Archives for October 2017

[Read more…] about StockTalk ( October 2017)

Gautam Baid, CFA, is Portfolio Manager, Global Equities at Summit Global Investments, an SEC-registered investment advisor based out of Utah, USA. Prior to his current role, he served at the Mumbai, London and Hong Kong offices of Citigroup and Deutsche Bank as Senior Analyst in their healthcare investment banking teams. Gautam is a CFA Charter holder from CFA Institute, an MBA in Finance from Nirma University, Ahmedabad, India and an MS in Finance from ICFAI University, Hyderabad, India. He is a strong believer in the virtues of lifelong learning and is an ardent student of the value investing philosophies of Benjamin Graham, Warren Buffett and Charlie Munger.

Safal Niveshak (SN): Gautam, could you tell us a little about your background and journey, how you got into value investing?

[Read more…] about InvestorInsights: Gautam Baid

We, as a society, love the idea that runaway success stories are a simple function of individual merit. This is especially true when people try to explain the cases of extreme successes like billionaires and the world-class performers. Work ethic, talent, and attitude are only part of the success puzzle. The other pieces like circumstantial factors are either frowned upon or ignored.

“I started investing at the age of 11,” says Warren Buffett, “I was wasting my life until then.” With that kind of early start, today 87 years old Buffett has accumulated a whopping 76 years of investing experience. Who in the world can match that? No wonder Buffett has held the spot of second richest man in the world since last twenty-five years.

So, does it mean that anyone who, with Buffett’s level of intelligence, spends three-quarters of a century analyzing businesses and studying annual report can become as successful as Warren Buffett?

We like to think that most wildly successful people have earned their success only through talent and hard work. It’s quite rare to find a biography of a successful person which credits his or her success to pure dumb luck. Dig deeper into their stories, and you’d discover that many unseen factors influenced the outcome. Interestingly, most of those elements lie beyond an individual’s control.

[Read more…] about BookWorm: Outliers

As human activities are made safer, it tends to make us overconfident and take higher risks. This unintended consequence of increased safety has vast implications including, but not limited to, adventure sports, road safety, and stock markets.

Question for you. How many parachutes does one need to try skydiving? One, two?

Technically, none. That is if you want to jump only once. To do it more than once you need the parachute. Don’t you?

Well, I agree this was a weak attempt of starting this post with humour. But on a serious note, I am sure you know that every skydiver jumps with a reserve parachute. And what if the both the chutes don’t open? Well…so much for skydiving!

Instead of wondering about the number of parachutes, a more interesting question to ask here is this: does an additional chute make skydiving safer? “Of course! It should,” most people will argue, “When a skydiver knows that there’s a backup for the emergency, wouldn’t he feel safer? Isn’t that the reason skydiving, as a sport, has become so popular that hundreds of thousands of people indulge in it every year?”

But if you dig deeper into above statement, you’d realise that there lies the paradox of safety. Statistics reveal that even though skydiving equipment has made huge leaps forward for improving reliability, the fatality rate has stayed roughly constant when adjusted for the increasing number of participants.

The backup parachute and other safety measures seem to reduce the risk only for a short while until the skydivers start feeling safer and, unfortunately, overconfident. This overconfidence promotes the skydivers to attempt even riskier manoeuvres which defeats the purpose of having the additional safety.

Skydiving pioneer Bill Booth observed – “The safer skydiving gear becomes, the more chances skydivers will take, in order to keep the fatality rate constant.”

This phenomenon isn’t limited to skydiving alone. Take skiing for example. Recent studies indicate that skiers wearing helmets go faster on average than non-helmeted skiers, and that overall risk index is higher in helmeted skiers than non-helmeted skiers. Moreover, while helmets may help prevent minor head injuries, increased usage of safety headgear has not reduced the overall fatality rate.

So, am I arguing that people should stop wearing helmets and jump with a single chute only? No. That would be a defeatist view. My intention is to draw your attention to a less known behavioural bias called Peltzman Effect.
[Read more…] about Behaviouronomics: Peltzman Effect

In a world where you can’t predict the direction from which disruption will strike, how do you deal with the challenge of finding and owing businesses that may not be disrupted, or avoiding the ones that may be?

In 1968, Warren Buffett accepted a seat on the board of Grinnell college’s endowment fund. Joe Rosenfield, Buffett’s friend at Grinnell, was making an initial investment of $100,000 in a small semiconductor startup. He offered Buffett to participate in the deal which he refused.

That startup was Intel and the value of $100,000 invested in Intel at that time, which Rosenfield did, is worth billions of dollars today. However, Buffett doesn’t count that as a missed opportunity because one of his investing rules is understanding the business, i.e., to be able to have a pretty good idea where it will be in ten years. He didn’t understand Intel in 1968.

[Read more…] about Spotlight: Value Investing in the Age of Disruption