From the mind of Kalidas Rebalancing Portfolio in Depressed Market Page 2 of 8

Dealing with the Depressed Markets with a Smile

Everyone makes money in Bull markets. It is said that the bulls are the friends of the fools. This is
why when the bulls get slaughtered in the market crash; the fools are the first victims. They are the
most hopefuls of the lots. They tend to believe that there will be always sunshine, they ignore the
earnings and warning signs, garland the high flyers in the name of growth, and welcome the Mergers
and Acquisitions as the sign of welcome interest in their economies.

However, regardless of the pains, they enjoyed the journey and whatever minor gains they earned for
their smartness. The market correction comes from nowhere, without notice, without anything
appearing on CNBC or other business channels, and that is what called the “Market surprise”

Market is the unpredictable Beast

Often the media blurts on both horns that “market says this, market says that, market will go here,
market will go there etc”. This is very amusing. The market never talks; it just behaves the way it
wants to. The innocent investors, who are normally late entrants; read, hear and watch 100 times
same item and get carried away.

I always used to teach my customers that you never make investments by reading newspapers or
watching CNBC, NDTV or other stocks channels. When the news is known to everyone, there is no
more secrecy left, and the stock pattern reverses itself.

Now that one has burnt his finger as a speculator, he qualifies to become an Investor. The losses are
the tuition fees that one pays to learn from the bears. The bulls just kick, not bears. This is why there
is always a “Bear Hug’. Only those hug who are our friends or well wishers. Have you heard ever the
term “Bull Hug”?

Not many cope with the stress and the problem. They begin to distrust everyone, same way the
banks do not trust each other today. All are in same boat.

Learn this Primer before you proceed further

When you were in normal or bull market...
You were perhaps entering after watching others making money (that they falsely claim – never
believe them). Your entry level is perhaps high. Do the following:
1. Treat each transaction (A1, A2, and A3) of each stock (A, B C) as separate transaction.
Never count the Average Cost
a. Sell the transaction whenever you are in profit by at least 11%.
b. Thus if you are losing in A1 but making money in A2 and the stock is not going further,
sell A2 and retain cash – do not employ elsewhere.
c. If the stock A goes higher, do not regret your decision for selling A2. You still have A1,
so sell it if the stock has made big move recently.
d. If the stock goes down, buy back the same stock, if
you believe that its full potential is not reached as yet.
2. NEVER hate yourself for any mistake. It is natural. You are
your best friend and worst enemy. You decide what you
want.
3. Never ignore your mainstay business while investing in
stock market. Remember, you got money to invest only from
your mainstay business.
4. Keep two boxes – RED and GREEN.
When you make money, deposit 10 Cents/Paisa per 100 (0.10%) in
either box if you booked losses or gains. For example, if you make 1,000, deposit Rs/$1 in your
green box. If you have booked loss, put it in red box. At the end of any period, see how many
units are in Red and Green. If Red contains 20 and Green 30, you made a gain of 10 x 1000 –
10,000

Copyright © 2008 Anil Selarka

From the mind of Kalidas Rebalancing Portfolio in Depressed Market Page 3 of 8

5. Avoid buying IPO in bull market because they are always hyped up and valuation is rich.
When the stock does not have history, do not touch it as far as possible unless you have
special reasons to do so. The idea of becoming instant money on opening day of the trading is
dangerous. I never bought IPO in my life.

EXAMPLE: Look what happened to Reliance Power IPO (in India). While it is at depressed
level, in this market crash, Goldman Sachs has come up with the negative recommendation
lowering the target even further. Where was the Goldman at IPO stage? All brokers are
suckers in the game – When it is good, they call it best; and when it is bad, they call it worst.
When they want to see the price higher, they talk about the company vs GDP, Infrastructure,
and growth etc – all big things. When their call goes wrong or the market crashes, they start
talking about the fundamentals.
6. Read, listen and watch everything and everybody but make your own decision. God has
given you a tiny little brain which is thousand times more powerful that Intel dual core chips.
Use it while you are human, otherwise in next birth (if you believe in reincarnation), the God
will make you an insect or animal that does not need a versatile brain of human. The same
way a banker cancels customers’ credit line if he no longer uses it.
7. Reverse the transaction as soon as possible if you ever thought that you made a mistake
due to impulse. For instance, you bought a stock by error, just sell it right in the market,
regardless of loss you have. Similarly, if you have sold something by mistake, buy back
immediately. (The reason is that if you continue, it stings you even at night and you will
continue to blame yourself. This is the biggest mistake an investor makes.) In stock market,
the only thing that counts is the Decision, Decision and only Decision, just in case of property
where the rule for selection is Location, Location and only Location. How much you lose in
reversing your faulty decision immediately – only 1% to 3%? Just take it, instead of losing
20% to 70% later.

In stock market or for that matter, in any market, only decision makers make money in the
long run. The indecisive person always tend to lose and they blame their own fate or lady luck
for their loss. Both fate and lady luck amuse themselves. They know their job is thankless.

Restructuring the troubled Portfolio for quick Turnaround

Remember, the market is an ocean. Anything you throw into the ocean always comes back. The
ocean is large hearted – it never retains anything for its own use. Similarly, what you throw into the
market will ultimately come back, provided you follow the market discipline. All the points mentioned
under 1 to 7 apply to the depressed market as well.

Now that you have lost heavily, do not

brood over it. It is a fact. The loss is a
history. You can not roll it back. Your aim
should be how to recover and turn this
cheaper opportunity into good profit. This is
the art you will have to learn and practice.

At any time, you feel that you are

indecisive, follow the mentioned rules in two
parts – Actual and Demo. When you are
unable to decide with physical involvement,
play it out on paper in demo exercise. Write
down the date, time and index when you
took the actions. It is provided in this
Article’s PDF copy with excel in the
download center on right bar.

Copyright © 2008 Anil Selarka

From the mind of Kalidas Rebalancing Portfolio in Depressed Market Page 4 of 8

1. If your portfolio is very large, more than 12 stocks, you will have to prune down the list to 12 or
less. Check your list and determine what you hate and would not have. (Example – Watch the
growing plant; if some shoots are blackened, the gardener prune them out to save the whole
plant. He also prunes the healthy shoots to promote the growth. An investor should also take
the profit in same stock occasionally)
2. When the market recovers, the large cap stocks recover first. So determine, whether you have
any large cap stocks. If you do not have any, buy some first. When the market is sufficiently
advanced, sell the large caps and focus on the mid or small caps held by you.
3. NEVER think that if the stock at 100 is expensive and at 30 it is cheap. All prices are
relative to earnings. See the price relative to earnings (P/E)
4. If the market sentiment is negative to extreme, DO NOT invest fresh money; instead do
the following:
5. Re-Check which stocks you want to retain for long haul.
6. If you own high priced stock, and loss is not much, sell it to raise the cash for redeployment
later.
7. Identify the sector that might benefit more on recovery. You will be buying stocks in those
sectors first. Within that sector, you have to identify top 2 or 3 stocks. The selection of stock is
more like a beauty contest. They eliminate 45 contestants to come to final 5, then 3 and then
the final one.
8. Identify which stock has the least loss and one has maximum loss. Sell the stock with least
loss (say 20%) and buy the one with greater loss (say 50% or more). By doing so, you are
averaging down the cost of the bigger loser with same amount of money, without pumping
new money.
9. If the stock has come down by 70%, (say 30 from 100), the stock has to more than triple from
low level. So, buy 3 times more than original quantity (if you own 300 @100, buy 1200@30).
My rule is simple; if the stock has become 1/3rd, buy 3 times; if 1/4th, buy 4 times and 1/5th buy
5 times. Of course, you do not buy all at same time, but in 3 stages; 2 on way down and one
on way up so that you know that the bottom has finally reached.
10. When you swap from one stock to another, always ensure that you are getting into smaller
value stock from higher value (not other way round). The low value stocks (not penny stocks,
but the stocks above 8 and below 20) tend to rise fast due to low base. They make more %
gains. It works other way too. They tend to go down faster as well in down market. For
instance, if stock A (at 300 ) has come down to 100, and other stock B in same industry has
dropped from 100 to 20, then in that case, provided there are no stock specific news, sell the
stock A and use the proceeds (300) to buy 15 shares of stock B @20. Since the industry is
same, the stock B may give better gains than stock A due to rise in that sector. Please note
that this arithmetic is an approximate science, but works all the time. There is nothing to
replace earnings as key driver to stock prices. Do demo exercise to start with to understand
this game.
11. When you have a choice, avoid buying holding company’s stock. Instead buy the major
subsidiaries stock. The reason is that if the parents (holding company) run into troubles, they
sell Children (subsidiaries) that become takeover play giving you more than average return.
For instance, when Ford (US Automaker) ran into trouble, it sold Jaguar in UK and is trying to
sell 30% stake in Mazda. Big companies are also bigger fools – they do not cut the losses but
allowed it to run, like most investors in stock market. The correct strategy is to let the profit run
and cut the losses immediately. Normally, people take the profit first and let the losses run.
When some one says that he is having portfolio of 1 Million, presume that in 80% he is losing.
When he makes money quickly, he admires himself as smart investor; and when he loses, he
calls him Warren Buffet – a long term investor.
12. Bring down the list to 12 or below. Do not focus on other stocks unless they offer better value.
How many children you have? 2 to 5 or more than 20? Keep the inventory list to the extent
you can effectively manage.
13. After doing above adjustments, relax, have a coffee, go for a movie in Cinema (not at home)
and have a fresh look at the reformed portfolio. Just as the pruned plant needs time, but it
does prosper very fast, your portfolio will bloom soon.
14. Study those stocks in details, paying special attention to their behavior, how they move up or
down, in size and speed, and its volume. If the price rise or fall is not accompanied by volume,
the movement is erratic.
Copyright © 2008 Anil Selarka
From the mind of Kalidas Rebalancing Portfolio in Depressed Market Page 5 of 8

15. Remember you will not use the law of averages while making decision. Each purchase is a
separate deal. If that deal makes money, you should be prepared to sell.
16. Do not try to make money in every deal. It is impossible. See the overall position, whether
you made money in the portfolio (not individual stocks) or not.
17. Watch the market movement, government policy, concerned industry, and the industry
that may benefit
18. Invest new funds only when you feel that the market has stabilized and may not go down
more. Allow the market to come up by 15% from all time low before deciding to invest more
new money.
19. It is always more profitable to average up than average down. In such case, your average
cost is always below the market. For instance, if A 200 cost in bull market was 100 for 200
shares, and then crashed to 20, you buy 3 times at 20, 18 and 25. Then when it reaches to 40
and retraces to 35, buy some more. The idea is to catch the upward trend. Please note that
this imperfect science. It all depends on the mental make up of an investor, and
circumstances prevailing at that time.
20. Always be alert and agile even if you are not participating in the market due to bad
conditions. Always keep the market conditions right under your eyes. You never know when
the screaming opportunity would arise.
21. Be stock specific rather than market specific. If certain stocks go down more due to
reasons peculiar to the industry, buy that stock regardless of the market conditions.
22. EXAMPLE: When the oil prices were very high, near 145, the Airline stocks were very low, so
also the refineries. They would have come down more due to industry specific reasons. Buy
them.
23. DO NOT sit over the stock like a Chicken hatching an Egg. If the stock has gone up higher
and slows down, simply sell that stock at the market even if recent high could not be reached.
When it comes down, buy it back. Do not use that money for other stocks. In other words, in
bear market you float with the stocks.
24. EVEN IF you make wrong decisions, do not worry. It is better to make 3 wrong decisions
than not making any at all. Once you start making decisions, you will improve progressively
with the result that you may one day make a big killing that will compensate you for all past
losses. It will also improve your character. In every form of business or personal life, you will
begin to make decisions rather than keeping the issues on back burner. Delay is gone from
your life forever.

25. Sit before Candle at night for 10 minutes.. . When you lose money, you do not get sleep
easily. What you must do is to sit before a lighted candle for 10 to 15 minutes just before you
Copyright © 2008 Anil Selarka
From the mind of Kalidas Rebalancing Portfolio in Depressed Market Page 6 of 8

go to bed. Focus only on light. Deep breathing also help you focus better. Inhale from left
nostril and exhale from right. Presume that gains are coming in when you breathe and losses
are moving out when you exhale. This has nothing to do with finance or stock market. It just
makes you focus on trade as well when you transact. Secondly, it costs you nothing and gets
everything.
26. And finally, Dress Up at your Best during Bear phase… When you dress up well, you feel
good and charming. You will begin to respect yourself. This is what you need. Money comes
to those who are neat and clean. Good things always bring in good result – that is the rule of
the nature. So do it.

I enclose the Hypothetical Portfolio and how is it restructured. (go to the side bar - Download Center,
scroll down to excel file - Rebalancing portfolio - 08-008 and download this file). This applies to all
markets. Replace the names and indices as appropriate to your country. It is an excel spreadsheet
where you can replace my entries with your stock name and quantity and price. You can modify to
your needs as the time passes by.

Please remember, the Gains and Losses are the form of day and night. They come
and go all the time. Face them like a Lion, not a Lamb. You are your best friend and
your worst enemy. Pick up what you want.

This reminds me of a jovial friend Mr. Lakhpatia (his surname meant Millionaire) who died some time
back. He was really a millionaire at heart. He used to display a banner in his home as under (English
translation from Gujarati – an Indian language)

These Days shall Never Be Forever

I asked him what it meant. He said:

Copyright © 2008 Anil Selarka

From the mind of Kalidas Rebalancing Portfolio in Depressed Market Page 7 of 8

In good days, it forewarns me not to overspend.

Good days never last forever. Save something when there is sunshine.

In bad days, it encourages me not to despair.

Do not spare your efforts. Double up. After all, these bad days too do not last forever.

Kalidas, Hong Kong

14-Oct-2008

Encl: Profile of the Author

Copyright © 2008 Anil Selarka

From the mind of Kalidas Rebalancing Portfolio in Depressed Market Page 8 of 8

Who is Kalidas?
Hi, everybody. Kalidas is the screen name of Anil Selarka from Hong Kong, one of the most vibrant city in
the world, be it as an entertainer; business, money or free wheeling
center or an ambassador of China, call it what you like. Hong Kong is a
Rainbow of all cities – colorful, musical or soulful. Make it a point to visit
this city.

Kalidas is a well qualified with a degree in Science, Law, Banking and

Cost Accountancy (in part). He was an International banker for 19 years
followed by 16 years of stint as stockbroker specializing in US Stocks,
Bonds and Economy, Hong Kong and Indian stocks. He is also a
Convertible Bond specialist, a Bond trader and a problem solver for every
kind of financial situation - good, bad or ugly.

An expert in reading US economy and world economic scene for over 21

years, he has seen through the crashes of 1987, Asian Monetary Crisis
and subsequent crashes specific to Hong Kong and in general to major
world markets.

Kalidas has written a highly researched book called “ Sub

Prime Resolved “ – a comprehensive solution for the
current economic crisis, covering every issue or poser
being asked by practically every interviewer to leading
experts without getting any answer.

There is no one in the world at this point of time, that come

anywhere close to the solution outlined by Kalidas. The
book is rightly called “The Bible for Recovery of United
States of America” to be published soon.

All solutions presently offered in massive $700 billions bail

out will completely fail. Kalidas' solution does not involve
any expenses but create almost $2 trillion income in short
time and further $2.4 trillions in next 3 years. This is
highly imaginative solution that eludes all.

He has extra ordinary sense, almost sixth sense, to

anticipate the major economic events months or years in
advance. He also has special ability to judge the potential
effects of any major events almost instantaneously. An
extremely analytical and logical, he has track record of
being proved correct and right on spot over 95% in last 15
years.

Kalidas has also invented a special theory on numbers, known as Mystical Numbers, that apply incredibly to
every market with great accuracy – be they stocks, bonds, currencies, commodities, properties, retail stores,
fish and vegetable markets, and in every form of business or personal life. The ordinary people are unable to
follow chart or its technical jargons like MACD, Head & shoulders, Moving Averages, Support, resistance etc.
However, they can understand simple numbers any where, every where. This is where Kalidas excels. He is
currently writing a book on this subject that may be published in April 2009.

If you happen to read Kalidas book or his blog, please send your comments to kalidasji@gmail.com . He will
endeavor to improve quality of his work day by day with your valuable feedback. –Kalidas’ blog link is
http://anilselarka.wordpress.com/

With Regards and Greetings to you and your lovely family.

From the Mind of Kalidas.

Copyright © 2008 Anil Selarka