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?
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
Behavioural biases are so deep wired in our brains that it takes tremendous will power and intelligent hacks to overcome its effects. This little book is a great reminder to all of us lest we become complacent and repeat the same mistakes.
Success in investing doesn’t correlate with IQ once you’re above the level of 100, writes Warren Buffett, “Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
[Read more…] about BookWorm: The Little Book of Behavioural Investing
There are moments in life when you are in awe of someone so much that you wish to be in that person’s shoes, doing what he or she is doing.
For that matter, everybody aspires to be really good at something. It could be a sport, an art, playing a musical instrument or any other activity like reading, painting or drawing. When we see someone who displays an extraordinary talent in any of these fields, it leaves us awestruck and inspired.
So how do you become good at something? How do you improve your performance in a chosen activity?
The most popular strategy among people is to practice by mindlessly repeating an activity over and over. Many performance coaches and motivational gurus tout this idea of working incessantly for long and hard hours. Practice makes perfect – is the mantra they preach. Ten thousand hours of practice, they say, is the key to world class performance.
[Read more…] about Latticework of Mental Models: Deliberate Practice
Let me start by inviting you to have an intellectual and emotional experience. Take a few seconds and stare at the picture below.
Observe closely. What do you see?
You’d probably see a woman who is looking away from you. You may notice that she is wearing a necklace. She seems to have high cheekbones, long eyelashes, and a pointy nose.
Now I ask you to take your eyes off her and focus on the second picture below –
What do you see now? Another woman? What does she look like? How old do you think she is? What is she wearing? In what kind of roles do you see her?
You probably would describe this second woman as beautiful as the first one. You might guess that she is about 25 years old and fashionable. In fact, the second image looks like a lower resolution version of the first image.
[Read more…] about Latticework of Mental Models: Naive Realism
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Before we get started on the discussion today, I would like to invite you to have an intellectual and emotional experience. Take a few seconds and just look at the picture below.
What do you see? You’d probably see a woman who is looking away from you. You’d also notice that she’s wearing a necklace. She also seems to have high cheekbones, long eyelashes and a petite nose. Alright, now I ask you to take your eyes off her and focus on the second picture below –
What do you see now? Another woman? How old would you say she is? What does she look like? What is she wearing? In what kind of roles do you see her?
You probably would describe this woman as beautiful as the first one. You might guess that she’s about 25 years old, very lovely, rather fashionable and with a demure presence. If you were a single man you might even like to ask her out.
[Read more…] about Behaviouronomics: Naive Realism
Risk aversion is different from loss aversion, and investors who understand this are the ones who succeed.
On April 10, 2003 soft drink company Pepsi announced a contest called “The Pepsi Billion Dollar Sweepstakes”. It was supposed to run from May 1, 2003 to September 14, 2003.
For the contest, Pepsi printed one billion special codes, which could be redeemed either on their website or via postal mail. Of all the codes redeemed, which Pepsi estimated to be 200 – 300 million, 100 were chosen in a random draw to appear in a two-hour live gameshow-style television special. Each person was assigned a random 6-digit number, and a chimpanzee (to ensure a truly random number and of course to rule out any monkey business) backstage rolled dice to determine the grand prize number. This number was kept secret and the 10 players whose numbers were closest to it were chosen for the final elimination. On the evening of September 14, the final day of the contest, the event, titled Play for a Billion, was aired live. If a player’s number matched the grand prize number, he would win US$ 1 billion.
Given the scenario, it was highly unlikely that anyone would win a billion dollar. The chances were literally 1 in a billion. Inspite of that, Pepsi was unwilling to bear the risk of the possible billion-dollar prize. So they arranged for an insurance company to insure the event. They paid US$ 10 million premium to Berkshire Hathaway to assume the risk.
[Read more…] about Spotlight:Be Risk Averse, Not Loss Averse