Archives for August 2019

Investor Insights: Investing Amidst Uncertainty

In this special edition of InvestorInsights, we pick the brains of a few experienced value investors and money managers on how they deal with uncertainty like what is seen in the markets currently.

Safal Niveshak: Uncertainty is not a new thing for the Indian economy, companies and the markets. But people still get spooked. Even otherwise, when a lot of people know that investing is important, they are often either too scared, too intimidated, or too uncertain when such situations arise.

You have been in the markets for a long time and may have experienced multiple such periods of high uncertainty with respect to the markets, companies, and the economy. What advice do you have for new, inexperienced, or young investors on how they can deal with such situations?

StockTalk (August 2019)

The Full-Stack Investor

An old joke — What’s common between a software engineer and a railway station beggar? When they meet their colleagues, they ask each other, “What platform do you work on?”

I am yet to learn about the begging business but having worked in the IT industry as a software developer for more than a decade, the joke did manage to extract a brief mirth from me.

Just like any other field of work, software engineering too has its own compartments of specialization. So when a software guy enquires about his fellow engineer’s platform, it generally means he’s interested to know about his specialization — Linux or Windows? Which programming language? Application side or system side? Backend or front end? Development or 0perations? Etc.

However, in the past few years, a new specialization has emerged — the full-stack engineer. Paradoxically, this specialization is about being a generalist, i.e, an engineer who can work on multiple platforms, different programming languages, and play various roles.
[Read more…] about The Full-Stack Investor

Behaviouronomics: The Concorde Fallacy

A few weeks back I surprised myself by doing something I thought I would never do. I sold my position in a stock that had been the largest holding in my portfolio for a long time.

I first started buying this stock almost a decade back and had never sold a single share of this company. I continued to accumulate it through its ups and downs in this period. At one point, this company constituted more than 40% of my entire stock portfolio. I don’t need to tell you that it was my high confidence stock.

So what made me exit it all of a sudden?
[Read more…] about Behaviouronomics: The Concorde Fallacy

Investor, Pay Attention

Note: This is an excerpt from the article Where Do Great (Investment) Ideas Come From, which I wrote for the May 2015 issue of our premium newsletter, Value Investing Almanack. To read the complete article and our vast archives spanning 4+ years, please click here to subscribe.

Consider that you are looking to buy a stock and the two that you come across on your screen are, say, Company A and Company B. Here are a few data points about the two companies, which are the only factors you would look at while making your decision. Look at them and think which one you would rather purchase –

Did you make a decision? Before you read on, jot down either Company A or Company B. Now I’m going to give you some more data points on these companies. No information has been changed, but some has been added.

Which stock would you rather purchase now? Again, write down your answer. I’m going to present the options a third time, again adding one new element.

Now, which of the two would you prefer?

Bookworm: You Are Not So Smart

It was ten years back when I was first introduced to the field of human behaviour and psychological biases. Having read a couple of dozen books on this topic, it has now become hard to find a volume with information which is not familiar to me. However, what continues to amaze (and entertain) me are the examples and case studies of people (including my own adventures often pointed out by others) that confirm the statement — We are not rational beings. We are rationalizing beings.

This aspect of human irrationality — that it can’t be overcome and keeps us mired in a behaviour similar to a kid with her hand stuck in the cookie jar because she refuses to open the fist — is what makes this subject so much fun. Once you’ve learnt enough about the broad spectrum of cognitive errors, it affords you a lifetime of entertainment content, provided you pause and watch your own actions and the way people around you make decisions.
[Read more…] about Bookworm: You Are Not So Smart

Safal Niveshak, Uncopyrighted

January 11 2013 was a sad day for the Internet world. That day, Internet pioneer and open information activist Aaron Swartz committed suicide at a young age of 26.

Swartz’s “crime” – he had logged into JSTOR (Journal Storage), a database of scholarly articles, and rapidly downloaded those articles with the intent to make them public.

He didn’t “hack” the network to secure those downloads. MIT is anyways an open network.

He didn’t crack any special password system to get behind JSTOR’s digital walls. All he did was figure out how JSTOR was filing the articles that he wanted and wrote a simple script to quickly gather those articles and then copy them to his computer.

If Swartz had lived to be convicted of the charges against him, he either had to accept the label of a criminal and go to jail for 50 years or fight a million-dollar lawsuit.

Aaron decided to take a third option. He hanged himself!

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

This post is the fifth edition of the multi-part series based on Peter Bevelin’s excellent book — All I Want to Know is Where I’m Going to Die, So I’ll Never Go There. Here are the links to the previous parts —

Part 1
Part 2
Part 3
Part 4

For a long-time Charlie Munger’s insights have remained a secret known only to a small group of value investors and hardcore disciples of Warren and Charlie. Although, there’s no hush-hush about Munger’s teachings, it hasn’t reached the wider audience it deserves to reach. The book Poor Charlie’s Almanack came out in 2005 and since then it has gained more popularity in India and China than the US. But that’s changing now. The rest of the world is beginning to notice the wisdom in Charlie’s teachings.
[Read more…] about Special Report: 27 Ideas on What Doesn’t Work — Part Five

Why Most People Will Never Be Good at Investing

…because most people in the stock market, most of the time, don’t do investing, which is…

Thinking how markets work,
Understanding how people behave,
Studying businesses,
Sticking only with what is simple and what they understand, and
Buying stocks at appropriate valuations.

Instead, they are busy…

Envying (others making money fast or losing money slow),
Cloning (others’ stock ideas mindlessly),
Predicting (future of markets, stock prices, and economy),
Fearing (missing out on future gains),
Regretting (past mistakes),
Avoiding (accepting current mistakes),
Denying (reality, especially when it’s harsh), and
Indulging (in useless information and noise)

And if that’s not all, these often lead us to –

Trading (frequently, which adds to our costs),
Averaging down (on bad businesses),
Boasting (about our lucky short-term gains), and sometimes
Trolling (other investors on social media, who have not performed as well as us in the recent past).

With such a busy schedule, where is the time to practice investing? 🙂

A Story of Courage and Hope from the Life of Charlie Munger

Here is a story I shared with my daughter yesterday and thought this deserves to be shared with a wider audience. It’s that good!

This story is from the life of Charlie Munger, from long before he was rich and famous, and before he had such a large and happy family –

Image Source: Poor Charlie’s Almanack; Photograph is of Charlie celebrating his forty-fifth wedding anniversary with his family in 2001
The story dates to 1953 when Charlie, then 29 years old, got divorced from his (first) wife of eight years. Divorce had a huge social stigma attached at that time and it was the first blow for Munger.

His wife also got almost everything in the separation, including the house. Charlie’s friends revealed that he moved into “dreadful” conditions after this divorce.