Archives for April 2019
Behaviouronomics: Motivated Reasoning
An oxymoron is a figure of speech in which apparently contradictory terms appear in conjunction. To me, the word motivated reasoning seems like an oxymoron. Let me explain.
Sound reasoning should be objective — devoid of any or all biases/motivations. Right?
But the human mind is a house of paradoxical features. As it tries to get rid of one bias, it leaves the backdoor open for the same bias. Motivated reasoning is a bias that affects that part of our mind which is often referred to as rational and objective.
Let me give you a quick refresher on System 1 Vs. System 2 concept.
World famous psychologist Daniel Kahneman has done revolutionary work in the field of understanding human cognition. His two systems framework is a brilliant mental construct to decode how our brain makes decisions. System 1 is the result of our reflexive brain — quick and eager to jump to conclusions. System 2 is our reflective brain — slower, effortful, logical, and less prone to error.
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Investor Insights: Jiten Parmar
Jiten is an entrepreneur and a passionate long-term investor. He has been investing in the market since 1993, starting with US equities and then Indian equities in 2002.
In this interview, Jiten shares his evolution as an investor, key lessons learned, his investment process especially in investing in cyclical industries, and how he tries to minimize decision making mistakes.
Wandering with a Beginner’s Mind
Among all the contemporary business leaders, very few come close to Jeff Bezos’ talent for communicating business strategies in a simplified manner. Like Warren Buffett, Bezos writes an open letter to Amazon’s shareholders every year. He’s been doing it for over two decades.
These letters have become an extraordinary source of insight into how Bezos (the world’s richest man) and his company (Amazon) think about customers, innovation, building products, and future.
Amazon started as an online bookselling platform and interestingly didn’t turn a profit for the first six years. Today it’s the second publicly traded company (after Apple) to ever hit a market capitalization of $1 trillion.
Like me, if you’re an admirer of Bezos, then you’re in the good company of people like Warren Buffett and Charlie Munger who are also big fans of the Amazon CEO. Buffett and Munger admit that they failed to see Bezos’ genius early on. Buffett called him the most remarkable business person of our age. Munger, in his nonchalant voice, said, “Jeff Bezos is a different species.”
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The Intangibles of Assessing Management Quality
Value Investing Workshop in Mumbai: Register now for my upcoming Value Investing Workshop in Mumbai on Sunday, 5th May 2019. Few seats remain! Click here to register.
I read a column on Forbes’ website sometime back that contained a narration from one Nancy Ortberg, who was once a nurse at a hospital emergency room in California.
In her story, Nancy described something astonishing that she witnessed in the emergency room.
“It was about 10.30 pm,” she said. “The room was a mess. I was finishing up some work on the chart before going home. The doctor with whom I loved working was debriefing a new doctor, who had done a very respectable, competent job, telling him what he’d done well and what he could have done differently.
“Then he put his hand on the young doctor’s shoulder and said, ‘When you finished, did you notice the young man from housekeeping who came in to clean the room?’ There was a completely blank look on the young doctor’s face.
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Announcing – Classroom Course in Value Investing
Happy to announce the third batch of my most comprehensive classroom course in Value Investing titled – Value Investing Blueprint.
I conduct this course in association with Pune-based FLAME University, under the aegis of its FLAME Investment Lab, which is an initiative that strives to deliver the concepts and decipher the art of value investing to interested students.
This course is held at FLAME’s campus in Pune and is spread over six classes in a three-week window.
Click here to read more and apply if you are interested in joining this course.
Here is the flow of lectures –
Lecture 1 (How compounding works, fundamentals of value investing)
- Being a value investor
- Tenets of Ben Graham, the father of Value Investing
- Evolution of value investing – from Graham to Buffett
- Most important things in investing
Lecture 2 (Creating the mindset of a value investor)
- Psychology of investing – Judgement vs behaviour
- Behavioural biases and how they are an investor’s worst enemy
- Developing multidisciplinary thinking
- How to think about the stock market – Dealing with Mr. Market
Lecture 3 (Business analysis and building your circle of competence)
- Circle of competence – Concept and practice
- Framework to analyze industries
- Analyzing individual businesses – Separating great from gruesome
- Assessing growth, when it adds value and when it hurts
- Competitive moats – Assessment and sustainability
- Identifying moats through key numbers
- Assessing quality of management
Lecture 4 (Financial Statement Analysis)
- Learn the language of business i.e., accounting, how to analyze financial statements, identify connections between them, how to detect financial frauds.Project – Reading annual reports of a business of choice (minimum 7-10 years study) while staying within respective circles of competence. Conducting analysis – quantitative and qualitative – learned so far, and presenting the case. Learning how to analyze business quality and management’s track record of financial performance and capital allocation.
- Stock screening – Concept and practice
Lecture 5 (Valuation)
- “Intrinsic value is fuzzy but very important,” said Warren Buffett. Keeping this in mind, learn how to value businesses using a few simple but very useful valuation models.
- Paying up vs Overpayingg
- Margin of safety – Concept and practice
Lecture 6 (Making Investment Decisions)
- Creating a sound investment philosophy
- Power of checklists
- Investing success – getting rich vs staying rich
- Value of process and discipline
- Dealing with risk and uncertainty
- Concentration vs diversification
- Constructing a portfolio
- Assessing how much is enough
The course is suitable for beginners / individuals who are just starting off their investment journey. It will be a value add:
- If you are looking to build a value investing and stock portfolio creation process and philosophy from scratch.
- If you are willing to learn and understand the practical, time-tested concepts of behavioural finance, business analysis and valuation for personal and/or professional requirements.
The course is not suitable for you if you are looking for concepts and ideas in Technical Analysis, Derivatives, or speculation/stock trading. Also, there won’t be any stock recommendations/tips provided during the course. Applicants should carefully consider these points before applying for the course.
The last date to apply is 21st April 2019 (this Sunday).
Classes will be held on – 9th-10th July, 16th-17th July, and 23rd-24th July.
Accommodation will be provided in a non-AC, single room with double occupancy to all participants at the FLAME campus in Pune on the 9th, 16th & 23rd July 2019.
Click here to read more and apply if you are interested in joining this course.
Thank you for reading!
Investing’s False Positives
Value Investing Workshop in Mumbai: Register now for my upcoming Value Investing Workshop in Mumbai on Sunday, 5th May 2019. Few seats remain! Click here to register.
It was sometime in early 2009 that, as I was running my screeners to find investment-worthy businesses, I came across a Delhi based packaging firm Uflex Ltd.
The company was involved in the flexible packaging business, was doing well in terms of growth, and expanding globally. What’s more, the stock was available at a single-digit P/E.
In all, it sounded like a great investment that was available cheap. Anyways, while I was busy preparing my rosy predictions for the business and the stock, I was warned by an analyst friend about some shady land dealings he had heard of about the company’s promoters. What is more, the promoters had pledged a large amount of their shareholding.
Bookworm: Revisiting Sapiens
Bruce Lee once said, “I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.”
If I had to reframe Bruce Lee’s quote in the context of reading books, I would say, “I fear not the man who has read many books, but I fear the man who has read one good book many times.”
A good book gets better at the second reading, writes Nassim Taleb, “a great book at the third. Any book not worth rereading isn’t worth reading.”
Books-read is just a vanity metric, claims Naval Ravikant, a silicon valley entrepreneur, “if you read one book a year that changes your life, that’s all it takes.”
So to follow the advice of Bruce Lee, Nassim Taleb, and Naval Ravikant, we are going to review a book which we’ve discussed in the past — Sapiens. The author — Yuval Noah Harari — a history professor at the Hebrew University of Jerusalem, has produced a breathtaking piece of work. I had shared a few ideas from this book in Nov 2016 issue of Value Investing Almanack. In this post, let me discuss a few more insights from Yuval Harari’s masterpiece.
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How to Be A Fortunate Investor
If you think I am going to talk about some mystical way to increase your luck in stock market, then you’ll be disappointed. Being fortunate in life and in investing is largely about increasing your odds of success. And how do you increase your odds?
“Study the principles of sound investing and work hard to implement those principles,” you might say. But is that sufficient? Studying, reading and working hard are all necessarily conditions for being successful in the stock market, however they are not sufficient. You need one more thing.
Let’s turn to world’s greatest investor to give us some clue. In his 1982 letter to investors, talking about two of his managers Phil Liesche and Ben Rosner, Warren Buffett wrote –
20 Ideas That Changed My Life
Whenever I feel uninspired, I look to a collection of my favorite quotes and passages I keep in a document on my computer or marked in my books (my idea bank). Today was one of those days.
As I was re-reading some of these and remembering why I love writing, reading, and the power of words, I thought perhaps someone somewhere out there might be feeling the same as me before I started writing this post.
So, here are 20 of the most beautiful passages (in no particular order) I have ever read on life and related subjects, and which have helped me become a better version of myself over the years. These exclude everything I have learned from Warren Buffett and Charlie Munger (there’s anyways an overdose of these two wise men on this blog).
Hope you find these passages of some help, and worth your time. Ready? Let’s go.