Vishal Khandelwal

The 9 Biases of Value Investors

“The first principle is that you must not fool yourself — and you are the easiest person to fool.” ~ Richard Feynman

In the 1970s, two psychologists – Daniel Kahneman and Amos Tversky – proved, once and for all, that humans are not rational creatures. They discovered what we now know as “cognitive biases,” showing that humans systematically make choices that defy clear logic.

Now, having these biases and getting influenced by them is often not a bad thing. These have helped us survive for ages. Also, while we don’t always make decisions by carefully weighing up the facts, we often make better decisions as a result. This is applicable to most of what we do in life.

However, when it comes to investment decision making, our biases may get us into (big) trouble. What is more, the irony about these biases is that the more we read about them, the more we believe that we don’t suffer from them as much as others do.

In this second issue of Outside the Box newsletter, my friend Neeraj Marathe pokes a hole in this kind of thinking.

Being A Father

Welcome to the first edition of Outside the Box, Safal Niveshak’s new, free newsletter.

Now, what’s new here? Well, this newsletter will not be authored by me (you must be thanking goodness!), but a few of my friends in the value investing circle.

I have been connected to these people over the past few years, and highly respect their thoughts and ideas about investing, decision making, learning, and life in general.

Now, who are these people? In an alphabetical order, they are – Arpit Ranka, Gaurav Sud, Jatin Khemani, Neeraj Marathe, Ninad Kunder, Samit Vartak, Shyam Sekhar, and Vitaliy Katsenelson.

While these gentlemen are well-known in the value investing circles, I would introduce them better as we move forward and also have a few others join in.

[Read more…] about Being A Father

The Books That Made Me – Part 3

This is the third part of the series on books that have inspired me the most. Read Part 1 and Part 2. Here are the books I have profiled so far –

1. Life and Living

The Bhagavad Gita (~ 200 BC)
Autobiography of A Yogi (1946)
Man’s Search for Meaning (1946)
Who Moved My Cheese (1998)
Jonathan Livingston Seagull (1970)
Meditations (~ 180 AD)
One Small Step Can Change Your Life (2004)
How to Stop Worrying and Start Living (1948)
As a Man Thinketh (1903)
The Alchemist (1988)
Anne Frank: The Diary of a Young Girl (1947)

2. Learning, Thinking, Decision Making

[Read more…]

A Hidden Cost Called Rented Suit Liability

Lloyd’s of London, a 300-year-old insurance body, collects more than 33 billion pounds in gross premium every year. Its history goes back to the 17th century.

In 1906, when a major earthquake destroyed more than 80 percent of the Californian city of San Francisco, Lloyd paid out all the policyholder claims, irrespective of the terms of their policies. That cemented Lloyd’s reputation in the American market.

However, in the 1990s, this insurance behemoth was brought to its knees by a risk that had gone unnoticed for decades. After California earthquake episode, Lloyd started underwriting wide-ranging general liability cover to US businesses, including asbestos manufacturers.

Thousands of employees who had worked in asbestos plants were diagnosed with asbestosis, a deadly lung disease, twenty years later. These workers claimed the compensation from their former employer in 1990s. The employer, in turn, claimed it to the insurance companies like Lloyd who wrote the policy in the 1960s. Lloyd had failed to understand the nature of future risk and thus faced near bankruptcy.

Latticework of Mental Models: Lollapalooza Effect

Value Investing Workshop in Bangalore (9th Sept), Chennai (23rd Sept), Mumbai (30th Sept). Click here to register now. Few seats remain!

Why were Warren Buffett and his creation, Berkshire Hathaway, so unusually successful?

In 2007 Wesco Annual Meeting, someone asked the above question from Charlie Munger. He replied –

If that success in investment isn’t the best in the history of the investment world, it’s certainly in the top five. It’s a lollapalooza.

Lollapalooza in the conventional sense means something outstanding of its kind. A person, a thing or an event that is particularly impressive, or extraordinarily attractive. But being multidisciplinary learners, we shouldn’t be satisfied with the conventional definitions, should we? Moreover, Charlie Munger doesn’t use lollapalooza just for its dictionary meaning.

Here’s the definition of Lollapalooza taken from the book Poor Charlie’s Almanack –

Lollapalooza is, as personified by Charles Munger, the critical mass obtained via a combination of concentration, curiosity, perseverance, and self-criticism, applied through a prism of multidisciplinary mental models.

When Charlie Munger uses the word lollapalooza, he often attaches the word “effects” (as in “lollapalooza effects”) which means that multiple factors are acting together in ways that are feeding back on each other. [Read more…] about Latticework of Mental Models: Lollapalooza Effect

An Early Bird Or The Second Mouse?

It took the world by surprise when Warren Buffett announced that he’d be donating all his personal wealth to Bill Gates foundation. Till then people imagined Buffett and Gates as two fierce businessmen trying to outdo each other for the top spot on the Forbes list of billionaires. Bill Gates has dominated that list for a good part of last 25 years. Buffett has also remained in top five for the same period.

So Buffett’s decision came out as a shocking announcement. However, very few people knew that Warren Buffett and Bill Gates had been very close friends since 1991. They watch movies, go on family vacations and play bridge together.

In 1996, Bill Gates wrote about an incidence when Buffett invited him to play a game of rolling dice. He showed a set of four dice to Gates and proposed that both of them choose once die each from the set and discard the remaining two. Then whoever rolls a higher number most often would be the winner. [Read more…] about An Early Bird Or The Second Mouse?

The Dangers of Persistence

Value Investing Workshop in Bangalore (9th Sept), Chennai (23rd Sept), Mumbai (30th Sept). Click here to register now. Few seats remain!

A few months back, during my lecture to a class of MBA students, I asked them to finish a sentence. The sentence was – “If you play a slot machine in a casino long enough, eventually you will ………” *

The class yelled out in unison “WIN!”

As most people reading this know, that is exactly the wrong answer. Slot machines are engineered to make everyone but the casino a loser in the long run. But MBA kids don’t know that, and they are never taught that. I assumed they confused the benefits of persistence with the actual odds of succeeding.

Anyways, I met a couple of my neighbours in the gym today, who smiled – as if mocking me – when I told them about my work that is to teach people to make lesser mistakes with their money and also learn to make sensible investment decisions for the long term.

Pay it Forward

In June 2016, I found myself sitting with a bunch of wisdom seekers. It was a 3-day course on behavioural finance taught by Prof. Sanjay Bakshi at Flame university. We were like a pride of starving lions waiting to lap up every last drop of knowledge.

Prof. Bakshi’s mind is a fountain of insights and we had an insatiable thirst. No wonder the session would start at 9 am and go on till midnight. Even during the breaks, people would swarm him with incessant questions.

During one of the breaks, a course participant asked Prof. Bakshi, “Sir, we have benefited immensely from your teachings. How can we pay it back?”

[Read more…] about Pay it Forward

Whatever the Chatter, Corn Keeps Growing

Value Investing Workshop in Bangalore (9th Sept), Chennai (23rd Sept), Mumbai (30th Sept). Click here to register now. Few seats remain!

As students of value investing, we’ve all read about numerous businesses that Warren Buffett has invested in the last fifty years.

A number of these names regularly appear in Buffett’s annual letters. Especially the ones which he continues to hold – Coca-Cola, See’s Candy, Nebraska Furniture Mart, GEICO, etc. Buffett never gets tired explaining why these companies are great businesses to own.

Each of his investment is an instructive story with valuable lessons to learn. But whenever asked about his best investment, he’s quick to point out that it wasn’t a stock. He says –

Of all the investments I ever made, buying Ben’s book (The Intelligent Investor by Benjamin Graham) was the best (except for my purchase of two marriage licenses).

Value Investing Workshop – Mumbai, Bangalore, Chennai

Happy to announce the 2018 edition of our Value Investing Workshop in Mumbai, Bangalore, and Chennai. Here are the details –

Mumbai
Date & Time: Sunday, 19th August 2018 | 10 AM to 6 PM
Venue: The Sahil Hotel, 292, Bellasis Road, Mumbai Central, Mumbai – 400008

Bangalore
Date & Time: Sunday, 9th September 2018 | 10 AM to 6 PM
Venue: Hotel Shilton Royale, 9, 100 Feet Inner Ring Road, Koramangala, Bengaluru, Karnataka – 560047

Chennai
Date & Time: Sunday, 23rd September 2018 | 10 AM to 6 PM
Venue: Regenta Central Deccan Chennai, 36, Royapettah High Rd, Jagadambal colony, Sripuram, Teachers Colony, Royapettah, Chennai – 600014

Registration fee is Rs 8500, and includes FREE subscription to our Financial Statements Analysis course and Mental Models e-book, together priced at Rs 6400.

What is more, first 20 registrants in each city can claim Rs 300 early bird discount, group registrations can claim Rs 500 per person discount, and women participants can claim Rs 2000 discount.

Click here for detailed curriculum, and click here to register.