Book Review

30 Big Ideas from Seth Klarman’s Margin of Safety (E-Book)

Seth Klarman of Baupost Group is one of the most esteemed investors in the current era.

Since he established his investment partnership in 1983, Klarman has consistently delivered exceptional returns. Additionally, he has contributed insightful and enduring observations on the dynamics of markets and the intricacies of investment practice.

He wrote “Margin of Safety: Risk Averse Investing Strategies for the Thoughtful Investor,” a book that has been celebrated as a cornerstone of value investing since its release in 1991.

As I was re-reading Margin of Safety, I thought of collating the key ideas Klarman has written about, and present to you as a compilation.

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28 Big Ideas on Investing, Business, Life, Behaviour, and Thinking (Special E-Book)

The world around us is changing pretty fast. Modern computers are becoming cheaper, faster and more intelligent than ever, which means they are ready to replace a large part of human workforce.

The day is not far when your work and skills will be threatened by artificial intelligence. To stay relevant, you need to ensure that you remain valuable to the society in a way which can’t be substituted by a robot.

And your only chance to remain valuable is by being a constant learner…a learning machine, as Charlie Munger says. In fact, he has been saying this for years –

I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.

The question is where do you start? There is so much to learn all around, and so little time.

Start with our latest special e-book – 28 Big Ideas on Investing, Business, Life, Behaviour, and Thinking.

Book Review: Investing Between The Lines

Note: This book review was originally published in the May 2016 edition of our premium newsletter Value Investing Almanack. To know more and subscribe, please click here.

When an investor starts investigating a business, the first thing he wants to know is if the business is strong and profitable? And he can usually find the answer from the company’s annual report by reading the numbers like net earnings, debt, cash flow, profitability ratios etc.

The next question is, how accurate or authentic those numbers are? Of course, they are verified by auditors. But even Enron and Satyam numbers were also certified by auditors. And both of them ended up as biggest accounting scandals.

As an investor, how do you know that the management is telling you the truth? And how does an honest CEO communicate with the shareholders in a manner which establishes trust?

Laura Rittenhouse, in her book Investing Between The Lines, attempts to answer the above questions. She offers clues to separate the facts from the fluff in annual reports and quarterly earnings calls. Rittenhouse had raised a red flag on Enron, much before it collapsed, noticing a discrepancy between the net income cited in its CEO letter and its audited financial statement, among other things.

Results: Book Review Contest 2016

Safal Niveshak Book Review Contest 2016 We recently concluded the first edition of Safal Niveshak’s Book Review Contest. Today, I feel happy to announce the winners of the same.

We received 22 entries in total and found it extremely tough to rank most of them in terms of quality, simplicity, and thoroughness of review.

While our choice of winners does not devalue the quality of reviews sent by others, it’s just that we had to pick the best very few, and here they are –

1st Prize

Vikas Kasturi – Education of a Value Investor

2nd Prize

Prashanth Rayakar – A Random Walk Down Wall Street

3rd Prize

Akshay Malhotra – Rich Dad Poor Dad

4th Prize

Pranay Bhatia – How Adam Smith Can Change Your Life

5th Prize

Rohit Kawathekar – The Outsiders

Here are the prizes winners have won –

1st Prize – Books of choice, worth Rs 3,000/-
2nd Prize – Books of choice, worth Rs 2,500/-
3rd Prize – Books of choice, worth Rs 2,000/-
4th Prize – Books of choice, worth Rs 1,500/-
5th Prize – Books of choice, worth Rs 1,000/-

Congratulations to all the winners, and thanks to all who participated!

Click here to view/download all the submitted entries.

Safal Niveshak Book Review Contest 2016

It’s said whenever you read a good book, somewhere in the world a door opens to allow in more light. I don’t know about you but for me there have certainly been instances when a book changed the course of my life completely, for the good.

But there are hundreds and thousands of books out there. And if you don’t read the best books first, you may not have a chance to read them at all. So it’s vitally important that you pick up the best books first.

Now how do you find the best books? Here’s a clue – to get something, you have to learn to give first.

Drawing the analogy, to receive the best recommendation about books, you need to first offer a good recommendation about your favourite book. Isn’t it?

13 Big Ideas from Mohnish Pabrai’s Mosaic – Perspectives on Investing

Note: This book review was originally published in the March 2015 edition of our premium newsletter Value Investing Almanack. To know more and subscribe, please click here.

I am sure the author of this book needs no introduction, but for the benefit of people who don’t know much about him, I am going to start with an interesting trivia.

How much would you pay to have lunch with Warren Buffett? How about Rs 4 crore?

Don’t be surprised because that’s the amount Mohnish Pabrai (along with his friend Guy Spier) paid to have a private lunch with Warren Buffett in 2006.

Mohnish manages US$ 850+ million US based fund called Pabrai Funds and is a hardcore Buffett disciple. He has written another popular book called The Dhandho Investor. However, the book I am talking about here is a rare one.

A Crash Course in Building Your Latticework of Mental Models

Note: This is a review of Robert Hagstrom’s book Latticework – The New Investing [1]. This review first appeared in February 2015 issue of our premium newsletter, Value Investing Almanack.

As a school kid, when I was taught to solve a mathematical problem in a certain way, nobody encouraged me further to attempt the same problem in another way. You know why? Because in our traditional education system we have been trained to think in a limited way.

Charlie Munger, the inimitable vice chairman of Berkshire Hathaway, calls this a-man-with-a-hammer syndrome – To a man with hammer, every problem looks like a nail. So how do you overcome this handicap? The answer lies in developing a sound thinking process and that’s where multidisciplinary learning comes into picture.

Hagstrom’s book, unlike most other investment books, is about Munger’s way of learning – multidisciplinary education. So I won’t advise you to read this book if all you are looking for is magic formulas or readymade rules of sound investing.

This is a powerful book arguing for the importance of a multidisciplinary approach to investing. So if you are one amongst the many investors who have been searching out companies to invest in for a number of years and all you have learned is to plug basic financial information into excel models, this book will give you some new mental tools to assist your analysis.

The term latticework is attributed to Charlie Munger. He views a latticework of mental models [2] as an interlocking structure of ideas that is clearly multidisciplinary in nature. Drawing from this transdisciplinary focus, Hagstrom takes us through some key principles or laws from a number of disciplines such as psychology, physics, biology, and philosophy, among others. He then applies these theories to investing and the stock market.

Hagstrom argues that a successful stock picker must be ready to shift models and look at the markets from different vantage points with the passage of time. Instead of working like an analyst – using just factual information to plug into excel models – investors need to regard the insights or models from other disciplines too.

The task of the investor, Hagstrom explains, is to be well-read and always be on lookout for new perspective of understanding the world around us.

Anyways, before talking about this book, let me share with you a quote from Charlie Munger –

You must know the big ideas in the big disciplines, and use them routinely…if the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience – both vicarious and direct – on this latticework of models.

Book Review: A Short History of Financial Euphoria

This book review has been submitted by Ankit Kanodia.

If anyone would ask me to summarize A Short History of Financial Euphoria in quick words, I would borrow the following three quotes to make my point…

All I want to know is where I’m going to die so I’ll never go there. ~ Charlie Munger

History does not repeat itself, it rhymes. ~ Mark Twain

There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know. ~ John Kenneth Galbraith

For starters, the book does not give you any tip on how to compound wealth or how to invest to earn great returns on capital. On the contrary, it brings to your notice how you can lose it all and thus how difficult but important it is to avoid that danger.

A small, thin book of only 110 pages, it consists of almost everything one needs to know about the speculative bubbles in economic history.

10 Investing Gems from Peter Lynch’s One Up on Wall Street

This article was originally published in June 2012. I was re-reading Lynch’s book and thought of re-publishing these amazing lessons again.

Peter Lynch's One Up on Wall Street Apart from Benjamin Graham’s The Intelligent Investor, there is no better book to get started for beginners than Peter Lynch’s One Up On Wall Street.

The easy-going and simplistic stock picking style discussed in this book brought Lynch great success in his profession as a fund manager at the US mutual fund company, Fidelity.

The best part about this book is that it’s low on number crunching but high on anecdotal stories. Moreover, readers are given a clear picture on how to get off to a good start in the stock market.

One Up On Wall Street offers insight into the mind of one of the greatest money managers of all times.

Lynch helps you discover that he is a normal guy (like you and me) who thinks rationally, believes in doing his own independent research on companies, asks plenty of questions, and gets caught off guard by the market at times, just like anyone else.

Anyone thinking about buying individual stocks must read this book before they ever make their first stock purchase.

This Small Book Can Make a Big Difference in Your Investing Life

“When in Rome, do as the Romans do,” goes the famous saying.

What this saying suggests is that you need to know the language and customs of people when you visit an unknown society. Doing so is polite, and also advantageous.

The same holds true when you enter the ‘investing society’. Before you enter, your gate pass must show that you understand the language of business.

And what’s the language of business? The answer – Numbers.
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