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The Most Powerful Mental Model for Identifying Stocks

For starters, we had our Value Investing Workshop in Chennai yesterday, and here are some moments from the same…

Safal Niveshak's Value Investing Workshop in Chennai - Feb. 2017

The next workshops are in Mumbai (19th Feb), Delhi (25th Feb), and Hyderabad (5th March). In case you wish to join any of these, please click here to register.

Anyways, let’s start with today’s post.



“It’s a funny thing about life; if you refuse to accept anything but the best, you very often get it.” ~ W. Somerset Maugham – English dramatist & novelist (1874-1965)

As I’ve seen in the past 14+ years of investing in the stock market, Maugham’s thought holds a great relevance when it comes to picking up businesses for investment.

Pick up a business with good economics and with good margin of safety, and the probability of making money in the long run is high. Pick up a business with poor economics with any margin of safety, and the probability of losing your shirt, and entire wardrobe, in the long run is very high.

Understanding a business also adds significantly to your margin of safety, which is a great tool to protect yourself against losing a lot of money.

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Teach Your Kids About Money – Join Warren Buffett’s Secret Millionaires Club

I’m good friends with Warren Buffett,
He’s gonna teach me how to do my best, learn to invest
And have a lot of fun doin’ it…

Well, that’s how the jingle begins for the cartoon series called “Secret Millionaires Club” (SMC) where Warren Buffett (in his own voice) teaches kids the basic of good financial decision making and some of the basic lessons of starting a business.

While my 11-year old daughter loves the lessons Buffett teaches, my 4-year old son loves the jingle itself, and thus I have to often watch some videos from the series alongwith them. 🙂

“It’s not intended to teach kids how to read a balance sheet,” Buffett says about SMC. “It’s meant to provide a fun way for kids to understand business and develop good habits from an early age.”

SMC has lots of good lessons about money such as learning not to spend more than you have, and saving for the unexpected, and not borrowing money unless you have a plan to pay it back. The series shows the consequences that can happen if people don’t make wise decisions.

Some of the other lessons kids (and adults) can learn from this series include…

  • The best investment you can make is an investment in yourself.
  • The more you learn, the more you’ll earn.
  • Find something you enjoy doing and you’ll never work a day in your life.
  • Treat other people the way you would like to be treated.
  • Never trade your reputation for anything.

Then, there’s the most important lesson Buffett doles out on making mistakes – “Learn from your mistakes. Better yet, learn from the mistakes of others.”

And finally, on failure – “Failing is not falling down…it’s staying down.”

You can watch all 26 episodes of the series here.

I find SMC a fun-filled and effective way to pass on critical lessons on money and business to my child. I am sure you will not find it any different.

7 Secrets of Warren Buffett’s Success (as per Charlie Munger)

In the 2008 shareholder meeting of Wesco Financial, a shareholder asked Charlie Munger to describe what caused Warren Buffett’s success.

“His success…is a lollapalooza,” Munger replied – a confluence of factors moving in the same direction.

Munger outlined the following seven key factors which combined together to cause Buffett’s success –

  1. Mental aptitude (Being seriously smart)
  2. Having great interest in the subject (“It’s very hard to succeed in something unless you take the first step – which is to become very interested in it.” ~ Sir William Osler)
  3. Early start (If something takes a long time to achieve, you better start early)
  4. Being a learning machine (Keep learning and learning)
  5. Reinforcement (Human beings work well if they get reinforcement – constant rewards for doing well, which drives you to do more of the same)
  6. Being correctly trusted by people
  7. Avoiding envy, jealousy, self-pity, vengeance, and extreme ideology

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18 Lessons for Investors and Managers from Warren Buffett’s 2014 Letter to Shareholders

Warren Buffett recently released his 2014 letter to shareholders of Berkshire Hathaway. For the first time, he included the historical stock price in his annual letter, which has increased by, hold your breath, 1,826,163% in the last 50 years. That’s same as a 14,512-bagger!

The big idea worth noting here is that the annualized return Berkshire’s stock has earned for its shareholders to achieve such magnificent result over 50 years is 21.6% – something people basking in the limelight of current bull run would discard as too less!

Anyways, the 2014 letter is special not just because it marked the completion of 50 years of Buffett being at helm at Berkshire, but also because it contains a bonus – Charlie Munger’s words of wisdom and vision for Berkshire over the next 50 years.

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One Big Lesson I Learned Seeing Warren Buffett Make Mistakes

IBM and Coke represent two of Berkshire Hathaway’s three biggest investments (the biggest being Wells Fargo).

However, disappointing earnings announcements at these companies cost Warren Buffett around US$ 2.5 billion in the week gone by.

These losses add to a recent rough patch for Buffett, who slashed Berkshire Hathaway’s stake in British retailer Tesco recently. He has described buying into the stock as a “huge mistake” after the company announced another earnings disappointment and, over that, a £ 250 m accounting scandal.


The media is rife with these big “mistakes”, especially Tesco, and is surprised how the world’s best investor could commit them. But then, Tesco isn’t Buffett first mistake and it won’t be his last mistake either.

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DLF Fraud: One Big Lesson for Investors

Warren Buffett wrote this in his 1989 letter to shareholders…

Stick to proven management with a lot of integrity, talent and passion. After some other mistakes, I learned to go into business only with people whom I like, trust, and admire.

Sadly, 25 years after Buffett first said this and after his countless repetitions of this thought, investors continue to deal with managements that lack integrity, and have talent and passion not in conducting their business affairs honestly but in looting other stakeholders.

The latest case is that of India’s leading (if size matters here) real estate company, DLF, which has sent its customers and investors into a tizzy. This is after the stock market regulator SEBI barred it from raising money from the capital market for three years.

So, home buyers who have invested in DLF projects are worried because they fear the projects that have already been delayed may be pushed back further or even get stalled due to lack of funds with the company.

As for investors (or let me say speculators, who were playing with fire), they have already lost a bucket-load of money in the company’s stock. The stock is down 55% in just the past four months, and 90% down from its post-IPO highs in January 2008.

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10 Big Ideas from Warren Buffett’s 2014 Letter

Warren Buffett has been the highlight of two of my last three posts –

On an extended holiday, as I read more of the legend, I am happy to share more of him with you as well. 🙂

Buffett’s latest annual letter to shareholders is out (click here to read), and here are ten important ideas I have pulled out for you from the same –

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Warren Buffett’s Age-Old Secret on How to Get Rich

Have you ever wondered why we are willing to hold on to our real estate investments for years even as we trade in and out of stocks?

So, we may buy and/or sell just 1-2 properties in our lifetimes, but the count of stocks we move in and move out of runs into 100s.

Of course the size of the investment plus ability to liquidate (buy and sell) is one factor. But the most important factor that is at work here is – Stocks provide you minute-to-minute valuations for your holdings, whereas you don’t see quotations for your real estate holdings so frequently.

When it comes to stocks, Ben Graham’s mentally-ill fellow Mr. Market comes to you daily and quotes a random price that causes you to behave irrationally.

“Don’t just sit there, do something!” he shouts at you daily, and you gladly take his advice and buy stocks when he quotes a high price and sell when he quotes a lower price.

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