Safal Niveshak

Wit. Wisdom. Value Investing.

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How to Deal with Stock Market Turbulence

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“Ladies and gentlemen, please fasten your seatbelts; the captain has just announced that we will be encountering some unexpected turbulence.”

I hate hearing this phrase whenever I am flying, but there is no way an airplane can completely avoid turbulence (unless it is standing still in a hangar). When flying, captains don’t choose the route where there will be fewer clouds or less turbulence. Instead, they choose the safest, fastest way to get their passengers where they need to be. This, more often than not, means hitting a bit of unexpected turbulence.

Now, not unlike a flight, any journey you embark on is undoubtedly going to be a bumpy one. And investing in the stock market is not any different.

A lot of people fear stock market crashes and ‘unexpected’ turbulence like we are seeing now. But if your investment plan will only succeed if there is no turbulence at any time, it’s probably not a very good plan. If you follow a sound process, you need to embrace the turbulence, which I believe is a better option than avoiding it, if you actually want to get somewhere in your investment journey.

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Poke the Box: Practice Deliberately

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Let’s Start with Safal Niveshak
Just in case you missed any of this on Safal Niveshak in the last week…

Book Worm
A lot of professors give talks called ‘the Last Lecture’ reflecting on what matters most to them and what they’d like to pass on. in September 2007 computer science professor Randy Pausch delivered a last lecture called ‘Really Achieving Your Childhood Dreams’. Ironically, it really was his last lecture, as this youthful, energetic and cheerful man had just been diagnosed with pancreatic cancer and had only months to live.

His lecture video soon went viral on the internet and it was later adopted into a book titled The Last Lecture. Let me share some of the things which I learned from this book.

I liked the idea of ‘head fake’ introduced by Randy in his book. He writes –

“There are two kinds of head fake. The first is literal. On a football field, a player will move his head one way so you’ll think he’s going in that direction. Then he goes the opposite way. It’s like a magician using misdirection. Coach Graham used to tell us to watch a player’s waist. “Where his belly button goes, his body goes, “ he’d say.

The second kind of head fake is the really important one – the one that teaches people things they don’t realize they’re learning until well into the process. If you’re a head fake specialist, your hidden objective is to get them to learn something you want them to learn.”

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Life 2.0: Sugar – The Sweet Killer

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Sugar should be treated like an illicit drug, a kind of legal form of heroin, a dark force to be avoided, and a substance whose use leads to physical ruin.

“My God! It’s everywhere!” I almost blurted out while scanning the food section in a supermarket in an attempt to find at least one product which didn’t have sugar in it.

If you thought that sugar is mostly in candies and desserts, you are too naive. Tomato sauce, yogurt, dry fruits, corn flakes, and bread – sugar is added in all of these. I realized that it’s difficult to find any processed food item which doesn’t contain sugar.

I suspect that even the shampoos and the soaps have sugar in it. You know, just in case it goes in your mouth while bathing, they don’t want to miss that one chance to feed you sugar.

And do you know the biggest disguise used by processed food industry to hide sugar is the term – low fat. Products labelled “low-fat” could still contain, and usually do contain, a lot of sugar. And remember, it’s not just fat that makes your fat. Sugar is the biggest culprit in making obesity an epidemic.

Am I complaining too much? Let me change the mood for a bit. Time for some fun trivia.

Did you know that until few hundred year ago, sugar used to be a very expensive item? In fact, it was considered a fine spice and was only available to rich. But from about the year 1500, technological improvements turned sugar into a much cheaper bulk commodity.

Ironically, sugar was imported by Greeks and Romans for its medicinal properties. When it was scarce and expensive, it was a fine spice. Now when it is abundant and cheap, it has turned into a fine poison.

Sugar is slower to impact our health (as we don’t die from an overdose right away), and it’s that slow destructive process that is the most dangerous. Unfortunately, most people don’t know the damage until it has already been done (diabetes for example).
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Latticework of Mental Models: Reason Respecting Tendency

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Next time when you approach an ATM machine and find a queue in front of it, try this hack – tell the person in front of the queue “Excuse Me. May I go before you because I have to withdraw money?”

I am sure you haven’t tried this before, neither have I. But at first look it sounds like a lame idea. Why would they let you go ahead unless you have a genuine reason. Isn’t withdrawing money a redundant excuse? Isn’t it obvious that everybody in the queue is there to withdraw money?

But there might be some merit to above idea because in 1970s Harvard psychologist Ellen Langer conducted a similar experiment. She went into a library, where there was a long waiting queue in front of the photocopier, and approached the first person in the queue and asked, “Excuse me. I have five pages. May I use the Xerox machine?” That would probably infuriate a lot of people because everybody was there to make copies. Naturally most people refused to oblige to Langer’s request.

In the second part of the experiment she gave a reason while making a request. “Excuse me. I have five pages. May I use the Xerox machine, because I’m in a rush?” This time most people gave in to her request and allowed her to go ahead. This is reasonable because if people are in a hurry, you would often let them cut into the front of the queue. But then came the interesting twist in the experiment.

In the final part of the experiment she tried another approach, this time saying, “Excuse me. I have five pages. May I go before you, because I have to make some copies?” Now that’s a lame excuse. Everybody in the queue has to make copies, but surprisingly the result in this approach was amazing. She was allowed to pass to the front of the queue in almost all cases.

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How to Create Your Circle of Competence (Video Post)

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Here is a video I created for students of my Mastermind Value Investing Course.

I thought it would be useful for you as well, so sharing it here.


If you can’t see the video above, see here.

Tom Watson [the founder of IBM] said – “I’m no genius. I’m smart in spots and I stay around those spots.”

The entire idea about the Circle of Competence concept is to help you find your spots, which is so very important to your success as an investor. And that’s exactly what the above video will help you learn.

Poke the Box: Recycle Your Wealth

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Let’s Start with Safal Niveshak
Just in case you missed any of this on Safal Niveshak over the last few weeks…

Book Worm
So how do you judge if a book is worth reading or not? One is, if you find a book which starts with a foreword from Warren Buffett. Don Keough’s The 10 Commandments of Business Failure is one such book.
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Latticework of Mental Models: Matthew Effect

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In April 2013, Little Brown, an American publishing company, released The Cuckoo’s Calling, a début novel by an obscure author called Robert Galbraith, who the publisher described as “a former plainclothes Royal Military Police investigator who had left in 2003 to work in the civilian security industry”.

The novel, a crime detective story, sold 1500 copies in hardback. Some even say that this number is the number of copies that were printed for the first run, while the sales total was closer to a meagre 500. Nothing surprising, as more than 90% of the books that are published worldwide, hardly sell more than couple of hundred copies.

But unlike others, something remarkable happened with Galbraith’s novel. Four months after it was first published, the sale skyrocketed by 4000 percent. This happened when it was revealed that Robert Galbraith was a pseudonym used by J.K. Rowling, author of Harry Potter series and United Kingdom’s best-selling living author.  (source: Wikipedia)

Calling her a successful author would be a huge understatement. Her books have sold more than 400 million copies.

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The Stock Market is Getting More Expensive

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One of the most underrated but among the most valuable skills required to succeed in stock market investing is resilience i.e., the ability to properly adapt to stress and adversity – either in the market, or in the businesses one is owning.

How easily can you bounce back from a market crash? What would be your reaction to a sharp decline in your stocks’ prices? How many ‘surprises’ can you withstand in quick succession? How safe are your overall finances in light of extreme stress on the equity component of your portfolio?

These are extremely important questions you must ask yourself every time you are looking at your portfolio, or looking to spend cash to buy more stocks.

Surprisingly, despite its importance, resilience is least talked about by stock market investors and experts alike, and rarely considered an important mental model in investment decision making.

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InvestorInsights: Rajeev Thakkar

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With a long experience in the capital market, and in working with few of the doyens of value investing in India, Rajeev Thakkar has come a long way. In this interview, he shares key insights about his investment strategy and the underlying thought process that has helped him keep his head while his fund management peers were losing theirs.

Rajeev Thakkar possesses over 15 years of experience in various segments of the Capital Markets such as investment banking, corporate finance, securities broking and managing clients’ investments in equities. He is currently the Director and Fund Manager at PPFAS Mutual Fund.

Rajeev’s tenure at PPFAS began in 2001. His passion for researching and analysing the fundamentals of companies was evident. from the very beginning and very soon he was heading the Research division at PPFAS. His responsibilities soon expanded as he was appointed the Fund Manager for the flagship scheme of the Portfolio Management Service, titled “Cognito” in 2003.

Rajeev is a strong believer in the school of “value-investing” and is heavily influenced by Warren Buffett and Charlie Munger’s approach. In his interview with Safal Niveshak, Rajeev shares his wide investment experience and how small investors can practice sensible investment decision making.
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