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Safal Niveshak Stream – November 12, 2016

Note to Readers: In Stream, we suggest worthwhile reading material on a variety of topics, not all of which are directly related to investing. Some of the articles require you to be paid subscriber of those sites. However, it is often possible to read such articles by going to Google News and searching for the article’s title.



Some nice stuff we are reading, watching, and observing at the start of this weekend…

Life/Learning

  • (1250 words / 6 minutes read) The ability to expand your mind and strive for lifelong learning is more critical to your success than you think. Don’t give up on lifelong learning. Ever. Research shows that it pays beyond the skills you acquire. More than ever before, a challenged, stimulated brain may well be the key to a vibrant later life. There are a few skills that are hard to learn but pay off for the rest of your life. Like the skill of adaptability…

    We live in ever-changing world which is unlikely to ever slow down. So, what mattered yesterday (e.g. skill, knowledge, social circle, etc.) very much so might not be worth a dime tomorrow. Change used to be slow and incremental: now it is rapid, radical and unpredictable.

    Adaptability enables us to dwell on new circumstances and stay on top of the situation. Of course, this skill is best when combined with insight, giving us fresh perspective before the change itself. Growth depends on how adaptable you are. To stay relevant, most companies will need people who can change with time.

  • (1600 words / 7 minutes read) Marcus Porcius Cato the Younger, better known to the world simply as Cato, brough stoicism into the mainstream. Cato reminds us that there’s a thin line between visionaries and fools–a lesson especially important to entrepreneurs, authors, creative-types, or really anyone doing work that goes against the grain. He remains both a shining example and a cautionary tale. Five lessons from Cato about reputation, authority, fear, discipline, and legacies:

Reading/Thinking

  • (110 words / 30 sec read) Peter Bernstein’s book, Against The Gods: The Remarkable Story of Risk, appears prominently on Charlie Munger’s recommended book list. Timing the market is not only stressful but extremely difficult too. However, what most people don’t realize is that market timing is very risky too. Bernstein writes…

    One of the risks of market timing is being out of the market when it has a big upward move. Consider the period from May 26, 1970, to April 29, 1994. Suppose our market-timer was in ash instead of stocks for only the five best days in the market out of that 14-year period of 3,500 trading days. He might feel pretty good at having just about doubled his opening investment (before taxes), until he reckoned how he would have done if he had merely bought in at the beginning and held on without trying anything tricky. Buy-and-hold would have tripled his investment. Market timing is a risky strategy!

    [Download PDF of this Issue of Stream]

  • (1240 words / 5 minutes read) Robert Cialdini is perhaps Charlie Munger’s favorite author. Cialdini’s seminal book Influence revealed the power of human psychology as a persuasion weapon to common man. After 32 of years of publishing Influence, Cialdini has written his another book, Pre-suasion, which is going to be another game changer in the world of behavioural finance. Before you grab a copy of this book, read Cialdini’s latest interview as starter before the main course…

    Visitors to an online furniture store were exposed to the idea of comfort when site operators placed fluffy clouds on the background wallpaper of the store’s landing page. That pre-suasive maneuver led the visitors to (1) place greater importance on comfort when asked what they were looking for in furniture, (2) spend more time searching for and looking at the comfort ratings of the furniture in stock, and (3) prefer more comfortable furniture for purchase. To check that the effects came from initially exposing visitors to the idea of comfort, others were directed to a page that exposed them to the idea of price by depicting coins on its background wallpaper. These visitors placed greater importance on price, spent more time searching for and looking at information about cost, and preferred inexpensive furniture for purchase. When questioned afterwards, most refused to believe what they saw pre-suasively—clouds or coins—had influenced them at all.

Investing/Stock Market

  • (~ 1 hour watch) Many a times, a steep fall in the stock price of a company because of a temporary issue present an attractive buying opportunity. But it’s not uncommon to find that quite a few of those issues turn out to be not so temporary and lead to permanent loss of capital. Rajiv Thakkar of PPFAS Mutual Fund, in his recent presentation, talked about identifying patterns related to such steep fall in stock prices across different industries and business segments.

  • Straight forward valuation multiples can be deceiving and may entice you in or keep you out of the markets at wrong times. To take care of this issue, in a detailed report, Samit Vartak of SageOne Investment Advisors has recalculated current as well as historical valuations by assuming normalized (or sustainable) profitability across all years. This is done at sectoral level so that you might observe the extent of relative over/under valuation and make some intelligent choices for portfolio positioning going forward.

Business

  • (460 words / 2 minutes read) For years, business schools have gotten away with just providing a textbook education. But businesses are much more than just looking for facts and figures. They want to see practical competence in the practice of business, along with character strength. Here is just one of the many things that generally aren’t taught in business schools but are vital in business, and also in investing…

    There’s often a negative correlation between experience and humility. The more experience you gain, the more you see how less precision and more room for error is vital in a game where we overestimate skill and underestimate luck.

  • (900 words / 4 minutes read) Failure and innovation are inseparable twins for a business, says Jeff Bezos who offers seven leadership lessons

    At Amazon, we have to grow the size of our failures as the size of our company grows,” he said on Saturday. “We have to make bigger and bigger failures — otherwise none of our failures will be needle movers. It’s a very bad sign over the long run if Amazon wasn’t making larger and larger failures. If you do that all along the way, that is going to protect you from ever having to make that big hail mary bet that you sometimes see companies make right before they fail or go out of existence.

Miscellaneous

  • (460 words / 2 minutes read) The greatest threat from Donald Trump’s presidency may be his toxic brew of unscientific beliefs…

    It will most likely start with Trump pulling the US out of the Paris climate deal, where the top polluters of the world pledged to cut down carbon emissions and ensure the global temperature doesn’t rise beyond 2° C compared to pre-industrial levels. He thinks global warming is a Chinese conspiracy.

    And that’s just the start. Trump’s beliefs on medical science are far outside the scientific consensus. For example, he believes the myth that vaccines cause autism. “A win from Donald Trump jeopardizes our ability to work towards new medicines to help families,” a research director of a small biotech focused on autism therapies told.

  • (600 words / 3 minutes read) But then, Trump’s rule may turn out to be okay. This is hardly the first time half of America has been apoplectic about the lunatic they just elected as their president. And they have always survived. And they will here too…

    …think of it this way: the US executive branch needs to have expertise in about 1,000 things, and no president comes into office as an expert in more than a tenth of those things. The president’s job is to bring in a large team of experts to fill in the 90% that he or she doesn’t know about. For Trump, maybe that number is 98% instead of 90%. But our executive branch will be run by a large group of people, not just Trump, and as a whole they’ll have all the expertise of any other administration. Sure, the president has a lot of say and does have a significant amount of individual power, and that’s a bit terrifying when it comes to Trump—but I’m encouraged by both his experience running a large, complex company and his surprisingly adult choice of Pence as a running mate. I’d predict that President Trump is all about surrounding himself with experts who know very well how to run the executive branch.

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

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