Archives for October 2016

How I Missed a 10-Bagger, and Why I’m Proud of That

It was sometime in the middle of 2006 when I met the management of a banking company for the first time. It was HDFC Bank, and I met one of their top executives along with my banking analyst colleague.

The bull market in banking and financial stocks was just beginning to pick up pace and, in hindsight, there we were at the right place and at the right time. We ended up recommending a ‘Buy’ on the stock, which turned out to be a big wealth creator for our clients. Trusting the analysis skills of my colleague, I wanted to buy the stock a month after she recommended it to clients, but stopped at the last moment.

Why? I did not understand the head or tail of HDFC Bank’s balance sheet (I still don’t). Of course, I understood how it made money – by earning interest on its loans, advances and investments – but my competence ended there.

I had no clue on how the bank priced its loans, how it tested credit abilities of borrowers (do they really test that?), and how it accounted for its investments and liabilities on the balance sheet. I knew that if India were to do well, banks would be a direct beneficiary. But it was a tough nut to crack for me, and I gave up there and then.

So, unlike our clients, some of whom would have made a 10-bagger in the stock, I missed this bus. Only that, unlike Warren Buffett who talks about sucking his thumb while missing such obvious opportunities, I had all my fingers tied behind my back, and it was my own choice.

Safal Niveshak Stream – October 8, 2016

Some amazing stuff we are reading, watching, and observing at the start of this weekend…

Investing/Stock Market

One of the most dangerous places to be as an investor is…

…when you’re the smartest person in the room. Smarts, when not combined with a heavy dose of humility, can get you into trouble because it can lead to overconfidence. Overconfidence can lead to overthinking which can be a deadly combination when managing money.
Do you know about the most overlooked trait of investing success, especially when you are managing other people’s money? Hint – It’s a trait not directly related to investing. Go, figure. 🙂
Many investors and investment managers have taken to copying Buffett’s approach, but is it really possible to become a value investor by reading a few books and desiring to make money? In a letter to investors several years ago, Seth Klarman of The Baupost Group warned of value pretenders, investors who brand themselves as value investors but actually miss the essence of value investing. So are you one i.e., a value pretender? Here’s a nice post from John Mihaljevic on ways to determine if you are a value investor or pretender. One of the ways John writes about is…

If you base your purchase decisions on the likelihood that the market will assign a higher P/E or other multiple to a stock in the future, you may not be a value investor. You may instead be engaging in John Maynard Keynes’s “beauty contest”, an exercise centered on guessing the behavior of others. Value investors independently appraise the value of businesses in order to make an informed investment decision.

[Read more…] about Safal Niveshak Stream – October 8, 2016

Investing and the Art of Suffering

Pain is a complex experience involving sensory and emotional components: it is not just about how it feels, but also how it makes you feel. And it is these unpleasant feelings that cause the suffering we humans associate with pain.

Photo credit: Christopher Macsurak (Creative Commons)
When it comes to investing, there is a third angle to this thought – What you do when you feel the pain? How do you react to it?

Like what you do when the share market is going through a bad phase, and when your portfolio is giving you sleepless nights for reasons outside your control. I believe most people reading this associate the 2008 crisis with one such painful period that’s fresh in their memories.

I attended a lecture yesterday from a famous Indian investor, who has grown his wealth from Rs 0 to Rs 1,000 crore over a span of around 30 years. And what I understood from what he said about his journey was that he has been through several painful periods in his long experience in the markets. And apart from the fact that luck has played a very important role in this wealth creation process – being at the right place at the right time with the right people – it was also his capacity to suffer during the painful times that has helped him reach where he is now.

Safal Niveshak Stream – October 5, 2016

Some interesting stuff we read, watched, and observed today morning…

Investing/Stock Market

It’s very normal to find such magazine covers appearing in bull markets. They sell well, given the various biases they instantly spark in the brain of the reader..
By the way, the average P/E of the 25 stocks mentioned in this report is 40x, and there are a few at 69x, 71x, and 85x. Let’s talk about wealth “creation”. 🙂 [Read more…] about Safal Niveshak Stream – October 5, 2016

100 Ideas on Living with Courage, Wisdom, and Peace (Special E-Book)

Being human means you’re going to experience a range of emotions throughout your life. They could be positive emotions like love, kindness, compassion or they could be negative ones like fear, frustration, and envy.

To get the maximum out of our short lives, we need to ensure that our days are filled with more positive feelings than the negative ones.

No matter how rich, healthy and happy you are, the pangs of depression or feeling low will hit you sometime. That’s when you may need some doses of inspiration to lift your spirit and take you out from the dump.

Now, what’s an inspiration?

Safal Niveshak Stream – October 1, 2016

Some interesting stuff that would be worth your time today …

Investing/Stock Market

For the September edition of our Value Investing Almanack newsletter we had compiled the thoughts of many well known value investors on the subject of “when to sell”. Ian Cassel, a full-time micro-cap investor, was gracious enough to provide his insights on this topic for Almanack readers. Recently he penned a wonderful post on his blog expanding on the idea…

Qualitative analysis and field based research acts like corrective lenses that will let you see further. You will have an edge on most investors if you make investments based on expected 3 – 5 year returns instead of 3 – 12 month returns.

One of the biggest mistakes or wrong reasons to sell a stock is boredom. Don’t be a bumble bee buzzing around from one position to the next. Find a few great companies early and FOCUS on evaluating their business performance, not stock performance. The hardest part of achieving multi-baggers is having the patience and conviction to hold through multi-year periods of under-performance. Successful investors can disconnect emotion from investment decisions and can differentiate business performance from stock performance.

Boredom is an offshoot of Do Something Bias. In investing, having a loaded gun (cash) helps but firing it because of an itchy finger is a mistake.