Wit. Wisdom. Value Investing.
Let’s Start with Safal Niveshak
Here are some useful posts from Safal Niveshak archive which you might want to read again…
[Read more…] about Poke the Box: News is to Mind what Sugar is to Body
In spite of having a coastline of more than 7,500 km with warm oceans and favourable conditions, surfing is not a familiar sport to Indians. It seems we are more fascinated with the swing of a cricket ball than the twists and turns of water waves.
In many western countries including the US and Australia, surfing is a popular sport as well as a recreational activity. Surfing is a surface water sport in which the wave rider, referred to as a surfer, rides on the forward or deep face of a moving wave, which is usually carrying the surfer towards the shore.
A surfer not only is carried by the wave, but it gives an exceptional forward speed to its rider, provided the surfer can get on to the wave at the right time and not get thrown off in between. The second most important thing required to ride a wave is to recognize that the a wave is approaching. Which means 90 percent of the times you would find a surfer lying on his surfing board and paddling slowly, waiting for the right wave.
So why are we talking about waves and surfers in a place reserved for discussing mental models?
Note: This book review was originally published in the March 2015 edition of our premium newsletter Value Investing Almanack. To know more and subscribe, please click here.
How much would you pay to have lunch with Warren Buffett? How about Rs 4 crore?
Don’t be surprised because that’s the amount Mohnish Pabrai (along with his friend Guy Spier) paid to have a private lunch with Warren Buffett in 2006.
Mohnish manages US$ 850+ million US based fund called Pabrai Funds and is a hardcore Buffett disciple. He has written another popular book called The Dhandho Investor. However, the book I am talking about here is a rare one.
[Read more…] about 13 Big Ideas from Mohnish Pabrai’s Mosaic – Perspectives on Investing
I clearly remember the day, it was in July 1999, when I was first introduced to the internet. I was so excited to get a brand new email address. I could now send and receive emails.
However, the excitement didn’t last very long. I quickly realized that the email address wasn’t of much use to me because none of my family or friends had any email addresses at that time. Who would I mail?
But slowly as more and more people started using internet, my email address became increasingly valuable.
Similarly, I remember the time when the social networking bug bit me and I signed up for Orkut. But within few years when all my friends had moved to Facebook, I was forced to abandon Orkut and climb on the Facebook bandwagon.
So you’d notice that the utility of certain products and services is directly proportional to its number of users. Another recent example that comes to mind is the social messaging app Whatsapp. There are quite a few other messaging services which offer better features than Whatsapp but majority of people continue to use Whatsapp because all their friends are on Whatsapp.
This is called Network Effect. Now the idea may sound very simple, but it’s actually fairly unusual.
When you board an airplane, do you get excited when you see that the flight is completely full? Or when you visit your favourite restaurant, do you prefer it to be crowded? In these cases, as a consumer you don’t get any benefit if the product or service is also being used by others.
But when it comes to social networks like Facebook, Linkedin and Twitter, members join these networks because other members are in this network.
[Read more…] about Latticework of Mental Models: Network Effect
Let’s Start with Safal Niveshak
Here are some useful posts from Safal Niveshak archive which you might want to read again…
Book Worm
Rolf Dobelli’s The Art of Thinking Clearly is one book I like going back to again and again. Dobelli has done a fine job of compiling a list of mental models especially from the field of psychology.
Winner’s curse is an interesting mental model capturing the auction phenomenon. Dobelli writes –
[Read more…] about Poke the Box: It’s a Marathon, Not a Sprint
It was March 2007 and I was desperately looking for a tax saving investment product. Until that year I had been sticking to the old fashioned conservative options like tax saving FDs and LIC policies. But the stock market frenzy of 2007 was rubbing off on me.
So when I received a call from a stranger who called himself a “financial advisor” and showed a great concern for my financial well being, I couldn’t say no to his request for a meeting.
Although the young chap seemed to have just a few years of experience in the industry but his demeanor were nothing less than that of a CEO of a large company. He was well dressed, tidy, confident and articulate.
When we met he took interest in my hobbies and complimented me about my reading habits. Needless to say I took an instant liking to him.
He told me about a new financial product called ULIP (unit linked insurance plan). I had never heard of ULIP, so before committing any money to it I borrowed some time from him and did a quick research on google. The reviews on the internet weren’t very encouraging. Some even claimed of unethical mis-selling by private banks and insurance companies as far as ULIP was concerned.
But my financial advisor seemed to know what he was talking and I liked him. He even told me that one of his elder cousin was from my college. So I went ahead and (mis) invested my money.
[Read more…] about Latticework of Mental Models: Liking Bias
Let’s Start with Safal Niveshak
Just in case you missed any of this on Safal Niveshak in the last week…
Book Worm
The Elements of Investing is a short, straight-talk book about investing and saving. While talking about power of saving and compounding, authors, Burton Malkiel and Charles Ellis, write –
Time is indeed money, but as George Bernard Shaw once said, “Youth is wasted on the young.” If only we could all train ourselves at a young age to know what we know now. When money is left to compound for long periods, the resulting accumulations can be awe inspiring.
Benjamin Franklin provides us with an actual case. When Franklin died in 1790, he left a gift of $5,000 to each of his two favourite cities, Boston and Philadelphia. He stipulated that the money was to be invested and could be paid out at two specific dates, the first 100 years and the second 200 years after the date of the gift. After 100 years, each city was allowed to withdraw $500,000 for public works projects. After 200 years, in 1991, they received the balance—which had compounded to approximately $20 million for each city. Franklin’s example teaches all of us, in a dramatic way, the power of compounding. As Franklin himself liked to describe the benefits of compounding, “Money makes money. And the money that money makes, makes money.
Here’s an interesting trivia.
If you wear different tie on the same shirt, most people will think that you’re wearing a different shirt. That’s an interesting way to multiply your options without really buying new cloths (except few new ties).
“That’s not a trivia, that’s a Jugaad.”, you might want to say. Anyways, That brings me to an equally interesting mindbender.
If you have 2 shirts (white, blue), 3 pants (black, gray and brown) and 3 different ties (pink, orange, red), in how many different ways can you get dressed? Assumption here is that getting dressed requires you to wear all three i.e. a shirt, a pant and a tie.
Using the multiplication principle we can say that there are total 2 x 3 x 3 = 18 ways to get dressed. Of course some of the dress combinations will look outright funny but our concern here is to find out all possible ways to get dressed. Moreover, today we are getting into Maths discipline and most mathematicians don’t really have whole lot of fashion sense anyways.
So that’s the simplest example of using the idea of combinations in real life. Now let’s say, for some strange reason, we were also considering the order in which you put on the cloths, i.e. it matters to us if one puts on the shirt first instead of tie.
Imagine wearing a tie first and then squeezing the shirt inside the tie, funny right? I told you mathematicians don’t care much about the dressing etiquettes 🙂
Okay, back to the same question again. In how many ways can you get dressed if the order of dressing matters?
[Read more…] about Latticework of Mental Models: Permutation and Combination
Let’s Start with Safal Niveshak
Revisiting the archives for some old posts on dealing with stock market turbulence…
Book Worm
Yesterday, I was re-reading what Buffett wrote in his 1987 letter to shareholders, which I believe is one of the most important texts ever written on how to become a sensible stock market investor. As a student of value investing, you must have read what follows several times. But then, such super-texts need several readings, and then several more.
[Read more…] about Poke the Box: Dealing with Stock Market’s Moments of Terror
How many times in last 6 months have you bought something from any of the these websites –
In my case I have used all three, at least once, in last 6 months. With two infants at home, my wife’s favourite online shopping destination is firstcry.com these days. But when it comes to buying diapers, I order from Amazon. Why? Whichever website offers better discount, we go for it. I am not loyal to any particular online store.
Now let me ask you another similar question. How many times have you switched your bank in last 6 months?
In last 1 year? Or in last 5 years?
Well even if another bank comes with an offer of higher savings interest rates, how many people actually take the pains of shifting all their cash and bank deposits to another bank? Very few I guess. My father hasn’t changed his bank in last 30 years.
But why is it that we change our online shopping stores in the blink of an eye but never really change our banks. Even credit cards or demat brokers don’t see too much churning in their customers base. If you talk to bankers, you’ll find that the average turnover rate for deposits is around 15 percent, implying that the average customer keeps his or her account at a bank for six to seven years.
[Read more…] about Latticework of Mental Models: Switching Costs