Archives for November 2018

The Dagger of Debt

Archimedes — a Greek mathematician — was born in 287 BC in the seaport city of Syracuse, Sicily. Some consider him as the greatest mathematician of all time. Although he’s known for the discovery of Archimedes Principle, his often quoted for his famous saying —

Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.

While Archimedes did not invent the lever, his did extensive work on the usage of levers. Archimedes designed block-and-tackle pulley systems, allowing sailors to use the principle of leverage to lift objects that would otherwise have been too heavy to move.

A lever is a simple machine that amplifies an input force to provide a greater output force, which is said to provide leverage. There isn’t a single mechanical device in the world which doesn’t use the laws of the lever.

When people realized that leverage could magnify the effect of non-physical things too the first thing they tried it on was money. In the last few decades, the world of finance has taken Archimedes’ words literally.
[Read more…] about The Dagger of Debt

The Sixteen Silliest (and Most Dangerous) Things People Say About Stock Prices

The title of this post is inspired from Ch. 18 of Peter Lynch’s One Up on Wall Street, that reads – The Twelve Silliest (and Most Dangerous) Things People Say About Stock Prices.

For today, I have just added to and removed from Lynch’s list, and have illustrated the silliness using real-life examples of listed Indian stocks. None of what you see below portrays my view on any stock showcased in this post. These are purely examples, and that too from the benefit of hindsight. But they offer meaningful lessons.

Anyways, before you read ahead, please understand that I agree with what Morgan Housel wrote recently that people are not crazy in general. Just that they can…

…be misinformed. They can have incomplete information. They can be bad at math. They can be persuaded by rotten marketing. They can have no idea what they’re doing. They can misjudge the consequences of their actions.

I also agree with Charlie Munger who said that even smart people may have their ‘streaks of nuttiness’ that cause them to make occasional dumb remarks and decisions.

So, what follows below showcases just those moments of nuttiness and craziness that get a lot of people into problems in investing. I have experienced some of these moments myself, just that I have managed to survive to tell the tale. 🙂

Siddhartha’s Dilemma, Marcus Aurelius On Honest Men, And Bezos on Amazon

Here’s some stuff I am reading and thinking about this weekend…

Book I’m Reading – Siddhartha
Siddhartha is a beautiful novel by Hermann Hesse, first published in 1922 in Germany, that deals with the spiritual journey of self-discovery of a man named Siddhartha during the time of the Gautama Buddha.

The book follows this young man named Siddhartha on his journey to find the true meaning of life and peace. One passage that is particularly enlightening for me is when a ferryman, Vasudeva, the spiritual guide of Siddhartha, consoles him after the latter’s son (also Siddhartha) from a courtesan woman (Kamala) doesn’t seem to be interested in reciprocating well to his father’s love and advice, and seems like running away to a path of his own that looks dangerous to his father –

Fighting the Last War

Note: This post was originally published in the November 2017 issue of our premium newsletter – Value Investing Almanack (VIA). To read more such posts and other deep thoughts on value investing, business analysis and behavioral finance, click here to subscribe to VIA.

In Safal Niveshak’s Value Investing workshops, when we discuss the mental biases, we show the following video to our participants.

I would suggest that you pause here and watch this video before reading further.

It’s a test of your awareness so don’t cheat 🙂 [Read more…] about Fighting the Last War

Bookworm: Revisiting The Checklist Manifesto by Atul Gawande

Continuing the trend from the last month’s bookworm, I am revisiting the book —The Checklist Manifesto by Dr. Atul Gawande — which we had covered in Mar 2015 issue of Value Investing Almanack.

Before we delve deeper, a word about Syntopical Reading.

Mortimer Adler, in his book How To Read A Book, writes that Syntopical Reading is the highest form of reading. In syntopical reading, you read multiple books (in parallel) on the same topic. The goal is not to understand everything discussed in the book, but rather to understand the subject and develop a deep fluency on that one chosen topic. This is all about identifying and filling in your knowledge gaps.

In this post, we’ll go into more details on the topic of checklists. The primary book would be Gawande’s The Checklist Manifesto and we’ll also rummage for investing related insights in Guy Spier’s book — The Education of a Value Investor.

Atul Gawande recently shot to fame when it was announced that three large US corporations — Amazon, JP Morgan, and Berkshire Hathaway — have joined hands to created a healthcare venture and appointed Gawande as the CEO.
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From Darkness Unto Light

I was recently reading a story on the classical Greek philosopher, Socrates, who was tried and executed in 399 BC. He was tried on two charges – corrupting the youth, and impiety (perceived lack of proper respect for something considered sacred).

The Death of Socrates, by Jacques-Louis David (1787)

Socrates had done no such thing. What he had done was educate the youth, teaching them to challenge arguments from authority and question what they believed to be true.

In the process, he frustrated and embarrassed many powerful people with his constant line of questioning, known today as the Socratic method.

Special Report: Peter’s Principles

Peter Lynch is a legendary investor whose investment record remains unmatched. He managed Fidelity’s Magellan Fund and stacked up annual returns in excess of 29 percent per annum from 1977 to 1990.

The term tenbagger was coined by Lynch. One Up On Wall Street is his most famous book. His other book — Beating the Street — is equally useful and worth reading several times. In this book, Lynch talks about 21 investing principles. He calls those principles as Peter’s Principles.

This is the Part-1 of the Peter’s Principles series.
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In Praise of Mediocrity, Being Happy, And Learning How to Learn

Here’s some stuff I am reading, watching, and thinking about this weekend…

Book I’m Reading – The Art of Learning
One of the best books on the art of learning I’ve read is, well, The Art of Learning by Josh Waitzkin. I picked it up again this week, and it was as refreshing as the original read.

Josh is a champion in two distinct sports – chess and martial arts. He is an eight-time US national chess champion, thirteen-time Tai Chi Chuan push hands national champion, and two-time Tai Chi Chuan push hands world champion. In his book, Josh recounts his experiences and shares his insights and approaches on how you can learn and excel in your own life’s passion, using examples from his personal life. Through stories of martial arts wars and tense chess face-offs, Josh reveals the inner workings of his everyday methods, cultivating the most powerful techniques in any field, and mastering the psychology of peak performance.