the problem from the wrong end!

Why? The answer takes you to Investing Basics 101. And it is to do with Asset Allocation.

Depending on the study you read (and there have been many, conducted over decades), you will find that fully 85% to 92% of the returns of a portfolio come from asset allocation!

You got that right! 

Specific stock selection, which eats up most of your/ your adviser’s waking hours contributes only 10 to 15% of the returns.

Moral of the story: it does not make sense to concentrate your resources and time on security or stock selection.

But all the talk you will hear from Portfolio Managers is how good they are picking stocks and great bottom-up winners.

The uncomfortable point is: bottom up stock picking is a very very difficult art and nobody in the history of investing has been able to do them successfully for decades. Yes, not even Warren Buffet. 

Just go and see his record in the past 15 or 20 years and you will see an investor who has missed practically every single multibagger that the US market has given in this period: Amazon, Netflix, Domino's, Google, Apple (he bought way too late), Facebook, Microsoft, etc. 

And an investor who has consistently underperformed the stock indexes.

This is PRECISELY the problem with the "sexy" bottom up stock picking approach. Everybody is relevant in a period. And one fine day, the market changes, and you and your strategy become irrelevant. 

Therefore, when picking people to manage your money, check the approach and their strategy.

The Golden Key to Investing

Most investors fall in the very familiar trap of getting over exposed to the hot asset class of that era. 

But the key point to always keep in mind is that if you start playing every innings thinking that you are going to get a hundred runs, you are never going to be successful. Markets change, sometimes they become easy, sometimes very tough.

The key to successful investing, over the long term,  is to have every major Asset Class in your consideration set: across countries & currencies and across investible assets: Equity, Fixed Income, Real Estate, Precious Metals, Other Commodities etc

The Mantra: There is always a Bull Market somewhere in the world, even as there is a Bear Market elsewhere at the very same time!

View this: Technology in 1998, Emerging Markets 2004-07, Commodities: 2003-08, US equities- Tech: 2010 onwards, Japan: 2013-15, Global Fixed Income: 2009 onwards.

Even more recently, 2018 and 2019 have been extremely difficult periods for Indian stock markets.

Barring a handful of stocks, most have been in the negative territory. 

But in this very difficult 2019 period, First Global's Global Portfolio returns have been up 40%! 

That's the beauty of Asset Allocation. 

To optimise your portfolio, it is important to have all asset classes in your consideration set and carry out Dynamic and Tactical Asset Allocation.

From the desk of:

Shankar Sharma & Devina Mehra

If you want to know more about our Global and India investment products, please drop us an email on info@firstglobalsec.com, and we will get in touch right away.

From Your Friends at First Global

Want to open your trading account? Email us on info@firstglobalsec.com and we will get you started super fast!!

www.firstglobalsec.com 

 

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The forex market operates differently from the stock market. Knowing that the two financial markets are not the same and the features of each of them will help you to easily decide on which is most suitable for your trading and investment goals. Therefore, the key differences we have outlined below can be the starting point of your trading decisions.

Now let’s begin

1. Trading times and open market hours

One of the key variations of stock trading and forex trading is their respective trading hours. The Forex market is an over-the-counter market. The implication of this is that trading can go around the clock during Forex trading sessions. The Forex market only closes at weekends. However, because of the time zone variations, you can trade late currency late into the night if you want.

The stock market, in contrast, has fixed opening hours. So, you can only trade stock during the opening hours of stock exchanges which are normally from 8 am to 5 pm local time. This makes trading stock outside the trading hours difficult, with markets thinning before and after regular trading hours

2. Commissions and transaction costs

The increasing competition among the brokers in the forex market results in fewer transaction costs (spread). Key currency pairs commonly have very tight spreads that range from 1 to 3 pips. Compared to the forex market, the transaction cost of trading stock is significantly higher. Stockbrokers commonly charge fixed trading commissions.

3. Tradeable instruments

The forex market has only eight key currencies. So, it is easy for traders to concentrate their efforts as opposed to the stock market where they have to concentrate on hundreds of stocks.

To illustrate this, you have to study roughly two thousand stocks on the New York Stock Exchange, for example. Clearly, you can easily follow the few currency pairs in the forex market than tracking the numerous stocks listed on a single exchange.

4. The presence of intermediary in trading

Forex is an over-the-counter market, there is no centralized exchange in the Forex market and currencies are exchanged directly between buyers and sellers. Your broker is the only intermediary. If you want to buy or sell stocks on the stock exchange, you can’t bypass an intermediary if you want to make the transaction happen.

5. Massive leverage in Forex

The forex rates commonly fluctuate below one percent daily. To profit from your trades, forex brokers allow traders to open a position larger than their normal trading account size.

The leverage on the Forex market is very high than what you can get in the stock market. Forex brokers provide larger leverages which can be as high as 400:1, whereas the maximum leverage offered in the equity market is 20:1.

Conclusion

Forex trading is extremely risky. Equity, less so.

Trade safely!

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The Top 3 Trading Lessons from 2019

 Ok folks, thankfully 2019 is over! 

 Or, maybe not "thankfully"; the risks that existed in 2019 continued its existence in 2020, and given that parts of the world are about one bomb away from annihilation, there is little room for escape.

So, did we learn anything from our trading results in 2019? 

Well, yes. Buy low-sell high.

Just kidding 😁.

But seriously, it is interesting to see that the nifty index managed to provide a return of 11% in 2019 amidst an economy that, well, has seen better days. 

 And most of the time, it felt like a bear market!

 The index provided positive moves at the beginning of 2019. But, the bulls could not hold on to their rather weak grip, and they lost control (mildly put) on the index by June 2019.

 It was a nice little mayhem after that.

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This crude price chart shows clear signs of optimism in the near term. Look at the recent breakout from a stubborn resistance mark. It seems the bulls have enough strength to display more upward moves in the coming days.

 

So, let’s jump to the point and try to find out what’s driving the crude bulls right now, one by one.

 

Let’s get started:

 

The US-Iran Conflicts

Escalating tensions in the Middle East remain the top driver for the recent crude price optimism.

 

The crude value has flared-up to a significant extent over US-Iran tensions. Both counterparties have been at loggerheads for quite a long time. Now, with the recent killing of the Iranian military commander Qassem Soleimani, the fire between the duo got further intensified.

 

Soleimani was Iran’s second-most powerful figure and has helped Iran fight proxy wars against the rivals. On Jan. 3, Soleimani was killed in a US airstrike attack at Baghdad airport.

 

Soon after his death, Iran retaliated. And, as per Tehran-based Tasnim News agency, Iran has right now started the “second round” of attacks on US bases in Iraq.

 

Amid such disturbing environment in the Middle East, crude prices have gone up.

 

West Asian conflicts continue to exert great influence on crude oil prices. Rightly or wrongly.

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