Blog on Value Investing | Safal Niveshak

The Charlie Munger Manifesto

“We have a passion for keeping things simple,” Charlie Munger would often say.

And taking a leaf out of that, I have created The Charlie Munger Manifesto, which contains his most important rules for living a good life, and avoiding bad outcomes.

These rules are something you can reflect back on, like I have done, if you ever feel stuck in your life.

And if you believe in them, follow them, and stand for them, your life will be good.

Click here to download the manifesto in high resolution.

Click here to download the manifesto in high resolution.

Read it. Print it. Frame it. Face it. Remember it. Do it.

And if you find value in it, please share it.

Thank you.

Charlie Munger Lives on as All Great Philosophers Do

“The best armour of old age is a well spent life preceding it.” – Charlie Munger

It’s a natural human tendency to seek comfort in the belief that certain scenarios are beyond the realm of possibility. Whether it’s a health issue, or a personal tragedy, we often tell ourselves, “That could never happen.” We build mental fortresses around these notions, finding solace in the illusion of invincibility.

But life has a way of humbling us, showing us that no one is exempt from its capriciousness.

Today is one such day.

Charlie Munger, whom I have considered a hero in my life, has passed away at the age of 99, just 34 days from turning 100.

And Charlie is not just a hero for me on paper. He has been, and always will be a guiding force in my life, shaping my values, decisions, and aspirations. His wisdom has been my compass, and his principles are sort of my North Star.

As I mourn his passing, I also celebrate the incredible legacy he leaves behind. The impact he had on my life and the lives of countless others is a testament to his extraordinary character and the enduring power of his words.

This is a moment of grief for me, and it may take some time for acceptance to set it. And so, I will stop writing right away, and just leave you with these beautiful quotes from Charlie on how to be happy in life and survive a long time to tell the tale.

Over to Charlie.

If all you succeed in doing in life is getting rich by buying little pieces of paper, it’s a failed life. Life is more than being shrewd in wealth accumulation.

Remember that reputation and integrity are your most valuable assets – and can be lost in a heartbeat.

A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage etc.

Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?

Confucius said that real knowledge is knowing the extent of one’s ignorance. Aristotle and Socrates said the same thing. Is it a skill that can be taught or learned? It probably can, if you have enough of a stake riding on the outcome.

Some people are extraordinarily good at knowing the limits of their knowledge, because they have to be. Think of somebody who’s been a professional tightrope walker for 20 years – and has survived. He couldn’t survive as a tightrope walker for 20 years unless he knows exactly what he knows and what he doesn’t know. He’s worked so hard at it, because he knows if he gets it wrong he won’t survive. The survivors know.

Knowing what you don’t know is more useful than being brilliant.

Finally, as Charlie would have said, “I have nothing to add.”

Will miss you, Charlie! 🙁

The Most Important Decision You Will Ever Make

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life

Buy your copy of the book Morgan Housel calls “a masterpiece.” It contains 50 timeless ideas – from Lord Krishna to Charlie Munger, Socrates to Warren Buffett, and Steve Jobs to Naval Ravikant – as they apply to our lives today. Click here to buy now.

After I had decided to quit my job in late 2010, we got to know that our second child was on the way. There was a momentary dilemma whether to go ahead with the decision to quit the job or not.

A new family member meant added responsibilities, that too in a period of high financial uncertainty. I had exhausted a large part of my savings to pay off my home loan to be able to quit that job, and now there would be an extra mouth to feed, apart from other expenses of a newborn.

“Quit your job!” was my wife Vidhi’s call. “We will see what happens only after we take this step. Worst, if nothing works out, we will sell our house and move back to a small town.”

[Read more…]

It’s Either Hell Yeah or No

When it comes to thinking and decision making, Derek Sivers is one contemporary philosopher I look up to.

In 1998, Sivers was making a comfortable living as a full-time musician. He wanted to sell his music CDs online, but there was no way for a small time musician to sell online, so Sivers took matters into his hands and built a website to sell his CDs. Very soon his friends started requesting him to list their CDs on the website. That’s how CD Baby was born. Ten years later when he sold the company, it was doing $100 million in revenues. Sivers gave away the proceeds from the sale ($22 million) to a charitable trust.

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The Illusion of Security in Investing

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life

In his thought-provoking book “Fooled by Randomness,” Nassim Taleb presents a compelling analogy that sheds light on how we perceive risk and reality. He writes –

First, reality delivers the fatal bullet rather infrequently, like a revolver that would have hundreds, even thousands of chambers instead of six. After a few dozen tries, one forgets about the existence of a bullet, under a numbing false sense of security.

Second, unlike a well-defined precise game like Russian roulette, where the risks are visible to anyone capable of multiplying and dividing by six, one does not observe the barrel of reality. One is capable of unwittingly playing Russian roulette – and calling it by some alternative “low risk” game.

Why it matters: What Taleb has done is compare the infrequency of life’s critical risks to a revolver with hundreds, even thousands, of chambers, rather than the mere six of Russian roulette. His analogy encapsulates a significant problem in human psychology, and that is our tendency to underestimate risk due to its infrequent occurrence, which ultimately leads us to a dangerous false sense of security.

After 20 years in the stock market, and through a few cycles where I have sensed such false security myself and have suffered due to it, I can completely vouch for what Taleb has written.

You see, when we engage in activities or make decisions, like in the stock market, where the consequences of our decisions will be seen a few years or decades later, we often overlook the potential risks involved. This oversight is not because these risks are nonexistent, but because they are infrequent.

The rarity of a fatal outcome, like the rare chance of a bullet being fired from a gun with thousands of chambers, leads us to complacency. Like when it comes to investing, you may become overconfident after a few years of favorable market conditions, forgetting the possibility of a steep or prolonged market decline. Or when it comes to health, you might ignore the risks of a sedentary lifestyle or unhealthy diet because the consequences are not immediate.

The Invisible Barrel of Reality

Taleb also delves deeper into the human psyche. Unlike the clear and present danger in a game of Russian roulette, where the risks are obvious and quantifiable, real-life risks are often hidden or misunderstood.

We might be engaging in risky behaviors without even realizing it, thinking we are playing a “low risk” game. This lack of awareness is a critical factor in many of the poor decisions made in various fields, from finance to personal health.

Now, our understanding of probability plays a significant role in how we perceive risk. We are notoriously bad at assessing probabilities, especially when it comes to rare events. We either overestimate the likelihood of extremely rare events like plane crashes, or underestimate more common but less sensational risks, like market crashes or even car accidents. This miscalculation is compounded by the fact that our perception of risk is heavily influenced by personal experiences and emotions, rather than objective analysis.

The Illusion of Control

Another factor contributing to the false sense of security is the illusion of control. We tend to believe we have more control over events than we actually do. This belief leads to an underestimation of risk.

For example, a stock market trader or investor might think his skill is the main reason for his success in the stock market, ignoring the role of luck and external factors. Similarly, someone might believe their good health is solely due to their lifestyle choices, discounting the influence of genetics and environment.

History is replete with examples where a false sense of security led to disastrous outcomes. The financial crises of the past few decades, including the 2008 global financial crisis, serve as stark reminders of what can happen when risks are underestimated.

In these scenarios, what was perceived as a low-risk environment turned out to be a game of Russian roulette with dire consequences.

Applying Taleb’s Insights

To apply Taleb’s insights in our lives and investing, the first step for us is to acknowledge and accept our tendency to underestimate risk.

We should also strive to improve our understanding of probabilities and be aware of our psychological biases. This awareness can help us make better decisions that may lead us to better long term outcomes.

The key takeaway from Taleb’s analogy is the importance of acknowledging and preparing for the improbable. Just because a risk is infrequent does not mean it is nonexistent.

By recognizing the potential dangers in our decisions and actions, no matter how unlikely they seem, we can better prepare for the uncertainties of life.

This preparation does not mean living in fear but rather embracing the unknown with a balanced perspective.

In doing so, we can navigate the complexities of the world of investing or otherwise with a more realistic and prudent approach, enhancing our ability to make informed decisions and, ultimately, leading a more resilient and fulfilling life.

I recently announced admission to the January 2024 batch of my most comprehensive classroom course in Value Investing titled – Value Investing Blueprint.

This residential course is scheduled to be held from 11th to 14th January 2024, at the campus of Pune-based FLAME University. The last date to apply is 10th December, 2023.

Click here to read more and apply if you are interested in joining this course.

Since it’s a classroom course, seats are limited.

The course will take you through the entire process of practicing value investing to identify long term wealth creating stocks. This includes helping you:

Create the right value investing mindset and build a behavioural framework to avoid biases and create the right investment thought process.
Assess business quality – separating good from gruesome
Analyze financial statements to find well-performing businesses
Calculate intrinsic valuations using various methods
Identify competitive moats and whether they are sustainable
Build a portfolio of sound, wealth-creating businesses

Click here to read more and apply if you are interested in joining this course.

I have started work on a series of short videos – titled The Inner Game – to share my thoughts around investing, decision making, learning, and just the practice of trying to live a good life. You can watch them on my YouTube channel, including these recent ones –

How to ‘Never’ Fail in #Life or #Investing (English)
How to Escape the Hedonic Treadmill and Be Happier (Hindi)
Your Path to Financial Freedom: Let’s Start from the Start (Hindi)
The Light of Humility (Hindi)

You can also find these and all past sessions on Apple Podcasts, Spotify, Google Podcasts, and Amazon.

Hope you like these and find some value. Please let me know your feedback and/or suggestions for improvement. Thank you.

That’s about it from me for today.

If you liked this post, please share with others on WhatsApp, Twitter, LinkedIn. Or just email them the link to this post.

If you are seeing this newsletter for the first time, you may subscribe here.

Stay safe.

Regards, Vishal

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life

The Dunbar’s Number of Investing

Man, they say is a social animal. Leave him alone on an Island, and he will not last long even if he has the amenities needed for survival. I am not sure if any social scientist has ever done such an experiment, but it is highly unlikely that many people can survive in an isolated environment. Maybe that is the reason Hollywood makes so many movies on this theme.

In fact, one of my favourites is one such movie titled ‘Cast Away.’ This film depicts a FedEx employee stranded on an uninhabited island after his plane crashes in the South Pacific and his attempts to survive on the island using remnants of his plane’s cargo.

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Happy Diwali: Lighting the Lamp Within

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life

I read this beautiful couplet from Sant Kabir this morning –

जब मैं था तब हरी नहीं, अब हरी है मैं नाही,

सब अँधियारा मिट गया, दीपक देखा माही |

Translated, it means that when I was immersed in my ego and arrogance, I could not see God (the supreme power). But when I illuminated the lamp of knowledge within myself, all darkness of ignorance vanished, ego went away, and I found God in the light of knowledge.

On the auspicious occasion of Diwali (the festival of lights in India), if there is anything I wish for you today, this is it.

[Read more…]

The Map is Not the Territory

The puzzles underlying the fine-grained matrix of human behaviour is unfathomable. As you dig deeper, new surprises are waiting for you. I have been a student of behavioural economics for almost a decade but every time I think of myself as an old hand on the subject, I am reminded of my folly.

Cognitive errors are not like other errors which are usually a result of misplaced knowledge. Knowledge doesn’t cure a psychological bias. A cognitive bias is a systematic error in how we think, as opposed to a random error or one that’s merely caused by our ignorance.

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The Joy of Walking Away

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life

You must have heard of Peter Lynch, right?

If not for his stellar fund management career, someone may have recommended you his book One Up on Wall Street as the first investment book you should read.

I assume this because that is how I started my stock market career in 2003, by reading One Up, and starting to believe that not only was investing easy, but also that I could be a master at it.

How wrong was I! But that’s a story for another day.

Coming back to Lynch, in case you didn’t know, he was the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, and averaged a 29% annual return, consistently more than double the S&P 500 stock market index. During his 13-year tenure, Magellan became the best-performing mutual fund in the world, and its assets under management increased from US$18 million to $14 billion. In all, it was a fairytale story for Lynch and his investors.

But then something happened.

Lynch, at what most people would call the “peak” of his career, retired from work, at age 46. He just walked away.

And what was the reason?

As he talked about openly in an interview after his retirement, his workaholism was taking a toll on his family life, and so he decided to walk away.

Lynch found thousands of people supporting him in his decision to quit his career early. But I am sure there would have been an equal number of others questioning him for his ‘unsmart’ decision.

The pursuit of success and recognition is, after all, a universal aspiration. We yearn for the validation of our efforts, the affirmation of our abilities, and the rewards that come with achieving our goals.

However, as Lynch and many like him have shown, there are times when walking away from the ‘brightness’ and into the ‘shadows,’ becomes the most profound choice one can make.

William Green, whom I interviewed for the 21st episode of The One Percent Show, has this passage in his wonderful book Richer, Wiser, Happier –

Early in his career, Bill Miller (another legendary investor) asked Lynch for advice. Lynch told him that the investment business is so rewarding financially and intellectually that it attracts an overabundance of intelligent people. “The only way you can beat them is to outwork them,” said Lynch, “because nobody is just so much smarter than the next person.” Lynch told Miller that he stayed ahead of the pack by reading investment research while he carpooled to the office at 6:30 a.m., working after dinner and on weekends, and taking no vacations for years. When Miller asked if it was possible to slow down as you got older, Lynch replied, “No. In this business, there are only two gears: overdrive and stop.”

In 1990, months before he announced his early retirement, Lynch said this to reporters from Financial World –

I’ve worked every Saturday for seven or eight years – I mean seven in the morning. In the last six months I’ve started working some Sunday mornings at home. … I haven’t gone to a Celtics game in five years. … You think I enjoy coming in here on Saturday mornings? Don’t you think I’d rather be playing with my kids or doing something with my wife?

“I loved what I was doing,” he told Time magazine in 1991, “but I came to a conclusion … What the hell are we doing this for? I don’t know anyone who wished on his deathbed that he had spent more time at the office.”

Now, I am sure a voice from within you must be saying, “Oh, it is easy to walk away from success and recognition once you have already made it, and have enough money to take care of yourself and your family for the rest of life.”

Your observation is indeed valid. It’s true that having financial security can provide the freedom and flexibility to make choices that might not have been possible otherwise.

However, the wisdom of walking away from success and recognition, and most of all you have worked so hard to achieve, is not solely dependent on financial stability. It is also about realizing that material wealth and external validation, while important, do not always equate to a truly fulfilling and well-rounded life.

Even those who have achieved financial success often come to the realization that there are other, equally important aspects of life, such as personal well-being, family, and personal fulfillment, that need attention and nurturing.

Recognizing when to walk away from the constant pursuit of success and recognition, even when you have the means to sustain your lifestyle – like Lynch – is a reflection of a deeper understanding of what truly matters in life.

It is not just about having the means to do so, but also about choosing a life that is in harmony with your authentic self, regardless of your financial status.

And, by the way, ‘walking away’ is not always about a complete exit from the larger game you are playing.

Like, you can walk away from an investment opportunity that you believe may cost you sleepless nights – maybe, an expensive stock, or a questionable business – and still remain in the investing game.

Or you can walk away from a business deal that does not match up to your levels of integrity, and still remain in that business.

It’s all about the choices we make in life, that determine the paths our lives will take. And then, it’s all about standing with those choices if we continue to believe in them, instead of worrying about what the outcomes may be.

Walking away is not a surrender or a resignation but a conscious choice to reevaluate one’s priorities and regain the balance between ambition and the intrinsic values of love, health, and inner peace.

It is an acknowledgment that the pursuit of external markers of success should never eclipse the fundamental facets of our existence – our bonds with family, our physical and mental health, and our overall well-being.

And the best part? When you learn to walk away from things you think may kill you – financially, mentally, otherwise – you also survive to play the long-term game, in investing or in life. And survival, as we understand, is the only path to true success and happiness.

What else are you here for?

I recently announced admission to the January 2024 batch of my most comprehensive classroom course in Value Investing titled – Value Investing Blueprint.

This residential course is scheduled to be held from 11th to 14th January 2024, at the campus of Pune-based FLAME University. The last date to apply is 10th December, 2023.

Click here to read more and apply if you are interested in joining this course.

Since it’s a classroom course, seats are limited.

The course will take you through the entire process of practicing value investing to identify long term wealth creating stocks. This includes helping you:

Create the right value investing mindset and build a behavioural framework to avoid biases and create the right investment thought process.
Assess business quality – separating good from gruesome
Analyze financial statements to find well-performing businesses
Calculate intrinsic valuations using various methods
Identify competitive moats and whether they are sustainable
Build a portfolio of sound, wealth-creating businesses

Click here to read more and apply if you are interested in joining this course.

You can also find these and all past sessions on Apple Podcasts, Spotify, and Amazon.

Hope you like these and find some value. Please let me know your feedback and/or suggestions for improvement. Thank you.

That’s about it from me for today.

If you liked this post, please share with others on WhatsApp, Twitter, LinkedIn. Or just email them the link to this post.

If you are seeing this newsletter for the first time, you may subscribe here.

Stay safe.

Regards, Vishal

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life

It’s Never a Market Crash Problem

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life

It’s almost always an –

I don’t know who I am problem
I don’t know how much pain I am willing to take problem
I don’t have the patience to give my stocks time to grow problem
I bought on the tip of that popular social media influencer and did not do my homework problem
I did not diversify well problem
I bought the stock just because it dipped problem
I cannot resist my friends getting rich problem
I love to fall in love with my stocks problem
I cannot differentiate between stock price and intrinsic value problem
I suffer from a buy at any price problem
I borrowed to invest problem
I invested the money I needed soon problem
I don’t have time on my hands to see through market cycles problem
I trade too much and too often problem
I keep watching and worrying about stock prices problem
I will watch the market and my portfolio again after reading this post problem

And so, I must remind myself this at all times –

A market crash is ‘never’ the problem. ‘I’ am the problem, and I must sort myself out, because that is only what I control. And if I can control the ‘I’ better, a market crash will never be a problem.

I recently announced admission to the January 2024 batch of my most comprehensive classroom course in Value Investing titled – Value Investing Blueprint.

This residential course is scheduled to be held from 11th to 14th January 2024, at the campus of Pune-based FLAME University. The last date to apply is 10th December, 2023.

Click here to read more and apply if you are interested in joining this course.

Since it’s a classroom course, seats are limited.

The course will take you through the entire process of practicing value investing to identify long term wealth creating stocks. This includes helping you:

Create the right value investing mindset and build a behavioural framework to avoid biases and create the right investment thought process.
Assess business quality – separating good from gruesome
Analyze financial statements to find well-performing businesses
Calculate intrinsic valuations using various methods
Identify competitive moats and whether they are sustainable
Build a portfolio of sound, wealth-creating businesses

Click here to read more and apply if you are interested in joining this course.

Read a newspaper headline – “Blood on street for sixth day in a row.”

My first reaction? Blood? Already?

The headline reminded me of my younger self, utterly scared of injections (still am). I started wailing even before the doctor pulled out the syringe. For people already seeing “blood” on the street, just the syringe is out for now. “Blood” is still some time away. Stop wailing.

I have started work on a series of short videos – titled The Inner Game – to share my thoughts around investing, decision making, learning, and just the practice of trying to live a good life. Have published ten videos so far, which you can watch on my YouTube channel, including these recent ones –

Hope you like these and find some value.

Here’s a nice note from Byron Wien, American investor and vice chairman of Blackstone Advisory Partners, who passed away just two days back. I came across this note recently, and immediately thought of sharing with you. It contains Wien’s lessons that he learned in his “first 80 years” (he died at 90). These are more a set of life principles, one of which is –

Every year try doing something you have never done before that is totally out of your comfort zone. It could be running a marathon, attending a conference that interests you on an off-beat subject that will be populated by people very different from your usual circle of associates and friends or traveling to an obscure destination alone. This will add to the essential process of self-discovery.

Starting a solo podcast – The Inner Game, as mentioned above – is that act I have undertaken to push myself out of my comfort zone. I also see it as part of my process of self-discovery. Let’s see how far I go with it.

Anyways, here’s a second nice lesson from Wien –

When your children are grown or if you have no children, always find someone younger to mentor. It is very satisfying to help someone steer through life’s obstacles, and you’ll be surprised at how much you will learn in the process.

That’s about it from me for today.

If you liked this post, please share with others on WhatsApp, Twitter, LinkedIn. Or just email them the link to this post.

If you are seeing this newsletter for the first time, you may subscribe here.

Stay safe.

Regards, Vishal

The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life