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Archives for July 2013

I’m Making This Investment. Are You?

“Man surprised me most about humanity. Because he sacrifices his health in order to make money. Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then dies having never really lived.” ~ Dalai Lama

In my previous post, I wrote about the need to avoid the “it-will-never-happen-to-me” mentality when it comes to health and investing.

Before I get to writing again on money and stock markets, here’s one more thought (more important than money and stock markets) I wanted to share with you.

I’m sure you must have never heard of Dr. Lester Breslow, like I didn’t till last week while attending to my ailing father and reading up stuff on keeping good health.



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[Read more…]

It Will Never Happen to Me!

Sitting in a Kolkata hospital lobby while getting my father treated for a heart ailment, I see this wall hanging that says – “It will never happen to me!”


The pictures below this headline show how a person hurts his heart through stuff like…

  • Alcohol consumption
  • Cigarette smoking
  • Poor eating habits
  • Sedentary lifestyle
  • Stress

…yet continues to think that a heart ailment will never happen to him.

It will happen to everyone around him, but not to him!

Such thinking is widely prevalent when it comes to deadly diseases, death, or even investing doom.

We all consider everyone else as vulnerable but ourselves as invincible. And this is the reason we continue to play with fire, whether it comes to our life, habits and investing.

Charlie Munger says…

A lot of success in life and business comes from knowing what you want to avoid : early death, a bad marriage, etc.

Ironically, most of us while knowing what we must avoid for a healthy heart, long life, better relationships, and comfortable financial life, are mostly travelling on the path assuming others are going to die there, but we will survive.

This is sad, and dangerous! Why?

Because…

It happens, and often!
My father is as healthy a person as anyone can be – no alcohol consumption, no smoking, and he certainly does not have a sedentary lifestyle.

But he has still suffered a serious heart ailment, for which he is being treated now.

He was not “supposed” to have such a disease, but he still has it.

The situation seems under control as of now (keeping fingers crossed!), but his heart has surely taken a serious hit!

Anyways, over the past three days, I have seen several cases of people with heart problems who would have believed at some points in their lives that “it will never happen to me.”

Sadly, many people I see suffering here are in their 40s and 50s. Even sadly, most would have surely fallen to these ailments on account of the poor habits like the ones mentioned above.

But people don’t understand the base rates of living a dangerous lifestyle and then falling into a deadly health issue. It’s high, and increasing!

I am not in a situation to write further at this point of time but, dear tribesman, stuff happens!

Especially in life and also in investing, “It will never happen to me!” is a widely held but dangerous notion.

Surely take risks in life, but only ones that will not cause you a permanent loss.

I am not old enough to dole out advice on healthy living, but I know it surely helps.

I have reiterated it several times in the past, and would do it again today. Remember what Charlie Munger says…

All I want to know is where I’m going to die so I’ll never go there.

You know where you are going to die – in life and investing – so please avoid going there.

Please!

Safal Niveshak StockTalk: Godrej Consumer Products Ltd.

Statutory Warning: This report may cause a reaction, and acting on it can be injurious to your wealth.

Note: This StockTalk analysis has been written by Abhishek Jain.

About GCPL
Godrej Consumer Products Limited (GCPL) promoted by Godrej group is a household and personal care products company. Godrej group owns around 64% of equity and the company is professionally managed. Through international acquisitions, the company has built a sizeable international presence in Africa, Latin America, Indonesia and the UK. Its overseas businesses now account for 40% of revenues.



One Year Course in Value Investing

Join The Safal Niveshak Mastermind, my special one-year course in Value Investing to reinvent how you invest and take control of your financial life. Click here to know more and subscribe. Subscriptions for the first batch close on 25th August 2013!



Over the past decade, GCPL has evolved from a domestic market soap manufacturer to a diversified emerging market MNC. The proportion of soaps in GCPL’s consolidated revenues has reduced to ~20% in FY13 from 63% in FY05.

[Read more…]

Poke the Box: Be Water, My Friend

Let’s Start with Safal Niveshak
Just in case you missed any of this on Safal Niveshak over the last few days…

  • Rs 25 lac is good enough saving for an Indian middle class family over a period of 5-6 years. But how about an “extra” Rs 25 lac? Here’s how you can achieve it.
  • People find it difficult to confess their mistakes in the open. Not the Safal Niveshak tribesmen! Read a big bunch of confessions from readers who have lost a lot of money in stocks they now think were big mistakes (good revelation in hindsight :-)). By the way, if you haven’t confessed yet, what are you waiting for?
Mental Model of the Week: Envy

“It is not greed that drives the world, but envy,” said Warren Buffett many years ago.

Recently, Farhan and Raju validated this in the movie 3 Idiots


We often evaluate our own situation by comparing what we have with what others have.

The rigours of modern life – and the social necessity of keeping up with the Joneses – makes this weakness even more pronounced.

Here is an excerpt from Dan Ariely’s “Predictably Irrational” that I’m sure you would relate with your own life (like I could)…

A few years ago, for instance, I met with one of the top executives of one of the big investment companies. Over the course of our conversation he mentioned that one of his employees had recently come to him to complain about his salary.

“How long have you been with the firm?” the executive asked the young man.

“Three years. I came straight from college,” was the answer.

“And when you joined us, how much did you expect to be making in three years?”

“I was hoping to be making about a hundred thousand.”

The executive eyed him curiously.

“And now you are making almost three hundred thousand, so how can you possibly complain?” he asked.

“Well,” the young man stammered, “it’s just that a couple of the guys at the desks next to me, they’re not any better than I am, and they are making three hundred ten.”

The executive shook his head.

You see, envy is a tricky emotion. It exists on the edges of our consciousness. We don’t like to admit that we envy someone, especially if that someone is someone we don’t like or to whom we feel superior.

Subsequently, we’re as likely to deny we’re in the grip of envy not only to others but to ourselves. And that’s when it becomes a deadly sin, even as far as investing is concerned.

Like, look at this friend of mine who sold off his HUL shares a few months back at Rs 450, and then bought them again recently at Rs 700.

“Why?” I asked him in a sense of intrigue and disgust.

“Because I didn’t wanted to miss out on gains like others have made recently,” he revealed.

This reminded me of the story of Newton and his tryst with the stock of South Sea Company in 1720…


I find a lot of such Newtons around me…and often in the mirror! 🙂

Financial historian Charles Kindleberger wrote in “Manias, Panics, and Crashes” – “There is nothing so disturbing to one’s well-being and judgment as to see a friend get rich.”

It was for good reason, after all, that the Ten Commandments admonished – “Neither shall you desire your neighbor’s house nor field, or male or female slave, or donkey or anything that belongs to your neighbor.”

Now, how do you get over your envy?

You can’t…simply because human nature makes us compare ourselves with others all the time. That’s the way our brains have been wired.

But you can still try. How?

  • Never envy your neighbour and never be owned by pride.
  • Remind yourself this each day – “I will not run a rat race because even if I win, I will still be a rat.”
  • Don’t try to mimic what those around you are doing. They may have a totally different purpose in life.
  • If someone else is getting richer faster than you by, for example, investing in risky stocks, so what? Someone will always be getting richer faster than you. This is not a tragedy. (Indian CEOs eyeing the “Forbes Richest” list need to read this!)

Finally, remember what Charlie Munger said – “Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?”

Stimulate Your Mind
Here’s some amazing content I read during the week gone by…

  • When is the last time you thought about how you think? Here’s a nice little post from Farnam Street on the five elements of effective thinking.
  • Here’s another reason I read a lot, and why even you should.
  • Stress kills, and big time! Here are three effective ways to free yourself from your addiction to stress.
  • The Economist recently posed this question to a few of today’s leading writers – “What was the greatest speech ever?” The result will surely make you proud.
Poke of the Week – Be Water, My Friend

“A wise man adapts himself to circumstances as water shapes itself to the vessel that contains it.” – Anonymous

The thing that separates us humans from other animals is that we constantly change into new forms, new avatars. We are sad, we are happy, we are emotional, and we are angry. We communicate through different languages, we do different kinds of work, and we deal with different kind of people differently. Effectively, we keep on changing ourselves as per the demands of time and situation.

In fact, success in life depends largely on whether we are able to change ourselves with changing times.

If we are flexible and formless – like water – taking the form of whatever is around us, we gain power and succeed against those who rigidly hold on to their ground.

Despite this, when it comes to our ideas – especially when we have only one – we rigidly hold on to them…

…very much like Henry Ford who supposedly said, “People can have the Model T in any colour – so long as it’s black.” This nearly ruined Ford Motors Company in the 1920s, because while Mr. Ford was in love with his idea of “only black Model T” cars, Americans were shifting to bigger, faster, fancier, and brightly painted automobiles.

…or very much like the old “me” who would often not change views on stocks even when the circumstances changed, and paid heavy prices.

I have seen several other investors fall in love with their stocks in the garb of “buy and hold”. So they will hold on to businesses, and especially those that are going downhill. They will remain stuck in a status quo mode because they hate to admit they’ve lost money. They will even put a higher value on the stocks they already own than they would be willing to pay for the same things if they didn’t own them. All this because they’re too rigid to change their ideas, even when circumstances are shouting at them to do so!

If you have been through such a moment in your own life (or investing life), you would like to hear what Bruce Lee has to say…

“Empty your mind. Be formless, shapeless, like water. Put water into a cup, it becomes the cup. Put water into a teapot, it becomes the teapot. Water can flow or creep or drip or crash. Be water my friend.”

Watch Bruce Lee say it in this video


Charlie Munger says, “The game of life is the game of everlasting learning. At least it is if you want to win.”

In fact, a few of life’s great pleasures are to keep learning, letting go of previously cherished ideas, and emptying your mind for new ideas to come in. Then you’re free to look for new ones.

It’s indeed a pleasure to be water, my friend!

If you haven’t done it already, sign up here to receive Poke the Box in your email…and get ready for stimulating weekend readings.

Keep poking.

Avoid envy.

Avoid falling in love with your ideas.

Be water, my friend.

Till next weekend…

Vishal Khandelwal
Chief Poker – Poke the Box

I Confess!

“How much – in percentage terms – has been your biggest ever booked loss in a stock? And which stock was that?”

I asked this on Safal Niveshak’s Facebook and Twitter walls yesterday. And before I could realize, the walls was full with people confessing how they have earned 50-100% losses on their stocks.

While some have booked these losses, there are a few who are hopeful to get their money back. 🙂

Anyways, my friend Vidyanshu suggested that it might be a great exercise to get the learnings of a lot more people from their investment failures, which has resulted in me writing this post.

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How to Save an Extra Rs 25 Lac

A three-bedroom apartment. Two cars. Enough flying miles to send an airline into losses (well almost!). Job with a foreign consulting company. Annual salary of Rs 30 lac…or around 45-times India’s average per capita income.

Yet my friend Rohan is not happy.

Whenever I meet him, he is, as I put it, caught on the “work-spend treadmill.”

So, last week when he was showing off his latest purchase, a third mobile, and one costing in excess of Rs 45,000, I told him, “Spend less money, my friend.”

“But spending money is what makes me happy,” he replied.



One Year Course in Value Investing

Join The Safal Niveshak Mastermind, my special one-year course in Value Investing to reinvent how you invest and take control of your financial life. Click here to know more and subscribe. Subscriptions for the first batch close on 25th August 2013!



“You don’t have to feel deprived when you spend less money,” I said. “In fact, if you keep spending and spending even as your income rises, you’ll keep running and running and never get anywhere.”

[Read more…]

Poke the Box: Make a Ruckus, Take Risks…but Remember Base Rates

Let’s Start with Safal Niveshak
Just in case you missed any of this on Safal Niveshak over the last few days…

  • Released StockTalk 2.0 report on India’s leading IT services company, TCS. See some interesting discussion in the Comments section of the report.
  • Safal Niveshak turned two on 11th July, so relived the amazing journey so far. I want to thank you, dear tribesman, for raising this initiative to this point — it truly could not have happened without your support!
Mental Model of the Week: Base Rates

I heard this recently in a radio ad of a leading insurance company – “For every minute you are stuck in the traffic, we settle five claims.”

Sounds great, right? Five claims in one minute is quite a number.

“But, five out of how many claims that you receive, sir?” I wanted to ask. When I got back home and checked the claim-settlement number, it was around 70%! Now that’s poor!

“There is nothing more deceptive than an obvious fact,” said Sherlock Holmes.

Then, Bertrand Russell said, “Obviousness is always the enemy to correctness.”

It happens so often in life that we come out with wrong conclusions because they seem the obvious based on a single observed effect.

When someone remarked to the French writer Voltaire, “Life is hard,” he retorted, “Compared to what?”

We tend to ignore alternatives, and therefore we fail to make appropriate comparisons. Often we only consider information or evidence that is presented or available and don’t consider that information may be missing.

In effect, we ignore the base rates, which simply mean that if 1% of the public were “medical professionals”, and 99% of the public were not “medical professionals”, then the base rate of medical professionals is simply 1%.

In the same way, if 2% of penny stocks earn good long-term return, and 98% don’t, then the base rate of success in penny stock investing is just 2%.


Here is what Prof. Sanjay Bakshi said in his interview with Safal Niveshak…



One of the great lessons from studying history is to do with “base rates”. “Base rate” is a technical term of describing odds in terms of prior probabilities. The base rate of having a drunken-driving accident is higher than those of having accidents in a sober state.

So, what’s the base rate of investing in IPOs? When you buy a stock in an IPO, and if you flip it, you make money if it’s a hot IPO. If it’s not a hot IPO, you lose money.

But what’s the base rate – the averaged out experience – the prior probability of the activity of subscribing for IPOs – in the long run?

If you do that calculation, you’ll find that the base rate of IPO investing (in fact, it’s not even investing…it’s speculating) sucks!

That’s the case, not just in India, but in every market, in different time periods.

What you don’t see can really kill you! And people don’t see the base rates.

——-

When you evaluate whether smoking is good for you or not, if you look at the average experience of 1,000 smokers and compare them with a 1,000 non-smokers, you’ll see what happens.

People don’t do that. They get influenced by individual stories like a smoker who lived till he was 95. Such a smoker will force many people to ignore base rates, and to focus on his story, to fool themselves into believing that smoking can’t be all that bad for them.

What is the base rate of investing in leveraged companies in bull markets?



By the way, here are some base rates of dying for different reasons (as per the US National Center for Health Statistics)…

  • Hand gliding – 1 in 560
  • Grand Prix racing – 1 in 100
  • Motorbike racing – 1 in 1,000
  • Mountain climbing – 1 in 1,750
  • Bicycling – 1 in 140,000
  • Running/Swimming– 1 in 1 Million (1 Million = 10 Lac)
  • Car driving – 16 in 100,000 drivers
  • Motorcycle riding – 21.5 in 100 million vehicle miles
  • Airplane – 1.3 deaths in 100,000 flight hours
  • Smokers – 22x more likely to die of lung cancer than non-smokers
  • Lifelong smokers – 50% die before age 70
  • Dance parties – 1 in 100,000

Finally, regardless of all risks, your probability of dying during a given year doubles every 8 years!

So watch out for base rates before making any decision in life (and investing), and please be careful.

Stimulate Your Mind
Here’s some amazing content I read during the week gone by…

Poke of the Week – Take Risks

The leading American entrepreneur, author and public speaker Seth Godin has had a great influence on my life as a writer and thinker.

In his recent book titled The Icarus Deception, Seth writes about the story of Icarus, whose father Daedalus fashioned two pairs of wings out of wax and feathers for himself and his son to fly out of a prison they were captivated in.

Daedalus tried his wings first, but before taking off from the island, warned his son not to fly too close to the sun, nor too close to the sea, but to follow his path of flight. However, overcome by the giddiness that flying lent him, Icarus soared through the sky curiously, but in the process he came too close to the sun, which melted the wax.

Icarus kept flapping his wings but soon realized that he had no feathers left and that he was only flapping his bare arms, and so he fell into the sea.

The Icarus myth is often used as an example of when hubris or over-confidence – of flying too high – can go badly wrong.

However Seth, in his book, points out that there is another part of the story – Icarus’s father Daedalus also told his son not to fly too low as the water could also damage his wings.

As per Seth – “Society has altered the myth, encouraging us to forget the part about the sea, and created a culture where we constantly remind one another about the dangers of standing up, standing out, and making a ruckus.”

However, he writes, settling for too little is “a far more common failing”.

You see, we all have the potential to do great work in life. However to do so, we need to leave our comfort zones – to fly closer to the sun, and to fail sometimes.

If you’re not failing every now and again, it’s a sign you’re not doing anything very innovative.

Looking from another angle, if you’re hitting bull’s-eye every time, maybe you’re standing too close to the target.

Like when it comes to investing, I have a long list of great stocks that I did not buy or sold early, for a simple reason that I feared taking some risk.

But since these errors of omission won’t show up in my profit and loss account, I often ignore them.

The reality is that our errors of omission – not flying high and close to the sun – can be more costly than the errors of commission – flying too close to the waters.

Thankfully, what I omitted – taking risks – in my investing life, I committed in my work life, and that led me to quit my job to pursue my passion.

Ask yourself what stops you from taking risks in your life – not risks based on arrogance and blind overconfidence, but well-calculated risks like…

  • Building up a saleable skill that people would pay for, and then telling your boss that you won’t need his services soon
  • Telling your boss how his excel-based projections could go haywire
  • Starting a business that you have been wanting for years
  • Researching businesses and then investing in them independently
  • Spending time learning a third, or a fourth language
  • Learning how to swim or drive…or cook

Arthur Koestler put it so well – “If the Creator had a purpose in equipping us with a neck, he certainly would have meant for us to stick it out.”


Just answer this question – “What would our world look like if more people moved out of their comfort zones, made a ruckus, and took risks to change their and others’ lives?”

Maybe this could be your permission slip.

If you haven’t done it already, sign up here to receive Poke the Box in your email…and get ready for stimulating Saturday mornings.

Keep poking.

Make a ruckus.

Take risks.

Remember base rates.

Please try to quit smoking.

Till next weekend…

Vishal Khandelwal
Chief Poker – Poke the Box

Safal Niveshak is 2 Years Old!

Yes, it’s time to put on the big boy pants…Safal Niveshak is two years old today. 🙂

A lot has happened in these quick two years, but as with any 2-year-old, I’m just getting started.

Most of all, I want to thank each and every one of you for “raising” this initiative to this point — it truly could not have happened without you, dear tribesman.

I know I’ve said it before, but it bears repeating – Thank you so much for reading, for commenting, for your interest and support and intelligent criticism, for keeping me honest, for helping this entire movement of creating smarter and independent stock market investors become greater and spread wider.

You are magnificent, and I am supremely grateful for your time and attention.

Here are some numbers that might interest you.

In these two years, I have written 400 posts, have 6,000+ subscribers for The Safal Niveshak Post, and have seen 100,500 unique visitors visit the website from 151 countries.

Most importantly, not only are people coming to Safal Niveshak, they are staying here for more than 5 minutes per visit. Now that’s encouraging in the age of Twitter and widespread attention deficit disorders! 🙂

Here are the five most-read posts on the site over these two years…

I get a lot of emails every week from readers telling me that something I wrote kept them out of trouble or helped them make sense of their personal financial life. These letters serve a great sense of achievement and provide a consistent motivation to carry on doing my work.

Here’s one such letter I received recently…

Your articles are like lampposts in unknown land. Every time I am confused about which way to go I try to look at the lampposts and I get the way. I know at the end I have to find the way myself but a guide who traveled this road can tell about the possible precautions and dangers as well as pleasures in travelling by this route. Thank you for what you are doing. ~ Dr. Umesh Lad

I want to finish this post by saying that I’m really humbled that you take the time to read what I write down here…especially when I write the exact same thing 200 times a year in such a way that you never think I am repeating myself. 🙂

Here’s something that resonates so much with what I am feeling as Safal Niveshak completes two years.

I read this on one of the few blogs I read consistently…that of Mr. Amitabh Bachchan, who wrote this after completing five years at his own blog…

“I am simply amazed at the most intricate and valuable information that has come through these posts…on matters personal, on matters of conflict, on matters of worldly wisdom, of care and consideration for the other, of the connections made with unknowns, of bondings, friendships that never existed but do now with a flourish, our concerns for each other, our greetings to those, oceans and worlds apart, of discovering incredible talent…all through the medium of a few words.

Thank you dear tribesman for your patience, and for bearing with me!

Special thanks to Mr. Sudhir Bhargava for being the most prolific commentator on Safal Niveshak so far, with his 253 comments. Here’s a special gift I just sent him.


Finally, I have a request to make – If Safal Niveshak has touched your life, as an investor or otherwise, I would be happy and honoured to know in the Comments below.

I am waiting to get motivated for another two years. 🙂