Archives for October 2018
Amit Mantri is the co-founder of 2Point2 Capital, a SEBI-registered Portfolio Management Service (PMS). Previously, he was a Vice-President at Hornbill Capital, a Mumbai based hedge fund. Prior to Hornbill, he has been part of the private equity investment team at IDFC Alternatives and Zephyr Peacock.
Amit has a Post-Graduate Diploma in Management from IIM Bangalore and B. Tech in Computer Science and Engineering from IIT Kharagpur. He is also a CFA® charter holder.
In this interview, Amit shares his thoughts on investing, his process, and the key lessons he has learned over the years of being an investor.
Life is simple. Why do we make it so hard?
This is what Jon Jandai, a farmer from northeastern Thailand, asked the audience while delivering a TED speech in 2011.
He echoed what Confucius had said 2,500 years earlier, “Life is really simple, but we insist on making it complicated.”
While I recommend you watch Jon’s complete speech, the crux of what he says is that we don’t have to do what society tells us, we can have the life we want, and our choices determine if we get such a life.
Consider wealth creation. Spending less than you earn, i.e., saving money and investing it well over a long period of time is all you need to meet all your financial goals. Simple, right? But the question again is, like Jon asked, why do we make it so hard?
Look at this chart that talks about the three simple steps to get wealthy over time…
Could this get any simpler?
This issue of Outside the Box newsletter is authored by Jatin Khemani. Jatin talks about his equity research process and how he tries to balance the stress part of the equation that it involves. Over to him.
The Low Stress Way to Research Stocks
by Jatin Khemani
Six years ago, Prof. Sanjay Bakshi published a blog post where he suggested looking at returns from a very different perspective – Returns Per Unit of Stress.
One of the key points he made in the post was –
For proprietary investors (and maybe for all investors), stress should figure in one’s investment strategy, much more than it does, perhaps, even more than financial risk, because stress is a killer and high-stress situations – whether they carry high or low investment risk – will always carry a high risk to one’s health. In fact, one can now measure how many years of one’s life is cut short by being exposed to a high-stress life.
In this post, I take that idea further with my own experiences of being a full-time value investor over the better part of this decade.
In his 2010 letter to shareholders, Warren Buffett tells a joke —
Customer: Thanks for putting me in XYZ stock at 5. I hear it’s up to 18.
Broker: Yes, and that’s just the beginning. In fact, the company is doing so well now, that it’s an even better buy at 18 than it was when you made your purchase.
Customer: Damn, I knew I should have waited.
Reading this joke the first time, I laughed at broker’s convoluted argument and the stupidity of the customer. How can a stock be better buy at 18 than it was at 5?
[Read more…] about Exploration Vs Exploitation
Here’s some stuff I am reading, watching, and thinking about this weekend…
Book I’m Reading – Thinking in Bets
In this book, Poker champion turned business consultant Annie Duke shares insights on how we can get comfortable with uncertainty and make better decisions as a result. It’s a lively read that presents a useful and novel framework for analyzing decisions when we are faced with less than perfect information: that is, the situation we likely find ourselves in daily. Annie writes –
Life, like poker, is one long game, and there are going to be a lot of losses, even after making the best possible bets. We are going to do better, and be happier, if we start by recognizing that we’ll never be sure of the future. That changes our task from trying to right every time, and impossible job, to navigating our way through the uncertainty by calibrating our beliefs to move toward, little by little, a more accurate and objective representation of the world.
The most charming parts of the book are where the principles presented can be applied in much of my daily life, from those facing me as a father of two kids to better considering possible outcomes when making investment decisions.
It’s a nice, practical book – Thinking in Bets.
“Within infinite myths lies the eternal truth, who sees it all? Varuna has but a thousand eyes, Indra but a hundred, you and I, but two.” ~ Devdutt Pattanaik
“Accepting that you don’t know — and can’t know — what the future holds should be liberating, not frustrating.” ~ Jason Zweig
I was recently reading an old post by Jason Zweig titled I Don’t Know, and I Don’t Care.
Jason wrote about –
- How he graduated from not believing in indexing and instead picking sector funds and small cap funds,
- And then realizing that he was not good at fund-picking and that beating the market was amazingly hard,
- And then starting to invest in index funds that he said liberated him from the feeling that he needed to forecast what the market was about to do,
- And that gave him more time and mental energy for the important things in life.
If I were to chart out my own life as an investor, I am still at the first stage as described by Jason above. In fact, about six years back, I wrote about my reasons for not investing in index funds as I believed well-managed, low-cost, actively managed funds were a better bet for investors.
One of the most profound thoughts I’ve ever read on the child-parent relationship comes from the noted Lebanese-American artist and poet Kahlil Gibran, who wrote the following under the title “On Children” –
Your children are not your children.
They are the sons and daughters of Life’s longing for itself.
They come through you but not from you,
And though they are with you yet they belong not to you.
You may give them your love but not your thoughts,
For they have their own thoughts.
You may house their bodies but not their souls,
For their souls dwell in the house of tomorrow,
which you cannot visit, not even in your dreams.
You may strive to be like them,
but seek not to make them like you.
For life goes not backward nor tarries with yesterday.
You are the bows from which your children
as living arrows are sent forth.
The archer sees the mark upon the path of the infinite,
and He bends you with His might
that His arrows may go swift and far.
Let your bending in the archer’s hand be for gladness;
For even as He loves the arrow that flies,
so He loves also the bow that is stable.
The first time I read these thoughts, my first reaction was – “If my children are not my children, then whose are they? And what do you mean they are not mine?”
The VIA veterans, i.e., the long time readers of Value Investing Almanack newsletter would perhaps be surprised to see the name of this book because we had already covered it in Nov 2016 issue.
So why am I writing about it again? Because Deep Work is such an important book that it needs to be read and reread.
Nassim Taleb, one of my all time favourite author, writes —
A good book gets better at the second reading, a great book at the third. Any book not worth rereading isn’t worth reading.
Plagiarising Taleb’s words, I say any work worth doing is worth doing deeply. And a book about deep work is worth reading deeply, isn’t it?
So if you haven’t read this book, I am going to hard sell it to you and make a strong case why you need to read, reread, and implement its ideas in your work.
[Read more…] about Bookworm: Revisiting Deep Work by Cal Newport
I wish all tribe members of Safal Niveshak a very happy Vijayadasami or Dussehra. As per Hindu tradition, today marks the victory of Goddess Durga over the demon Mahishasura. Today also marks the victory of Lord Rama over demon Ravana.
Consider Ravana. He is depicted and described as having ten heads and as a follower of Shiva. He is a great scholar, a capable ruler and a maestro of the veena, but someone who wished to overpower the devas. His ten heads represent his knowledge of the six shastras and the four Vedas.
A negative interpretation of Ravana’s ten heads are the ten emotions or senses in humans –
- Kama (Lust),
- Krodha (Anger),
- Moha (Delusion),
- Lobha (Greed),
- Mada (Pride),
- Matsar (Envy),
- Manas (Mind),
- Buddhi (Intellect),
- Chitta (Will), and
- Ahamkara (Ego)
When it comes to investing, some of these emotions stand in between the investor and his long-term success.
As the story of Ravana depicts, the mind tends to shun all things good for our life and seek all things bad for our life. To attain wisdom, one of the most important things we must do is witness the tricks of the mind, and avoid playing the wrong hand as much as possible.
In the illustration that follows, I have tried to depict the ten emotions, or the ten demons, or the ten tricks of our minds, when it comes to investing. Print it, paste it on your work desk, and look at it often.