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Archives for March 2017

Latticework Of Mental Models: Hedgehog Vs Fox

On June 16, 2015, Donald Trump announced his candidacy for President of the United States. Most political forecasters and pundits brushed this news as Trump’s another gimmick for seeking attention and creating sensational news.

Sixteen months later, as November 2016 approached, it became frighteningly clear that Trump was very close to winning the elections.

However, when the experts were shaking their heads in disbelief and talking about all the things that were wrong with Trump, there was a cartoonist in San Francisco who had been writing blogs all through 2015 and 2016, claiming that Trump will win the elections in landslide. He received a lot of flak (even threats) but on November 8, 2016, Scott Adams, the creator of Dilbert was proved right.

Not entirely right because Trump’s victory wasn’t exactly a landslide but he did win the elections. But Adams was way ahead than the experts who were sweating over predicting precise numbers by which Trump will lose.

Charlie Munger likes to say, “It’s better to be approximately right than precisely wrong.”

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Analyze a Stock in 60 Minutes (Free Stock Analysis Excel Version 2.0)

A few readers have accused me in the past of being a sadist who wants them to do the dirty work of analyzing companies on their own, instead of simply recommending stocks like so many other blogs do.

But I’d rather give you a compass instead of a map, for you can confuse map with territory and lose your life’s savings walking that path!

In this pursuit of handing you another compass, here is Version 2.0 of my Stock Analysis Excel Sheet that you can download on to your computer, and analyze not just the past performance of a company but also arrive at its approximate intrinsic value.

If you have been into financial modelling in the past, this excel file may seem like a child’s play. But, if my fourteen years of experience as an analyst is anything to go by, this is most of all you require to “quantitatively” analyse stocks…not models running into hundreds of rows and tens of sheets.

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Two Wise Men: Stories for Children Inspired from the Wit and Wisdom of Warren Buffett and Charlie Munger

In July 2016, Bill Gates wrote a memoir on his 25 years of friendship with Warren Buffett. Here is how Gates started his memoir –

I don’t remember the exact day I first met most of my friends, but with Warren Buffett I do. It was 25 years ago today: July 5, 1991.

I think the date stands out in my mind so clearly because it marked the beginning of a new and unexpected friendship for Melinda and me—one that has changed our lives for the better in every imaginable way.

Warren has helped us do two things that are impossible to overdo in one lifetime: learn more and laugh more.

That last note caught my attention. Including the two lessons that Gates learned from Warren, there are four most important lessons I have learned from studying the latter and his partner Charlie Munger over the past 15+ years.

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Beware the Boredom of Bull Market

At my Hyderabad Value Investing workshop that I conducted last Sunday, I had a participant who asked – “What you’ve said about long term investing in the stock market is all good. But doesn’t it get boring after a time? I mean, first the process of reading annual reports to find good businesses, and then if you find some, holding on to them for the long run doing nothing. How does one maintain interest in this thing? How does one make this process and journey exciting?”

I thought these were good questions. In fact, questions like these used to bother me when I started out on my journey of reading annual reports, analyzing financial statements, and practicing long term investing more than a decade back.

In fact, I met an accomplished investor friend at a conference recently, who confessed of boredom because he was not able to find stocks worth buying in this rising market. “Even if you are a long-term investor, what do you do but feel bored when you don’t find anything worth buying because everything seems to be so inflated?” he questioned.

“I agree,” I said.

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Notes from Howard Marks’ Lecture: 48 Most Important Things I Learned on Investing

“If you were to read just five books in your life to become a sensible investor,” I often suggest people seeking my view, “…they have to be Warren Buffett’s letters, Poor Charlie’s Almanack, Peter Lynch’s One Up on Wall Street, Ben Graham’s The Intelligent Investor, and Howard Marks’ memos.”

Well, if you don’t know who Howard Marks is, let me tell you he is the CEO of Oaktree Capital and is one of the most famous investors who manages to keep a low profile, despite managing almost US$ 100 billion. Marks is also the author of an amazing book – The Most Important Thing: Uncommon Sense for the Thoughtful Investor. In its ultimate praise, Warren Buffett writes, “This is that rarity, a useful book”.

Howard Marks - Oaktree Capital

I have been reading and re-reading Marks’ memos for a few years now, so was very fortunate to attend a lecture he gave in Mumbai yesterday titled – The Truth About Investing.

It was an enlightening session, just to be in the presence of this legend and hear him out live.

I made some notes from Marks’ lecture, which I present below (most of these are direct quotes from Marks). He calls these lessons as the “brutal truths” of investing. As you would realize while reading the notes, these indeed are brutal truths – stuff that is easier said than done.

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3 Big Investing Lessons from the World’s Greatest Stock Market Speculator

I have been reading Edwin Lefèvre Reminiscences of a Stock Operator over the past few days.

It’s a brilliant first-person account of the career of “Lawrence Livingston”, who is a slightly fictionalized version of Jesse Livermore, one of the greatest stock speculators of all times.

Livingston, just out of school, goes to work as a quotation-board boy in a stock-brokerage office. This was sometime in the 1890s, one hundred years before the advent of real-time internet stock quotes. Stock quotes were written on chalkboards.

He develops a feel for the stock market and, in time, begins to speculate. He’s not an investor — he’s a speculator. He gambles in stocks. And he does a great job at it, building a million-dollar fortune during his twenties.

Then he loses everything. In fact, Livingston builds — and loses — several million-dollar fortunes between the first twenty years of 1900s.

Reminiscences of a Stock Operator is an entertaining and educational book on Livingston’s career (read Livermore’s). It contains great many lessons that are also valid for investors.

Here are three such lessons straight out of the book that I believe would serve you well. The emphasis is mine.

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