Archives for February 2022

…is almost always more profitable than investing when everything seems certain.

Investors, like most people going about their daily lives, don’t like doubts and uncertainties – like the Covid-19 pandemic, or the Russia-Ukraine crisis. So, we would anything we can to avoid it.

Of course, it’s a good idea to avoid entirely what you can’t totally get your mind around, successful investing is largely about dealing well with uncertainties.

In fact, uncertainties are the most fundamental condition of the investing world.

Seth Klarman wrote in Margin of Safety –

Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen.

Investors frequently benefit from making investment decisions with less than perfect knowledge and are well rewarded for bearing the risk of uncertainty. The time other investors spend delving into the last unanswered detail may cost them the chance to buy in at prices so low that they offer a margin of safety despite the incomplete information.

What Klarman suggests is that if you need reassurance and certainty, you’re giving up quite a bit to get it. Like high fees to experts who would predict the future (which you falsely believe as certainty, which it isn’t), or expensive prices for stocks (because everyone knows their future is clear, which often isn’t).

On the other hand, if you can get in the habit of seeking out uncertainty, you’ll have developed a great instinct. Plus, in the long term, it’s highly profitable.

[Read more…] about Investing in Uncertain Times

This is an excerpt from my upcoming book – Shut Up and Wait: And Other Timeless Principles to Win at Investing and in Life – which I aim to release in August 2022. Click here to read more about the book and download five chapters.

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The small town I was born in West Bengal gets occasional loud and wild mud storms. Growing up there in my early years, though, no one really freaked out about it, not even the people residing in small mud houses surrounding my house.

They had built their houses so strong that any wild storm was rarely a problem. And so was the attitude towards the storms, that it was hardly a problem worth getting nervous about.

The case with the place in Rajasthan where I grew up in my teens was different. Temperatures during summers peaked at 50 degree Celsius, and dropped to 5 degree during winters. But we rarely went crazy because we had learnt to prepare for and live with both the extreme seasons.

Now, the weather where I have lived for the past 21 years i.e., Mumbai, is so humid throughout the year that people travelling from North India, who do not get freaked out about the extremes there, find Mumbai terrible. On the contrary, I find Mumbai’s weather much more comfortable than the extremes of the places I grew up in.

[Read more…] about The Secret of Investing

If someone had told me this in February 2020 that I would be writing this to you in February 2022, I would have laughed at that person. But here I am, writing to you, announcing my second hardcover book (first being The Sketchbook of Wisdom).

The book is titled – Shut Up and Wait: And Other Timeless Principles to Win at Investing and in Life. I am working on it and aim to release it in August 2022.

First, the credit where it is due. The idea of this title – Shut Up and Wait – came from a tweet from Morgan Housel of Collaborative Fund. I checked with Morgan if he would like to ever write a book with this title. He had no plans of doing this and so I sought his permission to use it for this book.

Shut Up and Wait is not a book of investing advice or secrets. Instead, it is a collection of notes I have written to myself over the past 20 years in my pursuit of becoming a better investor and a better person.

[Read more…] about Shut Up and Wait: My Upcoming Book on the Timeless Principles to Win at Investing and in Life

Here is the latest issue of The Journal of Investing Wisdom, where I share insightful stuff on investing I am reading and thinking about. Let’s get started.

A Thought

In most fields, studying the patterns of success is a standard way to learn. So when people come to financial markets they try the same approach. All new investors get busy investigating how successful investors made their money in the stock market. They want to know the secret behind the winning strategies. But investing is a world of counterintuitive ways.

All successful investors and traders have made their money in widely varying ways and more often than not, their strategies often contradict each other. If one market pro vouches for his or her winning method, another market savant would seem to oppose it ardently.

Jim Paul, in his book What I Learned Losing A Million Dollars, wrote —

Why was I trying to learn the secret to making money when it could be done in so many different ways? I knew something about how to make money; I had made a million dollars in the market. But I didn’t know anything about how not to lose. The pros could all make money in contradictory ways because they all knew how to control their losses. While one person’s method was making money, another person with an opposite approach would be losing — if the second person was in the market. And that’s just it; the second person wouldn’t be in the market. He’d be on the sidelines with a nominal loss. The pros consider it their primary responsibility not to lose money.

The truth is that like there is more than one way to skin a cat, there is more than one way to make money in the markets.

Obviously, there is no ‘one’ secret way to make money because the people who have achieved success in this game over the long run have done it using very different, and often contradictory, approaches. But one big lesson that almost all these people have agreed to settle for is this – Learning how not to lose money is more important than learning how to make money. 

Which means if you are looking for success in investing, your chances are better if you take the indirect approach, i.e., finding the ‘anti-patterns.’ In other words, finding ways which most often lead to losses and then actively try to avoid those patterns.

Some such anti-patterns include –

• Chasing performance
• Looking to get rich quick
• Ignoring market cycles
• Letting emotions guide decisions
• Failure to accept mistakes and cut losses
• Venturing beyond circle of competence
• Ignoring margin of safety
• Driven by FOMO – fear of missing out

The list is long, but the idea is simple. To win in investing, find the anti-patterns, and then try to avoid them.

[Read more…] about Identifying Investing’s Anti-Patterns

Here is the latest issue of The Journal of Investing Wisdom, where I share insightful stuff on investing I am reading and thinking about. Let’s get started.

A Thought

There are negative connotations attached to the word ‘loss.’ It’s considered as a synonym to failure. The words loss, wrong, bad, and failure are all regarded as same. So when someone loses money in the stock market, he or she invariably equates it to being wrong. Similarly, when someone makes a profit, it’s assumed that the person was right. But in the stock market, being right and making a profit aren’t necessarily the same thing. And being wrong and incurring a loss aren’t same either.

Jim Paul and Brendan Moynihan wrote in their book What I Learned Losing a Million Dollars –

Success can be built upon repeated failures when the failures aren’t taken personally; likewise, failure can be built upon repeated successes when the successes are taken personally…

Personalizing successes sets people up for disastrous failure. They begin to treat the successes totally as a personal reflection of their abilities rather than the result of capitalizing on a good opportunity, being at the right place at the right time, or even being just plain lucky. They think their mere involvement in an undertaking guarantees success. This phenomenon has been called many things: hubris, overconfidence, arrogance. But the way in which successes become personalized and the processes that precipitate the subsequent failure have never been clearly spelled out.

In other words, successes and failures get personalised when the ego gets involved. And bringing in the ego is the fastest way you can sabotage your investing.

The truth is that investment gains and losses are never a reflection of your intelligence or self-worth. In fact, investing is not about being right or wrong. It is about making decisions, after careful consideration. That is where you sow the seeds of future outcomes, good or bad.

But an outcome is, well, just an outcome, never to be taken personally.

When you decouple your ego from a bad outcome, it creates an opportunity for you to learn from it.

When you decouple your ego from a good outcome, it saves you from future disasters.

[Read more…] about How to Stop Sabotaging Your Investing