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Video Series: Investing Lessons From Occam’s Razor

It’s a human tendency to address a complex problem with a complex solution. And when it doesn’t work, man starts looking for an even more complex solution.

In an uncertain world, seeking complexity is a big error. Complex problems do not always require complex solutions. Overly complicated systems like financial markets are not only difficult to comprehend but easy to exploit and possibly dangerous.

In investing, less is more.

Warren Buffett, in his 2004 letter to shareholders, wrote…

Last year MidAmerican wrote off a major investment in a zinc recovery project that was initiated in 1998 and became operational in 2002. Large quantities of zinc are present in the brine produced by our California geothermal operations, and we believed we could profitably extract the metal. For many months, it appeared that commercially-viable recoveries were imminent. But in mining, just as in oil exploration, prospects have a way of “teasing” their developers, and every time one problem was solved, another popped up. In September, we threw in the towel.

Our failure here illustrates the importance of a guideline – stay with simple propositions – that we usually apply in investments as well as operations. If only one variable is key to a decision, and the variable has a 90% chance of going your way, the chance for a successful outcome is obviously 90%. But if ten independent variables need to break favorably for a successful result, and each has a 90% probability of success, the likelihood of having a winner is only 35%. In our zinc venture, we solved most of the problems. But one proved intractable, and that was one too many. Since a chain is no stronger than its weakest link, it makes sense to look for—if you’ll excuse an oxymoron—mono-linked chains.

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Safal Niveshak Stream – October 19, 2016

Some nice stuff we are reading, watching, and observing during the middle of this week…

Investing/Stock Market

  • The long run is just a collection of short runs, writes Morgan Housel…

    …value is ultimately created in the long run. That’s where scale takes off and compounding works its magic – over years and decades, not months and weeks.

    The key is recognizing that the long run is just a collection of short runs, and capturing long-term growth means managing the short run effectively enough to ensure you can stick around for a long time.

  • In 2011, Seth Klarman explained the psychology necessary to be a good value investor, in an interview that he did with Charlie Rose. In this interview, Klarman says, “Investing is the intersection of Economics and Psychology.” He added…

    The economics, the valuation of a business is not that hard. The psychology, how much do you buy, do you buy at this price, do you wait for a lower price, what do you do when it looks like the world might end. Those things are harder.

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What Buses Taught Me About Stocks


When I was studying in College in Mumbai, I heard a saying from my friends about BEST buses. “You should never run behind a bus because if you miss one, there’s always the next one coming in few minutes.” And it was quite true because I don’t remember waiting at any bus stop for more […]

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Safal Niveshak Stream – October 15, 2016

Some amazing stuff we are reading, watching, and observing at this start of this weekend… Investing/Stock Market If I could reveal just one secret of sensible, successful investing (which isn’t a secret, by the way), it would be… Buying stocks when the market collapses is far harder to do than to imagine. But the great […]

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Latticework of Mental Models: Denominator Blindness


Imagine you are engrossed in a very interesting book and your concentration is broken by a call from a friend (let’s call him Hobbes). It’s rather unusual to receive Hobbes’ call at this time during the day so, expecting to hear something urgent, you pick up the phone and ask him – “What’s up, buddy? Is […]

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Safal Niveshak Stream – October 12, 2016


Some amazing stuff we are reading, watching, and observing during the middle of this week… Investing/Stock Market Warren Buffett’s Berkshire Hathaway’s unique managerial model is lauded for its great value. However, here is a discussion paper that highlights its costs… Most costs stem from the same features that yield such great value, which boil down, […]

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10 Demons of Investing


I wish all tribe members of Safal Niveshak a very happy Vijayadasami or Dussehra. Today marks the victory of Goddess Durga over the demon Mahishasura. Today also marks the victory of Lord Rama over demon Ravana. Ravana is depicted and described as having ten heads and as a follower of Shiva, a great scholar, a […]

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How I Missed a 10-Bagger, and Why I’m Proud of That


It was sometime in the middle of 2006 when I met the management of a banking company for the first time. It was HDFC Bank, and I met one of their top executives along with my banking analyst colleague. The bull market in banking and financial stocks was just beginning to pick up pace and, […]

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