Wit. Wisdom. Value Investing.
Me: Happy birthday, Mr. Warren Buffett.
Warren Buffett (WB): Thanks Vishal!
Me: So how does it feel at 86?
WB: Oh, I’m feeling younger than ever. I continue to do what I have loved doing all my life. I continue to eat like a six-year old. I continue to be friends with people I have been friends with for decades now. And that makes me feel younger than ever.
Me: You truly know the secret of a long and happy life, don’t you?
If you think I am going to talk about some mystical way to increase your luck in stock market, then you’ll be disappointed. Being fortunate in life and in investing is largely about increasing your odds of success. And how do you increase your odds?
“Study the principles of sound investing and work hard to implement those principles,” you might say. But is that sufficient? Studying, reading and working hard are all necessarily conditions for being successful in the stock market, however they are not sufficient. You need one more thing.
Let’s turn to world’s greatest investor to give us some clue. In his 1982 letter to investors, talking about two of his managers Phil Liesche and Ben Rosner, Warren Buffett wrote –
Complexity is the indispensable thread in the fabric of world of business today. As a result, in spite of all the secrets formulas and all the self-proclaimed thought leadership, success in business is as elusive as ever. Unlike hard sciences there are no immutable laws in management because managing business isn’t a science.
Rajiv Bajaj, Managing Director of Bajaj auto, said this in one of his talks –
I joined the company [Bajaj Auto] twenty years back. In my college I was trained to think ‘Just in Time’ because it was supposed to be one solution for all the problems. And then somebody said, Just in Time is not enough. They said there must be Kaizen, World class manufacturing, Toyota production system, Kawasaki system, automation and robotics. Then they said you must also know CAD, CAM, simultaneous engineering, re-engineering, six-sigma, TQM, and you must wear six hats, follow seven habits, look for blue oceans, be a bit of a maverick and indulge in management by walking around. Every time I learnt something new, I found myself back at the starting point. There was always the new book on the shelf, and there was always the new consultant on the seminar circuit. And these guys would do anything to keep themselves in demand and keep all of us confused. So I decided to ignore all of these.
Rajiv Bajaj turned around Bajaj Auto from a loss making company in the year 2000 to the most profitable auto company in world and it’s pretty clear from his talk that he didn’t do it just by blindly listening to those management experts and celebrity CEOs who claim to have the next new thing.
[Read more…] about Latticework of Mental Models: The Halo Effect
Here is my review of the FY16 annual report of India’s leading two-wheeler company, Bajaj Auto.
Click here to download the PDF review (4 MB file), or read it in the panel below.
Statutory Warning: This is NOT an investment advice to buy or sell shares. Please make your own decision, as blindly acting on anyone else’s research and opinions can be injurious to your wealth. I own the stock, and thus my analysis is biased, and may be wrong. I have been wrong many times in the past. I am a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014 (Registration No. INH000000578).
Would you buy something if it were discounted from Rs. 500 to Rs. 200? May be.
What if it was discounted from Rs. 500 to Rs. 10? Possibly.
How about if it were discounted to zero? Absolutely!
Getting something for free feels good. Isn’t it?
But don’t get too excited. Although the ‘cost of free’ is zero, it’s also a source of irrational behaviour. Remember those pile of free key chains, free pencils and notepads lying at some corner of your house? Well that pile may be harmless but there are other situations where this irrational affinity for FREE stuff can cause us to make bad decisions. The Zero Price Effect says that we often pay too much when we pay nothing.
I regularly give in to this zero price effect in my day to day decisions. Amazon offers zero shipping charges if I make a minimum purchase of Rs. 499. Every time I order a book which costs less than 499, I end up buying another book (which I don’t plan to read) just to avail the free shipping offer. I just can’t let go off the free offer.
So what explains our unusual love for FREE! stuff?
[Read more…] about Latticework of Mental Models: The Zero Price Effect
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