How do I execute ?

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To all subscribers,

I have been emailed variations on this question – What, when and how much should I buy based on the model portfolio?

Before I share my thoughts, let me share a few pre-conditions

  • Please ensure that you have around 6-12 months of cash or equivalents (like FDs) to take care of your expenses. This would ensure that you can handle any loss or reduction in income.
  • Do not and I repeat, DO NOT invest any capital which you need in the next 2-3 years.
  • Do not use any form of debt to invest in the market. A lot of crazy stuff can happen, and we have seen the impact of debt in the form of margin calls in the recent past where individuals were forced out of their positions.
  • There will be volatility in the near term. Be prepared to see wild swings in portfolio.

Both me and kedar have arranged our personal affairs in the above manner. We maintain enough liquidity and avoid debt, so that we can remain rational inspite of extreme swings in the market. We have never used even a single rupee of debt to invest in the market. There is enough risk in equities and we don’t want to amplify it more.

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Onto the question of how to execute

  • Please review your asset allocation (yourself or with your financial advisor) and invest an amount which matches with how much you are willing to allocate to equities. This allocation is based on individual situation and there is no fixed percentage. That said, one should exceed this allocation.
  • Once you know the amount you can allocate based on the previous points, one of the options is to invest it as per the model portfolio. If that is the case, the amount per position is based on the position size in the model portfolio (multiply position size % with the amount you want to invest)
  • I have shared the buy price which can be used as reference to make a buy decision. If the current price is below the buy price (which it is in most cases), then you can add that position to your portfolio.
  • I would suggest going for a staggered approach. Start with 25% of the final size and keep adding to it over the next few weeks/months (as long as it is below the buy price). You won’t get the absolute bottom for each position, but should get a decent average price
  • In terms of adding positions, go from the top to bottom. The bottom most positions have the highest risk, but also the highest upside (should they work out)
  • Be ready for wild swings in the price
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It is natural to feel confused and concerned about losing money under the current circumstances. The best course of action in such a situation is to slow down your decision making. It is important first to survive and then thrive/ take advantage of the uncertainty.

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Rohit Chauhan

Rohit Chauhan

Investment Manager at RC Capital Management
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