Safal Niveshak

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Archives for June 2019

It’s Not Supposed to Be Fair

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In 1999 when Warren Buffett bought a 75% stake in MidAmerican Energy Holdings Company, David Sokol was its CEO. He retained his position till 2008. Apart from managing MidAmerican, Sokol played a crucial role in turning around Berkshire’s other investments like NetJets and Johns Manville. Over the years he established a reputation inside Berkshire Hathaway as Mr. Fixit.

In his annual letters, Buffett often referred to Sokol as a terrific manager, a brilliant dealmaker and a huge asset to Berkshire. In his 2008 letter, he wrote —
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We the Corrupt

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Disclaimer: I am not in a bad mood today, and this is not an anti-national post. I love my country and its people. These are just some thoughts on my general observations over the years, so please don’t take any of what you read below personally. And if you do take it personally, please keep it personal.😊

As I boarded my return flight to India recently, I heard some noises coming from near the back rows of the airplane. It appeared that two middle-aged men and their wives were shouting at each other.

The reason? One of the Indian couples had occupied the luggage rack above the seats of the second couple. As was visible from my seat, there were empty racks close to the one these guys were fighting for, but this was seemingly a prized one for which they were shouting at the top of their voices.

As I was taking my seat, a similar hustle, though relatively more civilized happened just next to me. This time it was two aunties who were at loggerheads about their spaces.

Anyways, flights to India, and in India, are a sight to watch when the plane lands and stops at the parking lot. Passengers get up from their seats in such a hurry as if the flight would take off again in the next few seconds and they would miss getting out!

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Investor Insights: Abhishek Basumallick

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Abhishek is the founder and chief investment advisor at Intelsense Capital (www.intelsense.in). He is a value investor with nearly two decades in the market. He is a keen observer of the economy and shifts in technological trends across industries. He is a proponent of behavioural finance and a long-term orientation while investing.

In this interview, Abhishek shares his evolution as an investor, key lessons learned, his investment process, and how he tries to minimize decision making mistakes.

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Being Average in the Age of Alpha

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I was an average student in school. Though I was surrounded by high achievers, and never questioned the importance of being extraordinary, I somehow never expected myself to rise to their levels. The most common remark I found in my annual report cards read something like this – “An obedient boy who can do better than average with more hard work.”

I knew I could not work any harder and rise above being average.

Anyways, I never had the credentials to get into the best college after school, there were no scholarships on offer for me, and no one in my family, including myself, expected me to become a star in life.

Life continued this way even when I got into doing my MBA, again from an average college in Mumbai. My first job profile was average too, and it paid an average salary that, in my father’s eyes, was below average.

Living in a costly city like Mumbai also meant I never had better than average savings for the first few years of my life, even though I was saving as much as possible.

More than twenty-five years have passed since I started considering myself as an average person with average capabilities and average ambitions in life. Somehow, being like this in the world where people are seeking alpha, keeps me happy and satisfied with myself.

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Behaviouronomics: The Conjunction Fallacy

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In 1983, Daniel Kahneman — the famous behavioural scientist — and his colleague Amos Tversky, published this example in Psychology Review. The example is about a fictitious character called Linda.

Linda is 31 years old, single, outspoken and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations. Based on this information about Linda, you have to estimate which of the following statements about Linda are more likely to be true.
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Buy and Hold: Simple, NOT Easy

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This is the stock price chart of Asian Paints over the past 19 years (since May 2000). Point to point, the stock is up over 80x.


Our brain that works with perfection in hindsight would lead us to believe that buying and holding the stock during these 19 years would have been an easy choice for anyone who did it. After all, the only thing the investor would have done during these 19 years was, well, nothing.

I wish investing was that easy.

Of course, the idea of buying and holding high-quality businesses over a long period of time is simple. Everyone knows that, and even those who don’t practice it appreciate that this works with most high-quality businesses as history has proven time and again.

But then, it’s important to understand that the action of not doing anything over such a long period of time involves hundreds of decisions over months and years that lead to such inaction.

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Bookworm: Universal Principles of Design

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In today’s world, we’re all designers. Whether it’s creating a powerpoint presentation, designing a website for your startup, creating a flyer for your kid’s school event or even taking a decision about your home interiors — we’re always dealing with design problems.

Most people believe that design skills are reserved for the creative lot — those who have a talent for art. But it’s not commonly known that a lot of aspects of design are actually rule-based. There’s a science to it; a formula if you will. And one doesn’t need to have an “eye” for design. Knowing the rules is good enough for us civilians.

Let me give you a few examples to make it more concrete what I mean by rules.

The L-shaped Layout

If you talk to landscape designers, they will tell you that it’s better to put three of the same kind of vertical structures — they could be pillars or trees — in your land, rather than four. Odd numbers just look better in that context. Now, why is it so is a matter of deeper investigation of human perception, but if you know this rule, you can instantly become an above average designer.
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Latticework of Mental Models: The Rashomon Effect

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The parable of six blind men and an elephant, goes like this —

When a group of blind men, who had never come across an elephant before, encounter the tusker for the first time, they try to conceptualize the animal by touching it. Each blind man feels a different part of the elephant’s body, but only one body part, such as the tail or the trunk. Then they discuss their understanding about the elephant.

The man who had touched the elephant’s side says, “It’s very much like a wall.”

The one who held the elephant’s tusk declares, “No! it’s like a smooth spear.”

“Not really. It’s like a python.” Claims the man who grabbed the trunk.

“You’re all mistaken.” shouts the man who got the elephant’s tail. “It’s like a thick rope.”

“I know we’re all blind but have you guys lost your mind also?” The fifth man who touched the animal’s ears says, “It’s like a big fan.”

“Come on, folks! What’s wrong with all of you?” Argues the sixth man who was leaning against the elephant’s knee, “It’s definitely like a tree.” [Read more…] about Latticework of Mental Models: The Rashomon Effect

Special Report: 27 Ideas on What Doesn’t Work — Part Three

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In this series we’re distilling few ideas from Peter Bevelin’s book — All I Want to Know Know is Where I’m Going to Die, So I’ll Never Go There. A mouthful of a title, isn’t it? But if you’re familiar with Charlie Munger, you’d instantly recognize the title as Munger’s favourite saying. Hidden inside this wisecrack is a profound philosophy on how to make important decisions in life and business to ensure better outcomes.

What has been reinforced in writing this memo, writes Bevelin in the introduction, “is efficiency, simplicity, clarity and common sense or judgement that are the hallmarks of Buffett and Munger. Both have remarkable ability to eliminate folly, simplify things and boil down issues to their essence and get right to the point — and focus on simple and timeless truths. They are the Einsteins of business and wisdom. So if there is one goal of this book, it is simplicity and to better understand how they think.”
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