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Archives for May 2015

Book Review: A Short History of Financial Euphoria

May 29, 2015 | | 1 Comment

This book review has been submitted by Ankit Kanodia.

If anyone would ask me to summarize A Short History of Financial Euphoria in quick words, I would borrow the following three quotes to make my point…

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

History does not repeat itself, it rhymes. ~ Mark Twain

There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know. ~ John Kenneth Galbraith

For starters, the book does not give you any tip on how to compound wealth or how to invest to earn great returns on capital. On the contrary, it brings to your notice how you can lose it all and thus how difficult but important it is to avoid that danger.

A small, thin book of only 110 pages, it consists of almost everything one needs to know about the speculative bubbles in economic history.

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Filed Under: Book Review //

Latticework of Mental Models: Variable Reinforcement

May 27, 2015 | | 22 Comments

It’s not often that you would find me exercising my thumb muscles with a TV remote but it so happened that on a Saturday afternoon while killing time in front of the idiot box, an unsettling thought caught me off guard. I realized that I had been surfing through the TV channels for the past hour without really spending more than a minute on any single channel.

This habit is not uncommon but the unusual thing was once I had looped through all the channels a couple of times and once it was obvious that there was nothing interesting on TV, I still kept going without getting bored. So what was keeping me hooked?

As a flash of insight the answer that my mind constructed was an uncomfortable one.

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Filed Under: Mental Models //

I Disclose

May 25, 2015 | | 8 Comments

Unlike the US and other western countries that have imposed strict rules that govern financial bloggers, India is just getting started off on such regulations with the SEBI wanting financial bloggers (especially who sell stock recommendations) to get registered with itself.

Also, there are no clear cut rules on disclosures that financial bloggers and Internet marketers have to follow in India. But I believe it’s important to disclose stuff that clearly outlines your relationship with readers, customers, and advertisers.

Not just with a view to prepare myself, I’ve created the following disclosure policy that will help you understand where I come from and what you must expect/not expect from everything I do on Safal Niveshak.

Now, this is where I am supposed to put all of that legal disclosure jargon, right? Nah! How about some easy to understand language that actually makes sense?

Let’s get started with my disclosure for Safal Niveshak (the site).

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Filed Under: Investing //

Latticework of Mental Models: Gresham’s Law

May 21, 2015 | | 17 Comments

This article is the fifth of this weekly series called Latticework of Mental Models, which will be authored by my friend and partner in writing the Value Investing Almanack, Anshul Khare. Anshul will write on various mental models – big ideas from various disciplines – which can help you think more rationally while analyzing businesses and making your stock investment decisions.


Few weeks back, we discussed the mental model of Storytelling. I am going to use the same model to start this post. Let me start with a true story, and take you back to medieval India.

Between the years 1324 to 1351, Delhi was ruled by an emperor named Mohammad-bin-Tughluq from the Tughluq dynasty. He had a scholastic background and spoke multiple languages. In spite of good intentions, some of the policies that he enforced during his rule backfired which made him infamous as an eccentric ruler. One such failed idea was about an experiment that he did with the local currency.

Tughluq noticed that India had very few silver coins and a comparatively larger number of bronze and copper coins. He decided to promote bronze or copper coins by passing a royal order that bronze and copper coins are to be accorded the same value (i.e., same purchasing power) as silver coins. In other words, he wanted the markets to mentally consider bronze and copper as silver itself so that 1 gram coin of bronze can buy the same goods as 1 gram of silver. It looked like a neat idea however the emperor failed to consider the law of unintended consequences.

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Filed Under: Mental Models //

When to Sell a Stock (E-Book & Checklist)

May 19, 2015 | | 12 Comments

Most investing discussions revolve around when to buy a stock. “Which stock should I buy?” is the first question that comes to your mind when you think about investments. But equally important is the question – “When should I sell a stock?”

Now, there aren’t any “10 Immutable Laws of Selling.” In fact, the answer to this question is often as difficult and subjective as deciding when to buy a stock.

But, without doubt, a disciplined sell process injects a healthy dose of Darwinism – survival of the fittest – into the portfolio. This process weeds out the weakest stocks – the ones that have deteriorated / deteriorating fundamentals or diminished margins of safety – in favour of stronger ones.

In a special report, and through a diagrammatic checklist (see below), I try to answer some of the questions around when to sell a stock. Not every selling rule under the sun may be included herein, but I’m sure what you read and see below will still be of some help to you.

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Filed Under: How To, Investing //

Latticework of Mental Models: Mean Reversion

May 13, 2015 | | 15 Comments

This article is the fourth of this new weekly series called Latticework of Mental Models, which will be authored by my friend and partner in writing the Value Investing Almanack, Anshul Khare. Anshul will write on various mental models – big ideas from various disciplines – which can help you think more rationally while analyzing businesses and making your stock investment decisions.


There are certain days in everybody’s life which in spite of being ordinary remain etched in the memory for a long time. It was 15th of December. I distinctly remember it because I bought my car that day.

The ownership of new car brought with it an excitement to take care of it which included an urge to diligently track the car mileage. You know, boys with toys. At an average of 13 km/litre it was a satisfactory performance. However, after few weeks I started noticing that the mileage numbers would go down occasionally and then come back again to the normal.

There wasn’t any change in my driving style or driving routes. Except the source of fuel there was no other variable that could cause the variation in performance. So my hypothesis was that the quality of fuel was affecting my vehicle’s performance. To empirically validate my theory I decided to keep track of different fuel stations where I got the petrol from.

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Filed Under: Mental Models //

How to Find Great Businesses, the Peter Lynch Way

May 11, 2015 | | 28 Comments

One of the first books I ask new investors to read is Peter Lynch’s One Up on Wall Street.

The easy-going and simplistic stock-picking style discussed in this book brought Lynch great success in his profession as a fund manager at the US mutual fund company, Fidelity, where he generated an average annual return of 29% during 1977 to 1990.

Lynch wasn’t just a great investor, he had a wonderful way of getting across the secrets of his success in everyday language, exemplified by this warning of the perils of putting money into businesses that you don’t understand.

Another of his catchphrases was to “invest in what you know” and he believed everyone could use this advice to spot successful companies.

In fact, he got many of his best ideas at home or when wandering around shopping malls, rather than by poring over company accounts.

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Filed Under: How To, Investing, Peter Lynch //

Latticework of Mental Models: Storytelling

May 6, 2015 | | 10 Comments

This article is the third of this new weekly series called Latticework of Mental Models, which will be authored by my friend and partner in writing the Value Investing Almanack, Anshul Khare. Anshul will write on various mental models – big ideas from various disciplines – which can help you think more rationally while analyzing businesses and making your stock investment decisions.


What if I told you that the DCF (discounted cash flow) analysis and the principle of time value of money was first discovered in 600 B.C.? And the person who discovered it was neither an economist nor a mathematician. He was a storyteller called Aesop.

“You must be kidding,” you might say. Well, let’s find out.

In my personal experience, one of the most effective ways to make a conversation (written or verbal) interesting is to tell a story capturing your idea. In fact, I can safely claim that whenever I hear or read something that starts with “let me tell you a story,” it gets me hooked for at least few minutes. I am sure your experience won’t differ too much from mine.

Even most of the holy texts in different religions contain lot of stories. Questions is, why is it so?

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Filed Under: Mental Models //