In recent times, MKJ Fixed Fixed Double strategy aka FFD has become one of the most popular strategies to invest in the share market; because of its potential to give good returns while still maintaining a manageable level of risk. Let’s discuss what the strategy exactly is and answer some common questions regarding the same.
The Strategy – Explained
As the name suggests, MKJ Fixed Fixed Double (FFD) strategy talks about investing in the market in 3 steps: Fixed-Fixed-Double. What this means is; you have to choose an initial amount that you’re going to start your investment with (10K in our example); and then you have to invest the same amount twice when the market drops; and you have to double the amount (10K x 2 = 20K) on every 3rd drop in the market.
The strategy gradually increases your investment at every step-fall in the index. You have to invest the same amount at 2 drops; and double your investment on every 3rd drop (hence the name Fixed-Fixed-Double).
Look at the below table as an example:
As you can see in the above image, the investor started investing in the market at level of 11,400; and invested more and more money at every 100-points drop. So, basically, by the time the market reached 10,100 points, the investor had invested a total amount of INR 25,40,000; and accumulated ~246 units in the market. Thus, his average investment price comes out to be 10,333 points.
MKJ FFD Strategy reduces the average price of investment; gradually increasing the amount of investment at every drop in the market. This would always keep the average cost for the investor at the lower end.
Why this strategy works is because it reduces the average price of the investment. In the above case, although the investor started investing in the market when it was at 11400; his average cost price still comes out to be 10333. In other words, the investor will be in a net profit when the market goes above 10333 points; and then he can choose whether to hold on to his investment or liquidate it. Either way, he remains in a profit.
Now that we have understood at a very basic level what the strategy is; let’s dive into the questions asked frequently by people who are applying this strategy in the market.
What to do if the market stops falling further; or starts going back up before the investor has invested all his money?
Whenever the market starts going back up, the investor will hold the position and wait until his next buying point. For example, let’s assume the index reached 10500 points; and then started going back up for a few days and touched 10800 points. During this bullish period from 10500 to 10800, the investor doesn’t have to do anything; he is just waiting for his next investment point i.e. 10400 points. So he will act when the market drops to 10400, no matter the fluctuations in between that time.
During the period when market is not falling and there is no opportunity to invest at favorable rates; the investor should not get tempted; but should hold on to his money by keeping it in debt funds/savings account/etc.; so that he can readily liquidate the same for such a time when there is a fall in the share market; then he can resume MKJ FFD strategy.
Keep in mind that there is no loss if the market starts going back up. In fact, it is good news for the investor because he has invested in the market at a lower point; so he will be in a profit situation if the market goes up. However, the investor needs to control his temptation; and NOT invest in a bullish market, because our idea is to “BUY LOW AND SELL HIGH”.
Learn from an Eagle who patiently waits and waits for the right time; and only takes action at the exactly perfect moment. Don’t follow the herd and get driven by emotions, have faith in the calculation and the market. Wait for the right moment to buy/sell.
At what point should investor start selling the shares? How to exit?
In MKJ Fixed Fixed Double Strategy, when the investor is done investing his money and the market starts going back up; he will gradually start selling his portfolio once it starts making a minimum profit of 10%. (This threshold needs to be changed based on the market conditions and the risk taking capacity of the investor).
In our example, the investor will start gradually selling shares once the market reaches 11366; and will sell until the point that he has recovered his total investment amount of INR 25.40 Lacs. Whatever money is left after that in the market is his profit and he can afford to take a little more risk with it; and sell the remaining shares at a later date when the market is at an even higher point.
How to modify the strategy for an extremely risk-averse investor?
For an extremely risk-averse investor, he can use a 4 step strategy; in which he invests the same amount 3 times before doubling it. In other words, he can apply Fixed-Fixed-Fixed-Double strategy instead of Fixed-Fixed-Double.
How much money should the investor start with?
This depends on each individual case but an investor should start with a small amount first; because no one knows how low the market can go in times of crisis; and you don’t want to be out-of-funds when the market is very low. So start low and then gradually increase as the market falls.
How to decide the steps at which an investor should invest?
This depends on the fund and how much fall is considered significant in it. For example, NIFTY is not very volatile, so the investor can invest at 2% drop, but to reiterate, it depends on the index/fund that an investor is choosing to invest in.
I hope you enjoyed reading and gained something out of the article. Do let us know your thoughts in the comment section below.
Do check out MKJ sir’s own video on this topic at this link!
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