Blog on Value Investing | Safal Niveshak

Dealing with Failure in Life and Investing: Lessons from the Chaos Monkey

Amazon Web Services (AWS) is the Titanic of cloud hosting. It provides on-demand cloud computing platforms to both individuals, companies, and governments, on a paid subscription basis. The platform is designed as a backup to the backups’ backups that prevents hosted websites – including some of the largest in the world – and applications from failing.

Yet, like the Titanic, AWS crashed in April 2011, taking with it popular websites like Reddit, Quora, FourSquare, HootSuite, and New York Times, among many others, for four days.

It faced another major outage in February 2017, which again brought a large number of key websites down on their knees.

There was, however, one site that kept chugging along well during both these instances, despite also having AWS as its host at both the occasions.

This was Netflix, the world’s leading streaming video website and one that owns a dominant share of downstream Internet traffic – almost 35%; double of YouTube – in North America during peak evening hours.

Safal Niveshak is 6 Years Old!

Birthdays aren’t a big deal when you grow up. And if you are like me, with a fading memory, you sometimes forget that you are growing up fast.

Like it happened yesterday. It took a reminder from someone to, well, remind me that it was Safal Niveshak’s birthday. 😉

So, this initiative that I started in 2011 with just one reader – yours truly – has completed six years. The tribe is now 32,422 members strong, with one-third of these coming in the last twelve months.

A lot has happened in these quick six years, but as with my six-year-old son, Safal Niveshak is just getting started.

Most of all, I want to thank each and every one of you for “raising” this initiative to this point — it truly could not have happened without you, dear tribe member.

I know I’ve said it before, but it bears repeating – Thank you so much for reading, for commenting, for your interest and support, for keeping me honest, for helping this entire movement of creating smarter and independent stock market investors become greater and spread wider.

You are magnificent, and I am supremely grateful for your time and attention.

10-Point Action Plan for a Young Earner

Noted Irish playwright and philosopher George Bernard Shaw opined, “Youth is wasted on the young.”

What he possibly meant was that many young people have everything going for them physically; they’re in the best health they will ever be in, and their minds are sharp and clear.

However, they lack patience, understanding, and wisdom which results in so much wasted efforts.

The energy that can be directed towards building a solid thought process and action plan for the future is spent on short-lived pleasures.

Shaw’s words are especially applicable to those young adults who are starting a career and wondering if they should start saving and investing for their future or spend the next few years living life kingsize.

Value Investor Interview: Brent Beshore

Note: This interview was originally published in the March 2017 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.

Brent Beshore - Value Investing Almanack

Brent Beshore is the Founder and CEO of adventur.es, a family of North American companies that invests in family-owned companies with unfair advantages. For the past nine years, Brent’s firm has started, funded, bought, and operated organizations across a wide range of industries.

The companies adventur.es owns have recruited doctors for the U.S. military, provided online public relations to some of the world’s largest organizations, manufactured cutting-edge home solutions, created software products for small businesses, curated the latest in women’s fashion to sell on the internet, and even helped make a couple of blockbuster movies.

Brent founded adventur.es in 2007 with the goal of creating an organization that allowed him to do what he loved, in places he enjoys, with people he admires. Since then, adventur.es has made over 50 investments, and was ranked #28 on the 2011 Inc. 500. Brent reads a lot, writes occasionally, dabbles in wine-making, and was nominated for a VH1 Do Something Award for helping his hometown of Joplin, Mo. recover from the devastating tornado.

As you would have understood from Brent’s profile, he isn’t a typical public markets investor like the ones I usually profile in this series, but an owner of private businesses. The thoughts Brent has shared in this interview, however, are equally valuable for a public market investor, as you would realize as you read forward.

So, over to Brent!

Announcing Camp Millionaire – Money Workshop for Children

Given how important financial skills are to navigating life, it’s surprising that our schools don’t teach children about money.

How many of us look back at our childhood and wish we would’ve been taught more about money? A lot of people graduate from college without any idea how to manage their money or balance their bank account. Maybe you were one of them.

Now that you’ve learned more about managing your money right, I am sure you want to help your kids not make the same mistakes. But then, even when many parents know it’s important to teach their children about money matters at a young age, most don’t know where to start or how to go about it.

I have been through this situation wherein, despite knowing what to teach my kids about money, I lacked the structure and skills to teach them in the way they would learn best i.e., through games and fun-filled activities.

This was till I met Rachana Thamankar of Thrifty Gene. More on her and her initiative later, but let me take the pleasure to introduce you to a structured, games and activity-based workshop for kids to teach them about money and investing.

Why I Don’t Talk About My Stocks Publicly, And Why You Shouldn’t Either

It was sometime in the middle of 2008 when the realization of a global financial crisis had finally settled on the Indian stock market. I was working on my job as an analyst.

One stock – an Indian engineering major – I had recommended to our clients at the start of the year had fallen around 30% since my recommendation. Not just the stock price, the business had started to wobble. But I closed my eyes to that because my recommendation was now public and many clients would have bought it in their portfolios. To change my view after a 30% cut in stock’s price, however honest I would have been to accept my mistake, would have been a disaster.

Now, this wasn’t just one example that I can think of from that time. There were a few similar such recommendations I and my team had made then.

Some stocks had fallen just because the markets were down. But a few had fallen because their underlying businesses were also bouncing around on a rough wicket.

“What would our clients think of us,” I asked my colleague, “If we change our view now after the stock has already declined? It would hit the trust our clients have on us!” He agreed.

Safal Niveshak Stream – The Powerful Effect of Compounding Goodwill

Some nice stuff I am reading, watching, and observing at the start of this weekend…

Of Greater Fools and Bubbles

How many greater fools does it take to make a bubble? An old but highly relevant post from Jason Zweig…

Economists have struggled and failed to explain why markets turn into manias. Some have denied bubbles exist; others have argued bubbles must somehow be “rational.” Often, the argument is that bubbles are caused by “uninformed” traders, or “dumb money,” while the “smart money” sits on the sidelines.

The latest findings suggest, however, that bubbles might be caused not by traders who lack information but by those who have too much.

Latticework of Mental Models: Risk Aversion Vs Loss Aversion

On April 10, 2003, Pepsi announced a contest called “The Pepsi Billion Dollar Sweepstakes”. It was scheduled to run for 5 months starting from May in the same year.

For the contest, Pepsi printed one billion special codes which could be redeemed either on their website or via postal mail. According to Pepsi’s estimate, about 200-300 million of these codes were redeemed. Out of these, 100 codes were chosen in a random draw to appear in a two-hour live gameshow-style television special. Each of these 100 people were assigned a random 6-digit number, and a chimpanzee (to ensure a truly random number and of course to rule out any monkey business) backstage rolled dice to determine the grand prize number. This number was kept secret and the 10 players whose numbers were closest to it were chosen for the final elimination. On the evening of September 14, the final day of the contest, the event, titled Play for a Billion, was aired live. If a player’s number matched the grand prize number, he would win US$ 1 billion.
(Source: Wikipedia)

Given the scenario, it was highly unlikely that anyone would win a billion dollar. The chances were literally 1 in a billion. In spite of that, Pepsi was unwilling to bear the risk of the possible billion-dollar prize. So they arranged for an insurance company to insure the event. They paid US$ 10 million to Berkshire Hathaway to assume the risk. Yes, Warren Buffett’s Berkshire Hathaway. The same guy who is famous for his two iron rules –

1. Never lose money
2. Don’t forget rule number 1.

Then why would Buffett expose his company to such a big risk for a relatively paltry premium of US$ 10 million? Isn’t this akin to playing Russian roulette?

How to Generate Stock Ideas: An Unusual Lesson from a 1939 Book

One of the best books I read before starting on my journey of building Safal Niveshak was James Webb Young’s A Technique for Producing Ideas, originally published in 1939. After all, I was trying to build my idea bank for things I wanted to do in life then.

In this book, Young lays out with brilliant simplicity the five essential steps for a productive creative process. Explaining how the production of ideas is largely a result of process than talent, he writes –

The production of ideas is just as definite a process as the production of Fords; that the production of ideas, too, runs on an assembly line; that in this production the mind follows an operative technique which can be learned and controlled; and that its effective use is just as much a matter of practice in the technique as is the effective use of any tool.

My limited experience in investing suggests that what is most valuable to know about idea generation is not just where to look for a particular idea, but how to train the brain in the method by which all ideas are produced and how to grasp the principles which are at the source of all ideas.

Being Lucky Vs Being Good

Let’s say you sponsor a contest to determine the “world’s best coin flippers.” About 100,000 people from across the world come together to participate in this contest. Everyone flips a coin at the same time.

After each coin flip, those who flip “tails” must leave, until the only people left have flipped 10 consecutive heads. Basic statistics suggests that we could expect about 98 coin flippers to remain at the end of the contest.

The odds of flipping heads 10 times in a row are 1/2^10 = 1/1024. So, for 100,000 participants, there will be 100,000/1,024 = 98 people who would have flipped 10 consecutive heads.

Then, these 98 “skilled” coin flippers would get thousands of likes on Facebook, and followers on Twitter. Those with the best smile and social media skills will write bestselling books about coin flipping, sharing their secrets of how to become a world-class coin flipper.

Anyways, let’s now consider investing. If just 50% investors outperform the stock market every year, the odds of one investor outperforming every year for 10 years would be 1/1024. That is, just one out of 1,024 investors would achieve this feat of outperforming the market every year for 10 years.