Blog on Value Investing | Safal Niveshak

Understanding Behavioural Biases in Finance and Investing (E-Book)

“How do I read stuff you recommend when I have no time left after work etc.?”

This is one common reason I hear from people who have not yet gotten down to reading the brilliant literature out there on investing and investment behaviour.

If you have had similar excuses/reasons all these years, I present to you Mr. Balaji Ganesan, a Safal Niveshak tribesman from Chennai, who works as an IT professional, and who serves as a great proof that if you have a passion, you can take out time to follow it.

Balaji has been the most prolific contributor to the Safal Niveshak Forum, and shares largely on behavioural finance and his experiences dealing with the same.

He has contributed more than 100 posts on the Forum pm various biases, and I thought it would be great if he could create an eBook on the subject and share with other tribesmen.

I Wish You…

“It is during our darkest moments that we must focus to see the light.” ~ Aristotle

I wish you a very happy Diwali, dear tribesman.

I also wish that not only you enjoy the lights you see around, but you also be the light – either by being a candle of love, compassion, and wisdom…or by being the mirror that reflects it.

Then, even as the stock market gets more euphoric and you hear an army of experts telling you how this tower of cards would rise even higher, I wish you keep a calm mind and join the party not because you are frustrated to have missed it all this while, but only if you find some value here.

[Read more…] about I Wish You…

Life, Liberty, Happiness…and Investing

Image Source: Flickr

“Life, Liberty and the pursuit of Happiness” is one of the most famous phrases in the United States Declaration of Independence.

In fact, it is considered by some as part of one of the most well-crafted, influential sentences in the history of the English language.

These three aspects are listed among the inseparable rights of man.

Despite this, as I suppose, it would perplex a visitor from Mars whether we human beings really want what we say we want – life, liberty, and happiness.

This is especially true if the Martian were to drop somewhere on our stock markets, and examines the behavior of investors, speculators, analysts, and fund managers.

He would no doubt question the intelligence of the planet’s inhabitants, and would wonder…

“Do these guys really want life, liberty, and happiness…the rights they have been wanting for ages? They seem to be hell-bent on destroying themselves through their foolish actions! Is this the way the entire humanity works? If yes, I must thank my stars for being a Martian and not a human!”

Buffett, Buddha, and Pizzas

Why does the obese guy (who says he wants to lose weight) eat a large pizza when nobody’s watching?

I have a friend who does this often, and here are the three reasons he gives…

He doesn’t want people to know
It gives him instant pleasure, and
If he doesn’t eat the pizza (thereby delaying gratification) it won’t give him instant weight-loss (something he desires)…

…and thus, instant pleasure (in this case, pizza) is what he chooses, and often.

This is then followed by an hour or two of self-loathing.

“There’s always the next time!” he told me after his latest indulgence.

A Brilliant Investor Who Enjoys the Process More Than The Proceeds

“A pleasant and agreeable man, who is not without a certain charm. Of exemplary responsibility in both his professional and personal lives, he is equally a man who can be counted upon. Such maturity and consideration, along with his mild and protective disposition makes being in his presence a pleasant and reassuring experience.”

Well, that’s what I got on the Internet when I searched for the meaning of the name “Ninad”. This is an unusual name, at least for me, and thus I was curious to know what it means.

I don’t prefer generalizations, especially when one word or one date of birth is used to explain the characteristics and future of all people associated with it (like when fortune tellers predict the future just based on a person’s date of birth).

But I was impressed by the above description, because I had recently met someone with the name “Ninad”, and the above description fit him to the tee.

Ninad who?

Well, if you have not read much of Indian value investing bloggers in the past, one name that has been there for long but has on purpose avoided the limelight, it is that of Ninad Kunder.

While I have been reading Ninad’s blog off and on for quite some time, I met him for the first time recently at a value investing conference.

We did not talk much – I speak less 🙂 – but I knew I had to capture his thoughts and share them with you. And thus I requested him for an interview for Safal Niveshak.

He reluctantly agreed, saying that he has a fairly nondescript and incognito existence. [Read more…] about A Brilliant Investor Who Enjoys the Process More Than The Proceeds

Wit, Wisdom, Warren (Issue #13): Spoiled Princess, Toads, and Acquisitions

“All of humanity’s problems stem from man’s inability to sit quietly in a room alone.” ~ Blaise Pascal

You must have heard the fairy tale where a spoiled princess reluctantly befriends a toad, who magically transforms into a handsome prince triggered by the princess kissing it.

Well, those were the older times.

Today’s capitalistic society has been witness to a large number of spoiled princesses trying the same trick on a large number of toads, only to realize that the tale of them turning into princes they had heard of was just that…a fairy tale.

If you are confused why I am writing today about the tale of the toad and princess, let me get straight to the point now.

As the title of today’s post says, I will cover Warren Buffett’s thoughts on corporate acquisitions. In this case, the spoiled princess is the company that is looking to acquire another company, and the toad is that other company that’s waiting to be acquired.

It’s the Base Rate, Stupid!

Retailing is a tough business. During my investment career, I have watched a large number of retailers enjoy terrific growth and superb returns on equity for a period, and then suddenly nosedive, often all the way into bankruptcy. This shooting-star phenomenon is far more common in retailing than it is in manufacturing or service businesses.

In part, this is because a retailer must stay smart, day after day. Your competitor is always copying and then topping whatever you do. Shoppers are meanwhile beckoned in every conceivable way to try a stream of new merchants. In retailing, to coast is to fail.

~ Warren Buffett, in his 1995 letter to shareholders

Buffett called retailing as “have-to-be-smart-every-day business”, and retailers after retailers have proved that over the years, in India and abroad.

Prof. Sanjay Bakshi’s Presentation…and a Warning

“It’s a funny thing about life; if you refuse to accept anything but the best, you very often get it.” ~ W. Somerset Maugham – English dramatist & novelist (1874-1965)

Maugham’s thought holds a great relevance when it comes to picking up businesses for investment. The results of your investing efforts are decided not after you make or lose money in 5-10 years, but at the very moment you decide to own a specific business.

Pick up a business with good economics and with good margin of safety, and the probability of making money in the long run is high. Pick up a business with poor economics with any margin of safety, and the probability of losing your shirt, and entire wardrobe, in the long run is very high.

Warren Buffett says – “Time is the friend of the wonderful business, the enemy of the mediocre.”

While this principle may seem obvious, most of us learn it the hard way. In fact, most of us learn it several times over.

Wit, Wisdom, Warren (Issue #12): Business of Life

He’s been dubbed the Oracle of Omaha. Some call him America’s hero, while some a questionable St. Warren.

Several books attempt to capture the personality, the philosophy, and the very essence of the world’s most successful investor; but words fail to adequately describe this unique individual…except perhaps his own words.

“Nobody does Warren Buffett as well as Warren Buffett,” writes Janet Lowe in Warren Buffett Speaks.

Apart from doling out thousands of quotes over the decades on the business of investing, Buffett has been a great teacher on the business of life as well.

Despite his influence and affluence, Buffett continues to be plainspoken, honest, optimistic, and funny…and especially when it comes to his thoughts on life.

In today’s post, I carry a few of his thoughts on how to live a happy and fulfilling life. I have not added any explanation of mine to any of his thoughts because, as Charlie Munger would say, “I have noting to add.” 🙂

Wit, Wisdom, Warren (Issue #11): Risk

“Risk means more things can happen than will happen.” ~ Elroy Dimson.

Warren Buffett likes to say that the first rule of investing is “Don’t lose money,” and the second rule is, “Never forget the first rule.”

Read any literature from any legendary investor, and “avoiding permanent loss” or “avoiding risk” emerges as the primary factor that has helped him or her become successful, and legendary.

Howard Marks writes in The Most Important Thing…

Investing consists of exactly one thing: dealing with the future. And because none of us can know the future with certainty, risk is inescapable. Thus, dealing with risk is an essential— I think the essential — element in investing.

It’s not hard to find investments that might go up. If you can find enough of these, you’ll have moved in the right direction. But you’re unlikely to succeed for long if you haven’t dealt explicitly with risk.

The first step consists of understanding it. The second step is recognizing when it’s high. The critical final step is controlling it.