Vishal Khandelwal

Two Wise Men: Stories for Children Inspired from the Wit and Wisdom of Warren Buffett and Charlie Munger

In July 2016, Bill Gates wrote a memoir on his 25 years of friendship with Warren Buffett. Here is how Gates started his memoir –

I don’t remember the exact day I first met most of my friends, but with Warren Buffett I do. It was 25 years ago today: July 5, 1991.

I think the date stands out in my mind so clearly because it marked the beginning of a new and unexpected friendship for Melinda and me—one that has changed our lives for the better in every imaginable way.

Warren has helped us do two things that are impossible to overdo in one lifetime: learn more and laugh more.

That last note caught my attention. Including the two lessons that Gates learned from Warren, there are four most important lessons I have learned from studying the latter and his partner Charlie Munger over the past 15+ years.

Notes from Howard Marks’ Lecture: 48 Most Important Things I Learned on Investing

“If you were to read just five books in your life to become a sensible investor,” I often suggest people seeking my view, “…they have to be Warren Buffett’s letters, Poor Charlie’s Almanack, Peter Lynch’s One Up on Wall Street, Ben Graham’s The Intelligent Investor, and Howard Marks’ memos.”

Well, if you don’t know who Howard Marks is, let me tell you he is the CEO of Oaktree Capital and is one of the most famous investors who manages to keep a low profile, despite managing almost US$ 100 billion. Marks is also the author of an amazing book – The Most Important Thing: Uncommon Sense for the Thoughtful Investor. In its ultimate praise, Warren Buffett writes, “This is that rarity, a useful book”.

I have been reading and re-reading Marks’ memos for a few years now, so was very fortunate to attend a lecture he gave in Mumbai yesterday titled – The Truth About Investing.

It was an enlightening session, just to be in the presence of this legend and hear him out live.

I made some notes from Marks’ lecture, which I present below (most of these are direct quotes from Marks). He calls these lessons as the “brutal truths” of investing. As you would realize while reading the notes, these indeed are brutal truths – stuff that is easier said than done.

3 Big Investing Lessons from the World’s Greatest Stock Market Speculator

I have been reading Edwin Lefèvre Reminiscences of a Stock Operator over the past few days.

It’s a brilliant first-person account of the career of “Lawrence Livingston”, who is a slightly fictionalized version of Jesse Livermore, one of the greatest stock speculators of all times.

Livingston, just out of school, goes to work as a quotation-board boy in a stock-brokerage office. This was sometime in the 1890s, one hundred years before the advent of real-time internet stock quotes. Stock quotes were written on chalkboards.

He develops a feel for the stock market and, in time, begins to speculate. He’s not an investor — he’s a speculator. He gambles in stocks. And he does a great job at it, building a million-dollar fortune during his twenties.

Then he loses everything. In fact, Livingston builds — and loses — several million-dollar fortunes between the first twenty years of 1900s.

Reminiscences of a Stock Operator is an entertaining and educational book on Livingston’s career (read Livermore’s). It contains great many lessons that are also valid for investors.

Here are three such lessons straight out of the book that I believe would serve you well. The emphasis is mine.

Investing is Simple, but Not Easy

“Life is really simple, but we insist on making it complicated.” ~ Confucius

“Simplicity is a great virtue but it requires hard work to achieve it and education to appreciate it. And to make matters worse: complexity sells better.” ~ Edsger W. Dijkstra

It’s a sad fact of life that great people rarely divulge deep insights into how they achieved their greatness. And the sadder fact of life is that when a few of the greats do divulge the secrets of their greatness, we ignore them because the secrets often are too simple, too pedestrian, for us to appreciate.

“Huh! That’s it? It can’t be so simple!” we would say when we hear a great shelling out simple advice to achieve greatness.

Like, if you are learning martial arts and you hear Bruce Lee speak out the secret to his greatness – “Absorb what is useful, discard what is not, add what is uniquely your own” – you say, “Great thought, but is that it? It cannot be so simple!”

Consider investing. When we read Warren Buffett revealing that the only two rules of successful investing are – Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1 – our brain protests, “Great thought, but is that it? It cannot be so simple!”

Investing is simple, like Buffett also says, but not easy. Take a simple idea, Charlie Munger suggests, but take it seriously.

One Idea That Could Change Your Life (and How You Invest)

“Good morning, Sir,” I called out to a man walking just ahead of me during my morning walk yesterday. Like me, he was a regular at the walking track and we often crossed each other exchanging smiles and wishes. I had heard good things about him from others, and so I thought of engaging him in an interaction.

“How are you doing today?” I asked him.

“Great, as always!” he replied with a smile of a ten-year old. He, by the way, looked ninety years of age but healthy enough to be walking at quick pace.

“I have been observing you for the past many days,” I said, “And you always wear a nice smile on your face and look so healthy. It seems you are living a great life.”

“Yeah, it’s always been wonderful,” he replied, “No regrets at all.”

“That’s wonderful!” I said, “But you’ve been lucky,” I murmured, which he could hear, “Else life is so full of adversities and regrets.”

“Yeah, that’s true,” he replied. “It’s adversity all the way, but that’s what life is supposed to be, isn’t it?”

“Maybe, but then that’s not a life you seem to have lived, right?” I asked. “I can see that you are happy and healthy at ninety years of age, and I know that you are financially free. In other words, you seem to have everything that is missing for most of us going through mid-life.”

My Notes on a Brilliant Investment Letter I Just Read

One contemporary value investor I’ve learned a lot from, and look forward to read, is John Huber. John is the portfolio manager of Saber Capital Management, LLC, an investment firm that employs value investing strategy with the primary goal of patiently compounding capital for the long-term. He also writes about investing at Base Hit Investing.

I had interviewed John for the May 2016 issue of our Value Investing Almanack newsletter, and he was very generous in sharing his insights from his long experience as a value investor. Last week, I came across his 2016 letter to clients of Saber Capital, and was hooked instantly.

In this letter, John has shared some of the simplest yet profound thoughts on the practice of successful value investing. Despite their profundity, these thoughts have been forgotten and often ignored by investors who have seen their attention spans and investment horizons getting shorter and shorter.

My Interview with Jason Zweig

Note: This interview was originally published in the December 2016 issue of our premium newsletter – Value Investing Almanack (VIA). To read more such interviews and other deep thoughts on value investing, business analysis and behavioral finance, click here to subscribe to VIA.

“I wish I could talk to this guy,” I told my wife when I read Ben Graham’s The Intelligent Investor first time sometime in 2005.

“But he is dead, right?” she said.

“Oh, not Graham,” I exclaimed, “But Jason Zweig who has edited this version of Graham’s book.”

“I am sure you would one day,” she said with an air of confidence. But I junked her thoughts saying, “Why would he even want to talk to me?”

Well, I had this discussion in mind when I wrote to Mr. Zweig in mid-October last year to request him for an interview for our Value Investing Almanack newsletter. I knew it was a shot in the dark, something I had not done for a long-long time after missing a few such shots in the dark on stocks I lost money owning.

But this shot worked, and worked well for me. Not only did Mr. Zweig agree immediately for the interview, he also made me comfortable by asking me to address him as, well, Jason. 🙂

Safal Niveshak Stream – February 4, 2017

Note to Readers: In Stream, we suggest worthwhile reading material on a variety of topics, not all of which are directly related to investing. Some of the articles require you to be paid subscriber of those sites. However, it is often possible to read such articles by going to Google News and searching for the article’s title.

Some nice stuff we are reading, watching, and observing at the start of this weekend…

Life/Learning

HBO documentary “Becoming Warren Buffett”…is a documentary about the world’s most famous investor. It was made with the cooperation of Buffett and his family, deals with Buffett the businessman and investor, but it’s Buffett the man and his complicated, and often difficult, relationships with the people he loved most that are the film’s real subject.

…what makes “Becoming Warren Buffett” far more interesting than a simple hagiography is the exploration of Buffett’s personal life, and, in particular, his relationship with his first wife, Susan, who died in 2004. Personal relationships were not something that Buffett navigated naturally. At one point in the movie, he says, “I don’t have a mind that relates to the physical universe very well,” and the same seems to have been true of the emotional universe. Buffett, by his own description, was socially awkward as a kid (he attributes much of his later success to taking a Dale Carnegie public-speaking course as a young man), and the film is a portrait of a person for whom financial questions “are easy,” as Buffett says. “It’s the human problems that are the tough ones.”
Life is rife with risks. Misperceiving and underestimating these risks can lead to vital mistakes. Therefore, to make well-informed decisions, we need to become comfortable with uncertainty.

The world is complex, and uncertainty is guaranteed. However, multiple factors can make things seem more certain than they actually are. We need to identify and fight against these false markers, even when it makes us uncomfortable.

…Our experience teaches us how to live with the uncertainties of frequently occurring events such as daily variations in the weather or the stock market. But we get anxious about uncertainties when the events are rare and the stakes are high: That’s why most of us panic in the face of a medical mystery, environmental disaster, financial crisis, or a presidential election. It’s also why we prefer leaders and authority figures who pretend to know exactly what to do all the time instead of acknowledging ambiguity.

The Big Budget Challenge: Are You Up for It?

In Fooled by Randomness, Nassim Taleb wrote that “news makes idiots of us because it gives us confidence, not insight.” Like a PhD in macroeconomic theory. Today is one such day in India, when after the Union Budget is announced, a lot of us will feel like PhDs in macroeconomic theory.

After all, media (television, newspapers, radio) and social media are all already filled with updates and “expert” comments on the Budget.

My wife has already prepared her questions to be asked after the Budget is announced – “What got expensive and what got cheaper? What can I shop more for?”

But I am not answering anything of it this time. Why? Because I am taking up this challenge of avoiding everything related to Budget for the next three days i.e., till the noise dies down.

Though I don’t watch and analyze much of Budget every year, and I don’t read much of news, as a ‘test’ of my ability to avoid all kinds of noise and especially such a loud noise like Budget’s that will surely hit me from all sides, I am going on a three-day diet of consciously seeking news related to what the FM would be announcing today (and the Budget won’t matter after three days anyways).

Are you up for it too?

You see, a Budget anyways won’t make any difference to your life. If you are already a spendthrift, you will continue to spend a lot even if things got cheaper or taxes are lowered. And if you are already frugal, you will continue to spend within your limits even if things get expensive or they don’t touch the taxes a bit. So how would this Budget really impact your life? Why give it such a big shelf space in your brain’s attic? Why waste precious time amidst noise?

By the way, if you are worried that by avoiding all news for the next three days, you may miss an opportunity if one of the stocks you own or are looking to own falls or rises due to Budget’s impact, don’t be. A 5-10% rise or fall in stock prices won’t make a difference to your decisions anyways. And if prices rise or fall even more, I am sure you will somehow come to know about it. 🙂

So are you up for the challenge? Let me know in the Comments section of this post if you are, and also let me know if you aren’t and why.

I’m asking you to take up this challenge as a test, but you have a choice to dump it.

Safal Niveshak Stream – January 28, 2017

Some nice stuff we are reading, watching, and observing at the start of this weekend…

Life/Learning

Marcus Aurelius on how to motivate yourself to get out of bed in the morning and go to work…

At dawn, when you have trouble getting out of bed, tell yourself: “I have to go to work — as a human being. What do I have to complain of, if I’m going to do what I was born for — the things I was brought into the world to do? Or is this what I was created for? To huddle under the blankets and stay warm?”
One blogger who never fails to inspire me is Leo Babauta of Zen Habits. I have been reading him for the past seven years, and have also found mental stimulation in most of what he has written. Like this post that Leo wrote on what he has learned in 10 years of Zen Habits…

It’s been a decade filled with learning for me … too many things to put into one post. But as I’ve been reflecting on it all, I have a dozen or so notes I’d like to share with you.

Some of the things I’ve learned, starting with personal lessons and ending with lessons about my business:

Focus on intentions rather than goals. As you might know, I experimented with giving up goals after being very focused on goals for years. It was liberating, and it turns out, you don’t just do nothing if you don’t have a goal. You get up and focus on what you care about. Read more here. Instead, I’ve found it useful to focus less on the destination (goal) and instead focus on what your intention for each activity is. If you’re going to write something … instead of worrying about what the book will be like when you’re done, focus on why you want to write in the first place. If you are doing something out of love or to help others, for example, then you are freed from it needing to turn out a certain way (a goal) and instead can let it turn out however it turns out. I’ve found this way of working and living to be freeing and less prone to anxiety or procrastination.