Archives for 2016

Spotlight: If You Can’t Imagine, You Mustn’t Invest in the Stock Market

December 29, 2016 | Leave a Comment

Apart from observation and deduction, if there’s an important skill that an investor or analyst must bring to the table while making investment decisions, it is ‘imagination’. It is, after all, imagination that helps us make relevant connections that are not entirely obvious, between data or information about a business that may appear disparate at first.

Logic will get you from A to B. Imagination will take you everywhere. ~ Albert Einstein

First comes thought; then organization of that thought, into ideas and plans; then transformation of those plans into reality. The beginning, as you will observe, is in your imagination. ~ Napoleon Hill

Having a five-year-old means that I’m always attuned to what’s new in kids’ entertainment – whether it’s books, movies, or YouTube videos. So, while browsing through the video library on my laptop some days back, I came across this video that was created to celebrate the 150th anniversary of Lewis Carrol’s children’s classic, Alice’s Adventures in Wonderland.

The emphasis in this video was on the use of imagination. The first scene presented Alice and her entire family having a Her family endeavour to convince her otherwise, pointing to possible mundane things that can become magical in their opening song: the rabbits in the field, the father’s pack of cards, or a caterpillar (of course prefiguring some of the best-known scenes in the book). And sure enough, the white rabbit appears, prompting Alice to follow him down the rabbit hole.
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Safal Niveshak’s 2016 Annual Letter to Tribe Members

December 28, 2016 | 15 Comments

Dear Tribe Member,

Trust you are doing great.

Here is a brief update on what transpired during 2016. It was another tremendous year for Safal Niveshak. The tribe has crossed 26,000 members. Our Twitter count has crossed 17,500 followers. We conducted five workshops during the year, meeting 120+ tribe members in the process.

The Mastermind Value Investing Course student count increased by 30%, while our premium newsletter – Value Investing Almanack (VIA) – which is about to complete two years, gained 25% new members, and has continued to receive some inspiring reviews from its subscribers. During the year, as part of the VIA, we interviewed a few wonderful value investors including Rajeev Thakkar, Jason Zweig, Samit Vartak, Kuntal Shah, and John Huber.

The idea to launch VIA in 2015 came from the need we felt of a detailed value investing newsletter in the Indian context, which had deep insights on the subject, business analysis, and interviews with practitioners of the art. We had always missed such a product in India, and could not find a better way to get it than to create it ourselves. The journey over the past two years of launching VIA has been inspiring for the breadth and depth of reading and learning we ourselves have done to bring our subscribers high quality content.

Anyways, in 2016, we also launched our first comprehensive e-book titled Mental Models, Investing, and You. This was just the first part of our collection of mental models notes we have written on Safal Niveshak so far (the second part releases in 2017), and received great reviews from readers. Despite our offer to people to get the e-book for free or pay as much as they wished, more than 850 people paid up, which was a much higher count than what we had expected.

Stock Talk (December 2016)

December 25, 2016 | Leave a Comment

Latticework Of Mental Models: Lucretius Problem

December 22, 2016 | 9 Comments

It was a Friday on March 11, 2011 when a massive earthquake with an intensity of 9 on Richter scale hit off the coast of Japan at 2:26 pm local time. The epicenter of the quake was 70 kilometer east of the Oshika Peninsula of Tōhoku.

The earthquake triggered powerful tsunami waves that reached heights of up to 40 meters. It took 50 minutes for the largest wave in the tsunami to arrive at the shores of Fukushima. What followed was something totally unimaginable and unexpected for those who take pride in taming the mother nature.

The Fukushima Daiichi nuclear power plant had six separate boiling water reactors, protected by a 10-meter-high seawall to prevent sea waves from entering the plant.

When the tsunami struck the Fukushima coastline, the gigantic waves easily overtopped the plant’s seawall. It took seconds to flood the basements of the turbine buildings and disabling the emergency diesel generators. Soon the backup generator building was also flooded. This resulted in an explosion and leakage of radioactive material to the sea water and created a huge nuclear hazard.

Why would the engineers and designers of Fukushima nuclear power plant build a wall only 10-meter high? What made them believe that the waves can’t breach the 10-meter height? [Read more…] about Latticework Of Mental Models: Lucretius Problem

InvestorInsights: Jason Zweig

December 20, 2016 | Leave a Comment

Jason Zweig is the investing and personal-finance columnist for The Wall Street Journal. He is the author of The Devil’s Financial Dictionary, a satirical glossary of Wall Street (PublicAffairs Books, 2015), and Your Money and Your Brain, on the neuroscience of investing (Simon & Schuster, 2007).

Zweig edited the revised edition of Benjamin Graham’s The Intelligent Investor (HarperCollins, 2003), the classic text that Warren Buffett has described as “by far the best book about investing ever written.” Zweig also wrote The Little Book of Safe Money (Wiley, 2009); co-edited Benjamin Graham: Building a Profession, an anthology of Graham’s essays (McGraw Hill, 2010); and assisted the Nobel Prize-winning psychologist Daniel Kahneman in writing his book Thinking, Fast and Slow. From 1995 through 2008 Zweig was a senior writer for Money magazine; before joining Money, he was the mutual funds editor at Forbes.

Safal Niveshak Stream – December 17, 2016

December 17, 2016 | Leave a Comment

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, listening, and observing at the start of this weekend…

Investing

(1700 words / 7 minutes read) Could one person’s speculation be another person’s investment? The case study presented in this article titled The Risk of Backing into a Speculative Position illustrates the idea that investment and speculation are linked to an investor’s intent rather than the characteristic of stock he or she is buying.

Let’s assume that the investor and the speculator purchased the exact same security at the same time and then subsequently sold at the same time. Obviously, the returns that both of them will experience are identical, but it is still useful to differentiate between investment and speculation. This is because over long periods of time, process is important and will eventually dominate results. The effect of a good process on any individual investment may not be clear but, over time, a good investment process should generate good long term results.

It is important to make a clear distinction between investing and speculating and to classify one’s activities appropriately. The possibility of major losses exists when someone who believes that he is investing is actually speculating instead. There is nothing illegal or immoral about speculating but such activities really do need to be segregated from investing in our minds to avoid trouble.

[Read more…] about Safal Niveshak Stream – December 17, 2016

Latticework Of Mental Models: Chauffeur knowledge

December 16, 2016 | 12 Comments

Charlie Munger, in one of his talks, tells the story of famous scientist Max Planck –

I frequently tell the apocryphal story about how Max Planck, after he won the Nobel Prize, went around Germany giving a same standard lecture on the new quantum mechanics. Over time, his chauffeur memorized the lecture and said, “Would you mind, Professor Planck, because it’s so boring to stay in our routine, if I gave the lecture in Munich and you just sat in front wearing my chauffeur’s hat?” Planck said, “Why not?” And the chauffeur got up and gave this long lecture on quantum mechanics. After which a physics professor stood up and asked a perfectly ghastly question. The speaker said, “Well, I’m surprised that in an advanced city like Munich I get such an elementary question. I’m going to ask my chauffeur to reply.

Well, the reason I tell that story is not to celebrate the quick wittedness of the protagonist. In this world I think we have two kinds of knowledge: One is Planck knowledge, that of the people who really know. They’ve paid the dues, they have the aptitude. Then we’ve got chauffeur knowledge. They have learned to prattle the talk. They may have a big head of hair. They often have fine timbre in their voices. They make a big impression. But in the end what they’ve got is chauffeur knowledge masquerading as real knowledge. I think I’ve just described practically every politician in the United States. You’re going to have the problem in your life of getting as much responsibility as you can into the people with the Planck knowledge and away from the people who have the chauffeur knowledge.

On a lighter note the chauffeur had some Planck knowledge of his own, being clever enough to turn that question around!

But in the real world, it is critical to distinguish when someone is “Max Planck,” and when he’s just the “Chauffeur.”

Building Planck knowledge takes deep commitment and large amount of time and effort. Chauffeur knowledge comes from people who have learned to put on a show. Their talks sound impressive and entertaining, they have good voice and may even ooze great charisma but their knowledge is not their own.

BookWorm: Shoe Dog

December 15, 2016 | Leave a Comment

Phil Knight’s candid and riveting memoir of how he built Nike from scratch. Knight shares the inside story of the company’s early days as a fearless start-up and its evolution into one of the world’s most iconic, game-changing, and profitable brands.

It was 2005 when I bought my first pair of Nike. I wore them to work, for running, for outings and almost everywhere. I waited five years for those pairs to get torn so that I could buy new ones. They never did. Sturdy brats! I eventually donated them to make way for the new ones – another Nike – and since then I have never used any other brand.

I am sure millions trust Nike for its comfort, sturdiness, innovative designs, and cutting edge technology. Nike’s reputation is simply unparalleled. Its trademark – the swoosh – is more than a logo. It’s one of the few icons instantly recognized in every corner of the world.

However, I never knew that Nike was the brainchild of one man, himself an athlete. He borrowed fifty dollars from his father and launched a company with one simple mission: import high-quality, low-cost running shoes from Japan.

The man was Phil Knight. And Shoe Dog is Knight’s candid and riveting memoir. He shares the inside story of Nike’s early days as a fearless start-up and its evolution into one of the world’s most iconic, game-changing, and profitable brands. Shoe Dog is nothing less than a business thriller and perhaps the best business book that I have ever read.

[Read more…] about BookWorm: Shoe Dog

Investing and the Power of Serendipity

December 12, 2016 | 3 Comments

In July 2003 I was fresh out of college and was waiting to join my first job. I was excited but a little anxious too. The thought of transitioning from a laid back college life to a hectic corporate job was giving me jitters.

The life in college was quite predictable. The syllabus was fixed. If I studied the textbooks diligently and attended all the classes, I was supposed to graduate in four years with predictable grades.

But in the job, I had no clue what to expect. I didn’t know how my first boss would behave. Although there weren’t going to be any exams or pop quizzes in the job, there was no set curriculum either. It was a different flavour of uncertainty out there which I hadn’t tasted before.

So, to make the best use of my vacation before the corporate grill started, I thought of meeting someone who was successful in this field. I decided to meet the president of small scale industries association in my hometown.

“Uncle, I am about to join my first job in a chemical industry. What should I do to make the best use of my time in my job?” I asked him.

“Always keep your eyes and ears open. Opportunity can come from any direction. Be ready to grab it and work hard to capitalize on it,” he said. We spoke for about half an hour but these are the only three sentences that I still remember.

At that time, those words didn’t make much sense to me. However, after spending 10 years working in different jobs, I began to realize the importance of uncle’s advice.

Behaviouronomics: Answering an Easier Question

December 10, 2016 | Leave a Comment

When a satisfactory answer to a hard question is not found quickly, our mind tends to imagine a related question that is easier and constructs an answer for it. This processes, answering one question in place of another, is mostly involuntary and known as substitution principle. It’s better to stay mired in a genuine confusion than to bask in the comfort of a false conclusion.

Let me ask you a simple question – How happy are you these days?

Take few seconds to think about it. Now, let me ask you another simple question – How was your stock portfolio performance in past one month?

The second question is perhaps simpler because the data is easily available from your portfolio tracker. But is there a way that the second question would have affected the answer to your first question? “Of course not!” you would claim. First, you didn’t know the second question when you were thinking about the first answer. Second, even if you knew both the questions in advance, the second question would not have affected the answer to the first question. Right?

But what if I reversed the order of the questions? If I asked you about your stock portfolio performance followed by the question about your overall satisfaction with life?