Safal Niveshak

Wit. Wisdom. Value Investing.

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Archives for June 2025

The Psychology of Investing #12: What You Don’t See Can Hurt You

Admission Open for My Value Investing Workshops (Offline): I’m excited to announce admissions to my upcoming in-person value investing workshops in the following cities:

  • Bengaluru – Sunday, 13th July 2025
  • Hyderabad – Sunday, 27th July 2025
  • Mumbai – Sunday, 10th August 2025

Click here to know more and book your seat.

Seats are limited in each city. The first 20 participants can claim an early bird discount.

The Internet is brimming with resources that proclaim, “nearly everything you believed about investing is incorrect.” However, there are far fewer that aim to help you become a better investor by revealing that “much of what you think you know about yourself is inaccurate.” In this series of posts on the psychology of investing, I will take you through the journey of the biggest psychological flaws we suffer from that causes us to make dumb mistakes in investing. This series is part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund.

Imagine an eccentric (and bored) tycoon offering you $10 million to play Russian roulette… Five of the six histories would lead to enrichment; one would lead to a statistic… The problem is that only one of the histories is observed in reality.

— Nassim Taleb, Fooled by Randomness

We are a story-driven species. From cave walls to balance sheets, we look for narratives that explain the world and our place in it. And nowhere is this tendency more dangerous than when we only learn from the winners. When we allow survival alone to imply superiority. When the fact that someone or something made it through becomes enough proof that they knew what they were doing.

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No Stock is Safe

Admission Open for My Value Investing Workshops (Offline): I’m excited to announce admissions to my upcoming in-person value investing workshops in the following cities:

  • Bengaluru – Sunday, 13th July 2025
  • Hyderabad – Sunday, 27th July 2025
  • Mumbai – Sunday, 10th August 2025

Click here to know more and book your seat.

Seats are limited in each city. The first 20 participants can claim an early bird discount.

The bulls will often try to convince you otherwise, but let’s get one thing straight: no stock is ever truly safe.

Some businesses may look like fortresses. They generate high returns on capital, enjoy strong moats, and carry the aura of invincibility. But even the best businesses are not immune to time, competition, disruption, or human folly. Just because a company has done well so far doesn’t mean it will do so forever. No matter how great the track record, infinite valuations are a dangerous illusion.

Why? Because capitalism has a way of balancing the scales.

When a company earns unusually high returns on capital, it sends out a silent invitation to competitors. Sooner or later, capital flows in. Moats erode. Margins shrink. What looked like a golden goose begins to look more like just another bird. Over time, returns on capital tend to gravitate toward the cost of capital, especially in industries where advantages are not enduring or where management becomes complacent.

This doesn’t mean that all great companies are doomed. Far from it. Some businesses, especially those with high-quality products and services, wide moats, disciplined leadership, and sound internal cultures, can defy this gravity for long stretches. But even then, they’re not immune. The decline might be slow and graceful, rather than sudden and steep, but the trajectory of excess returns generally slopes downward.

That’s the uncomfortable truth: everything in this world is momentary. Including greatness.

Your only defense is discernment. Stick with quality. Not because it’s permanent, but because it tends to last longer than most alternatives. And those extra years of sustained excellence are what give compounding the runway it needs to perform miracles.

Yes, high-quality businesses often look expensive. And yes, you’ll sometimes feel foolish for “paying up.” But as long as you’re not grossly overpaying, and the business continues to compound capital efficiently, you’ll still do just fine.

That’s the paradox of quality: it often rewards patience and discipline, even if the entry price wasn’t perfect.

Poor-quality businesses, on the other hand, rarely give you that chance. You can buy them cheap. You can hope for turnarounds. But more often than not, there’s no happy ending. Time is the enemy of poor businesses. It only magnifies their weaknesses.

As Charlie Munger wisely said:

Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns six percent on capital over forty years and you hold it for that forty years, you’re not going to make much different than a six percent return – even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive-looking price, you’ll end up with one hell of a result.

So the goal isn’t to find the perfect stock. That doesn’t exist. The goal is to find a good business, at a reasonable price, with a decent chance of staying good for long enough.

That’s all investing really is. Everything else is noise, narrative, or wishful thinking.

Two Books. One Purpose. A Better Life.

“Discover the extraordinary within.”

—Manish Chokhani, Director, Enam Holdings

“This is a masterpiece.”

—Morgan Housel, Author, Psychology of Money

Lose First, Lose Forever: The Trap Most Investors Don’t See

Admission Open for My Value Investing Workshops (Offline): I’m excited to announce admissions to my upcoming in-person value investing workshops in the following cities:

  • Bengaluru – Sunday, 13th July 2025
  • Hyderabad – Sunday, 27th July 2025
  • Mumbai – Sunday, 10th August 2025

Click here to know more and book your seat.

Seats are limited in each city. The first 20 participants can claim an early bird discount.

While flipping through a few of my old notes, I stumbled upon a thought from Nassim Taleb that struck me again with its wisdom. He was explaining the concept of path dependence, which is a phenomenon where outcomes are not just a function of present conditions, but heavily shaped by the sequence of events that preceded them.

Taleb used a metaphor to explain this idea:

Ironing your shirts then putting them in the washing machine produces a different outcome from washing your shirts first, then ironing them. The reader can either trust me on this, or try the experiment with both sequences on the next Sunday afternoon.

He then applied that same thought to money:

Assume that your capital is around one million dollars and you are involved in speculation. Making a million dollars first, then losing it, is markedly different from losing a million dollars first, then making it.

In the first path (make, then lose), you’re at least alive to fight another day. You may end up with less, but you’ve tasted survival. In the second path (lose, then make), you may never even get to the “make” part. Because losing early can leave you bankrupt, broken, demoralized, and most importantly, unable to stay in the game.

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Letter to A Young Investor #12: The Powerful Thinking Skill Nobody Ever Taught You

Two Books. One Purpose. A Better Life.

“Discover the extraordinary within.”

—Manish Chokhani, Director, Enam Holdings

“This is a masterpiece.”

—Morgan Housel, Author, Psychology of Money

I am writing this series of letters on the art of investing, addressed to a young investor, with the aim to provide timeless wisdom and practical advice that helped me when I was starting out. My goal is to help young investors navigate the complexities of the financial world, avoid misinformation, and harness the power of compounding by starting early with the right principles and actions. This series is part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund.

Dear Young Investor,

I hope this letter finds you well.

So far, in our journey together over the past few months, I’ve shared my thoughts on building the right money habits, learning to deal with fear, avoiding money traps, and a few essential steps to lay the foundation for a successful financial life.

Today, I want to hand you a tool, one that has saved me more times than I can count. It’s called ‘inversion.’ And I believe, with all my heart, that if you really understand and apply this mental model, it will save you from the kinds of investing mistakes that don’t just hurt your portfolio but also bruise your confidence.

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A Business is Not a Math Problem

Two Books. One Purpose. A Better Life.

Imagine the scene from the battlefield of Kurukshetra, where Arjuna stands frozen. He is not fearful, just confused. He looks at the faces on the other side, and sees family, teachers, and cousins. Suddenly, the whole battle doesn’t make sense anymore.

Here’s a warrior, born and trained to fight, and yet, when the moment comes, he lowers his bow.

And what does Krishna do? He doesn’t give him a five-point strategy like you find thrown around on LinkedIn, or even a “battlefield ROI calculator.” He doesn’t even talk about odds or probabilities.

Instead, Krishna tells Arjuna a story. Or rather, he reminds him of his story…about who he is, what his role is, and why he is there. And only once Arjuna understands that does he lift his bow again. Now, none of the facts have changed for Arjuna, but the meaning behind the facts have become clear to him.

I think about that moment a lot, especially when I see how most of us go about investing. We open the annual report, we skip to the numbers, and ask questions like, “What’s the profit growth?” “What’s the ROCE?” “What’s the free cash flow?” And we think, “Yes, this looks investable.”

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