Momentum Investor Interview: Manish Dhawan

Momentum Investor Interview: Manish Dhawan

Manish Dhawan is the head trader and the curator behind content of Mystic Wealth. Before Mystic Wealth, Manish worked in the KPO industry for over a decade.

Baggage charges on stock market flights are very steep, Travel lite, leave preconceived notions at home.
manish dhawan
Manish Dhawan
"Trade Gyani"

Abhinav:

Thanks for doing this interview Manish! Please tell us a little about your background and journey and how you got into Momentum Investing?

Manish:

I am from a commerce background and straight after college, got into the corporate mould. Worked for more than a decade in Knowledge Process Outsourcing and Business Development departments of companies like NAI Global, Hyper Quality and American Express.

In 2007, my dad passed away and I was entrusted with squaring off his portfolio. That exercise kindled an inquiry and led to a reading spree of sorts which culminated into my testing some systems on paper and then finally taking a plunge in year 2011 to do it with real money.

I have actually written a blog about my journey, audience can simply read that to know the details.

Abhinav:

What led you to set up Mystic Wealth and the inspiration behind it?

Manish:

Mystic Wealth was just my twitter handle and blog post initially. I don’t even remember how the name came about. We had a steady group of followers and on popular demand we started distributing special situation blogs on Demergers, Buy Backs, Delisting, Mergers, Options Trades – all for free. 

When I saw this reaching a critical mass, I decided to monetize it and started with subscription service.

The only inspiration was the sheer frustration of seeing “Zero Skin” in the game jokers on TV. It’s a strange game where there are NO ONE gets called out. 

One is not judged on performance but only on oratory skills (sometimes not even that) and they get to give you recommendations the next day completely forgetting the losses their recommendations incurred. 

At one point, I actually did a backtest with there months of recommendations by some of the who’s who of TV analysts. It was a BULL market and each one of them was down ranging from 20-40%.  That’s when we decided to chronicle our trades publicly showcasing complete transparency, Ups, Downs, Static, The Good, The Bad, The Ugly – everything in public eye for critical scrutiny.

The only inspiration was the sheer frustration of seeing “Zero Skin” in the game jokers on TV. It’s a strange game where there are NO ONE gets called out.
manish dhawan
Manish Dhawan
"Trade Gyani"

Abhinav:

Which is one widely held notion that Investors believe in, which you believe is wrong or does not work anymore? Have changed the question from Momentum investing to Investing in general.

Manish:

1) Deep value investing doesn’t work in India. I mean at least for me. 99% of them are value traps.

2) Gauging Promoter quality is a perception trade at best. Winners get to write history and  therefore popular narrative is always based on success. 

Market values growth, that’s it, regardless of promoter. Reliance is at 52W high for god’s sake.

Abhinav:

 Momentum Investing due to its nature – involves frequent buying and selling – as compared to traditional Value and Growth investing models. How do you manage entries and exits into trades?

Manish:

Frequency of trades is in your hands, of course there is a trade-off for every decision. You have to figure out your personality and bandwidth at your disposal. Real long term trend following done on currencies and commodities can be like watching the paint dry with 01 decision per year. Flip side is that there can be a long stretches of period where you under-perform benchmarks. Similarly, momentum strategies can be applied on hourly timeframes. Drawback is a return/level of stress is very high as you would need screen presence.

And then we have timeframes lower than that. BUT what’s the point of leaving all that money for your wife’s next husband 😉

That’s my view and it’s true for me only, as a trader you need to find your own sweet spot. 

Jay (Niftywizard) will make a horrible long term investor and Prof Bakshi will make a lousy intraday trader.

Abhinav:

Without dwelling too much on the actual strategy, do you follow specific rules while selling stocks that you hold? How difficult is it behaviourally selling in loss?

Manish:

Yes. Our exits are based on predefined rules. Rules have to be pre-defined otherwise your system hinges on your mood, situation at that time of panic. As far as difficulty is concerned, again it’s an individual journey and not same for any two people. 

For example in my case, I have NO PROBLEMS in cutting my losses short. I am very efficient, brutal and almost Zen like in that regard. It’s the profits that are my bane. Once I am sitting on a decent gain, I find it very difficult to NOT take it.

Abhinav:

You manage other people’s money via Mystic Wealth, How do you manage your own money? Is it active, passive or a mix of both? 

Manish:

Strategies that we run are totally skin in the game. My entire net worth is in Equities.  Divided into value investing, momentum and rotation indices/debt). I also pledge my shares to write defined risk options.

Abhinav:

Which is your favourite trade so far? 

Manish:

There are many. 

In value investing, orient paper demerger was a 5 bagger for us. It was an intellectual high as we were buying when the world was dumping it left right and centre.

Majesco and Intellect were special as we got the demerged entity for free, in fact if I recall correctly, we were paid to receive them.

In options trade, Infy long straddle was a Killer.

In momentum, although there are no emotions involved (on paper) there were many trades where I was scared to buy as they had run up so much already, and then they never saw our entry price again going up 120%

You make your own luck, but you gotta be lucky to think like that.
manish dhawan
Manish Dhawan
"Trade Gyani"

Abhinav:

When you look back at your investment mistakes, were there any common elements or themes? A real-life example would be helpful.

Manish:

In value investing, not doing your own work and relying on someone else’s work is sure way of getting in trouble.  I am not a fan of cottailing and I think you have to be a certified idiot to do that. 

Having learnt that from experience. 

A – Even if you are right, you won’t earn much as you cannot bet big on borrowed conviction. (symphony, relaxo are multi baggers for me but I invested peanuts in it). 

B – On the flip side, you don’t know when to exit (Sintex).

In momentum, overriding your system based on your hunches can be fatal. All the thinking has to be done at the time of strategy development. Mind has to shut-off after that.

Abhinav:

How do you think about risk? How do you employ that in your investing?

Manish:

Risk is all I think about. Stock market is a casino with positive odds and therefore if somehow you can take care of the downside, upside will take care of itself.

I have written extensively about risk. Here are few of the links below.

Readers can listen to our podcast with Ralph Vince here

Or read this blog.

Abhinav:

How can an investor improve the quality of his/her decision making? How have you done it?

Manish:

Doing your own work is a good start. Do not rely on anybody else’s work.

Work on your mind. Mind is a bitch.  Read I am That by Nisargatadatta and Power of NOW by Eckart Tolle  and Ed Seykota’s Trading Tribe and Untethered Soul to understand what I am saying. The constant chit chat, the background noise, the judgement, past and future projections are BIG bandwidth chokes. Silent mind is a potent weapon for awesome decision making.

Abhinav:

If you were to give away all your books but one, which one would it be and why? 

Manish:

Trading tribe by seykota. That book is not about trading. It’s about conquering your demons inside.

Seykota says your FRED (Subconcious) tries to send message to the conscious mind. And if that message is not received, FRED creates drama in your life to convey that message.

Abhinav:

What are the most important qualities an investor needs to survive the complexity of the financial markets? 

Manish:

One of the most important quality is to be a contrarian. “ULTI KHOPDI”

Markets are a discounting machine and therefore current news flow, viewpoints, price action, corporate governance should not influence your decision making as that must have already been priced in. Every time before you put the trade in, evaluate your ODDS. Its darkest before the dawn. 

For e.g. let’s say YES bank has cracked 70% with all the negative news flow, Suddenly a DOWNGRADE comes along. 

I have learnt through experience that the trade with better Odds is LONG.

Opposite is true as well. If CEO of your invested company is on cover of forbes or has been labelled an “Intelligent fanatic”, most likely your odds of making any more money are limited from thereon.

Abhinav:

What’s your concluding advice to students wanting to get into Momentum Investing? What are the most important things they must practice, and the pitfalls they must be aware of? 

Manish:

Momentum investing can be systematic and automated, or it can be discretionary. If you are interested in latter, read up Mark Minervini and William O neil.

Of course the success rate is not very encouraging in this industry. For every one Mark, there are a million flops.

Good Discretionary traders can achieve 100X more than systematic systems but problem is Average Discretionary traders barely breakeven.  

Abhinav:

Which investor/investment thinker(s)/business owner you hold in high esteem? And why?

Manish:

Rakesh Jhunjhunwala.

Man is a legend. A great trader and an awesome investor. Almost impossible to excel at two contrasting styles.

Abhinav:

What other things do you like to do apart from running an advisory business? 

Manish:

I like trekking. I like interacting with people. There are two podcasts I run:

http://www.interestingpeoplestudio.com/category/shows/

http://www.stoicinvesting.com/series/stoicpodcasts/

Abhinav:

Thoughts on 2019?

Manish:

We have had a good correction in 2018. This sets up a nice base. Remember, bear market and corrections are important bed rock on which the next Bull Run is based. It’s like a foundation. Deeper the better. I am looking forward to early movers coming out of these bases.

Abhinav:

Finally to the new portfolio that your will be introducing on TradeGyani – what can the retail investors expect from it? 

Manish:

Mystic Wealth will be launching a MWS. (Mystic Wealth Swing) strategy on Trade Gyani. It is a concentrated 10 stocks portfolio where stocks are selected on the basis of Price and earnings momentum. It is a fast action gorilla attack strategy looking to capture the revert to the mean after an initial retracement. Strategy has been backtested and would be skin in the game which is to say we will take these trades on our account.

Abhinav:

Anything else you might want to add?

Manish:

Over the years, i have realized that Position sizing is perhaps more important than stock selection itself. I will urge the audience to watch this ellaborate webinar we did to explain that concept.

Abhinav:

Thanks for your time Manish!

Manish:

Pleasure was all mine.

Taxes vs Drawdown; choose the lesser evil.
manish dhawan
Manish Dhawan
"Trade Gyani"
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