This is a long-ish read, so as Gekko tells Bud Fox "Stick around. This is going to be fun."
My deepest areas of interest are neurology (No, not markets. I find them simple, easy, and frankly, intellectually deadening) and regeneration science.
Or more accurately, neuroscience. (The two are completely different disciplines, by the way. Neuroscience is populated with geniuses with no ego and a plan. Neurology is populated with morons with giant egos and no clue.)
During my peregrinations into the deep recesses of the human brain, I came across a mind-bending piece of research. The 2019 Nobel Prize in Medicine was awarded jointly to William Kaelin Junior, Sir Peter Ratcliffe, and Gregg L Semenza for their groundbreaking discoveries on how cells sense and adapt to oxygen availability.
In essence, the scientists postulated that the ‘strategic’, ‘tactical’ use of oxygen could have far reaching effects on human health. The laureates uncovered the molecular mechanisms that regulate the activity of genes in response to varying oxygen levels. They identified the role of a protein complex called Hypoxia-Inducible Factor (HIF), which controls genes involved in cellular responses to low oxygen (hypoxia).
Their research demonstrated how cells adapt to hypoxia by increasing red blood cell production and forming new blood vessels. The formation of new blood vessels is called angiogenesis. This is an adaptive response induced by the Hypoxia Inducible Factors (HIF).
In my opinion, their work completely changes the way medical science has looked at oxygen and the lack of it, which is called Hypoxia.
1. Understanding Oxygen Sensing – Their work explained one of the most fundamental processes of life – how cells sense and respond to changes in oxygen, a critical factor for cell metabolism and survival.
2. Impact on Medicine – This discovery opened new avenues for developing treatments for cancer; Cardiovascular Diseases – Insights from this research could improve recovery from strokes and heart attacks by promoting blood vessel growth, angiogenesis. (By the way, I'm going to be writing an article on this since I have now been doing this training on two machines for 6 months and the results are spectacular.); Neurological Diseases like stroke, cerebral palsy, autism, etc.
And finally, this discovery has profound implications for regenerative medicine.
I know that I'm losing you folks here because the general level of investing discourse in India is extremely syrupy, schmaltzy, soporific, whether on television, or in print. ‘This is India's decade/ century’, ‘India's per Capita GDP will go to 10/20/50k in --- years, so stay invested forever’, ‘Sensex will be 10,00,000 by 2**8’ and so on. There is a sameness to Indian investing thought, irrespective of the decade in which you switch your TV on. Just the guests keep looking older and fatter.
Stay with me: you won't regret wading through this because this probably is the best piece of investing wisdom ever to have come out. Yes, ever.
Hypoxia. Hyperoxia. Normoxia
Hypoxia, as explained above, is the lack of oxygen. Hyperoxia is excess of oxygen. And Normoxia is normal levels of oxygen. Remember these terms because they will come in handy later.
What medical science has taught us is that hypoxia is dangerous and should be avoided at all costs. This is exactly why patients are immediately put on an oxygen mask the moment they enter critical care in a hospital.
But as it turns out, things are not so simple. Hyperoxia, which is the excess of oxygen, can become toxic. Normoxia, which if you remember your lessons above, is just normal levels of oxygen and these do not provoke any positive biological changes.
But Hypoxia? Now that's quite the stealth weapon, available for free, which we never knew about.
What the lack of oxygen does is it provokes an adaptive response in the body. Of course, the caveat is, ‘controlled’, ‘calibrated’ hypoxia, not hypoxia running wild.
Okay, so now your eyes are glazing over so I need to stop with the heavy neuroscience and bring this back to the more earthly matters of investing.
On a philosophical basis, hypoxia is the same as losses in the stock market.
Almost the entire investment lore worldwide is based on making money in the stock markets. Of course, the whole purpose of the stock market and investing is to make money.
But next to zero literature is devoted to the value of hypoxia in Investing, i.e., losses.
What hypoxia does to the body is exactly what losses do to your investing acumen - losses trigger a whole slew of adaptive responses in your brain and in your body. Losses force you to focus on the process by which losses get incurred. Losses force you to think through the genesis of their existence: why did these losses in your investing or trading journey happen? Losses will teach you a lot more than profits ever will.
Exactly like periodic bouts of hypoxia will regenerate your body in a manner that normoxia or hyperoxia never can.
Every sensible trader or investor has to go through losses in order to make profits. This is axiomatic. But the game of losses can be made into a tactic, a strategy, a plan. Just like what was postulated in the 2019 Nobel for medicine.
How can we tactically induce measured doses of losses to kindle a regenerative cycle of ‘Loss Inducible Factors’ (LIFs)? Remember that I keep repeating that hypoxia needs to be calibrated and controlled in order to release Hypoxia Inducible Factors (HIFs).
Uncontrolled hypoxia will lead to death as is what happens in a heart attack or stroke. Similarly, uncontrolled losses will lead to investment death.
My goal is to teach you the method - my method - to induce Loss Inducible Factors LIFs, in a dosed and extremely precise way, so that you take away all that is good and none of the bad.
So, I have been doing something called Intermittent Hypoxia Training (IHT) for around six months now. I will write a separate piece on that, but the short point is that I, using special equipment, generate hypoxia and take my SPO2 oxygen levels down to 60-70, and keep it there for between 5 to 20 minutes. Then, I cycle back to normoxia or hyperoxia, when my oxygen levels shoot up to 100. I repeat the cycle several times daily.
The impact on my heart, brain and energy has been nothing short of miraculous.
In an investing sense, the challenge lies in replicating this controlled, intermittent hypoxia, in other words, controlled , non- lethal, intermittent losses.
For this, we need to understand why uncontrolled losses happen in the first place. The reason for this is simple: over attachment to a particular stock and the inability to be surgical about eliminating them. As human beings we are also not used to something telling us that we are wrong. Our ego overrides our good sense almost always.
How To Generate Loss Inducible Factors (LIFs)
There is a way to induce controlled losses.
I'm letting go the keys to the investing kingdom: the key to inducing controlled losses which trigger adaptive responses (Loss Inducible Factors - LIFs) throughout your investing brain and body, is to have a very diversified portfolio of at the very least 35 stocks and even better if you have between 50 and 100 stocks.
The Attachment Per Stock (APS) Ratio
What this kind of diversification will achieve is it will reduce that Most Dangerous Investing Ratio: the Attachment Per Stock Ratio (APS ratio). When you have just a few stocks in your portfolio, your APS Ratio is extremely high per stock. When you have 50 in your portfolio, your APS goes down to negligible levels. This is the equivalent of having 40-50 concubines in your harem. You simply do not mourn the loss of one, two or even five.
Hear lies the crux of inducing controlled losses or hypoxia into your investing framework: when you have a low APS ratio, you can easily absorb those losses because your exposure per stock is low enough for those losses to remain extremely small in your overall portfolio composition.
Therefore, while you will indeed make losses, your ability to tolerate these intermittent hypoxic losses will be dramatically better.
The data that you must always keep in mind is that, on a largely diversified portfolio which is in excess of 35-40 stocks, your typical hit rate of winners and losers will be between 50 and 60%. What this means is that, generally speaking, you will have at least 40% of your stocks losing money or lagging the market.
It is all but impossible that you will be able to have a strike rate better than this, for any reasonable length of time.
Therefore, on a 50-stock portfolio, you will, out of sheer statistical necessity (sounds horrible, I know!), have around 20 loss makers.
These are the ones that will create the hypoxic conditions in your mental makeup as an investor.
Your Attachment Per Stock (APS) ratio is so low due to the diversified nature of your portfolio, hence, you can create a portfolio with 40% losers and yet not get cleaned out. Once you ruthlessly eliminate these Loss-Hypoxia Generators, the remainder of your portfolio will take your portfolio's oxygen saturation equivalent to 95-100!
In effect, by surgically and clinically eliminating the controlled hypoxic condition-generators in your portfolio, i.e., your losers, you will trigger an amazing sequela of adaptive responses which will strengthen and create a protective halo around your portfolio in the same way as Hypoxia Inducible Factors (HIF) create a neuro and cardio-protective shield around the two most critical areas of your body.
There is Poetry in Loss
If you sit and think about this for a while, this is poetic in nature. And it flies in the face of what we have been taught – ‘Avoid losses at all costs’. Here we are flipping this completely on the head, we are welcoming losses. We are creating a portfolio strategy which will have at least 40% losers permanently, irrespective of how good your stock selection is.
You deliberately set out to create a hypoxic condition in your portfolio by having a portfolio large enough to be able to create controlled hypoxic conditions, as the statistical outcome you will have – permanently - is around 40-50% losers. These 40% losers are your controlled hypoxic condition creators.
Because you have a low Attachment Per Share (APS) ratio, you can eliminate them ruthlessly, thereby strengthening the remainder.
When you have eliminated these hypoxic loss makers, you will rotate that cash into your winners. And you will also add another bunch of stocks to your portfolio based on whatever filtering criteria you have.
After a period, you will find the same hit rate emerging from your portfolio of 40% losers.
Rinse and repeat this Intermittent Hypoxia Training in your portfolio. Permanently.
Intermittency of Stressors is Key to Regeneration
At the heart of this strategy is the existence of intermittent, controlled stressors. Everything useful in life pretty much comes out of intermittency: intermittent fasting, interval training ( which is nothing but the cardio equivalent of intermittent fasting ), intermittent hypoxia training ( IHT), breath control training methods like the Wim Hof, intermittent relationships ( worth thinking about this, no?): all drive towards the same goal which is to create controlled, intermittent stressors, because of which the body fights back to become better, fitter, stronger, and most of all, spectacularly resilient.
You become an adaptogen.
Steady state of anything degenerates you.
Create controlled ‘unsteadiness’.
Honest skincare specialists will tell you that using the derma pen, or a derma roller delivers far a better collagen boost to the skin than pretty much any other invasive and more expensive therapy. These inexpensive home devices - derma pen or the derma roller - simply create hundreds of micro tears and punctures in your skin in a controlled manner. This minimally invasive, intermittent, and calibrated insult to your skin parks off a virtuous rally in fibroblast and collagen generation, as a fight back response. There you go: another benefit of intermittent controlled stressor, delivered directly to your skin! Tell this to your girlfriends. And watch them become putty in your hands. Better than buying lab diamonds. And cheaper.
All forms of intermittent training create a resilience and toughen you up. They are like a spring coiling and uncoiling inside you and the rebound when the uncoil happens, propels you upwards to better health - and wealth - like a VTOL jet.
The SSIPHO Method creates your investing Iron Dome
That is exactly what my investing strategy which I hereby call, ‘The SS Intermittent Portfolio Hypoxia’ (SSIPHO - pronounced " Sypho " - Method), achieves.
It will inure you to losses. It will deaden the pain receptors when you get hit by a loss. It will be your local and generalized anesthesia to portfolio damage. It will put you in a zone in which losses don't hurt you, but they actually engender a healing and growth cycle inside your investing hypothalamus.
The SSIPHO method will make you come to terms with your fallibility. You will know that far from any randomness, your losses are visible and predictable as a percentage. You know you are going to fail 40 or 50% of the time.
How much more precise can any investing method get!
This ability to constantly take small losses will also grind down your ego. But gently, with a pestle, not a bulldozer. Your ego will take this soft taming approach well.
Think of the SSIPHO Method as an IV drip. These have become very trendy because they drip into you slowly, regenerators like NAD+, and its precursor, Nicotinamide Mono-Nucleotide (NMN).
Think of the SSIPHO Method as a system to sachet-ise losses.
The Profit in Losses
The SSIPHO Method is your steady rivulets of regenerative compounds - LIFs, remember - into your mental stream. These are your loss vaccines that create an Iron Dome around you: they will shoot down large rockets of losses way before they shoot you.
Losses in bytes make you stronger. The ability to take these punches will make you a better fighter. The ability to absorb punishment in a controlled manner will make a warrior out of you.
This method will bring out that elusive, yet invaluable, ruthless streak in you when you can eliminate these stressors with the cold clinicality of a master surgeon.
Pre-conditioning has been defined as ‘an adaptive process of endogenous protection in which small, sublethal doses of a harmful agent protect the organism against a later lethal dose of the same agent.’
These small losses will form scabs, formed over multiple pinpricks of losses. The skin that then comes out will be pink, shiny, and rich in collagen.
Consistent, intermittent hypoxic small losses make you unafraid of losses.
This conditioning will trigger that other priceless investing quality in you: detachment. Just like that master surgeon.
You will lose fear.
You wrestle with baby bears that look like cuddly teddies. Dozens of them, so the mother grizzly won't scare you.
These baby losses will also give you time to study them up close. They won't suddenly come to life like an Alien. You have suddenly made losses which used to be industrial in size, into lab level miniaturization.
They are dead. But brimming with data. You can analyze them without fear.
You will get the luxury of being analytical and solvent, in the face of losses, at the same time.
A rare occurrence in markets.
The Terrible Beauty of Non-Fatal Hypoxic Losses
Nietzsche's quote (you know which one I'm talking about) has been used more liberally than Ajinomoto, but there is Profit in Losses. However, I disagree with Nietzsche: you do not have to go to a near-death situation in order to engender adaptation. Losses can be induced and controlled tactically, without taking you to bankruptcy.
That is the Terrible Beauty of non-lethal hypoxic losses. That's exactly what implementing the SSIPHO Method does.
Do this in 2025. And you can thank me later.
(Shankar Sharma is an ace investor, investment philosopher, and founder of AI firm Gquant Investech)
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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