Investing Behaviour

What Are You Afraid Of?

September 24, 2018 | Leave a Comment

I am in Chennai for my Value Investing Workshop that happened yesterday.

After my session, I went to meet a friend in the evening. His residential society had organized a bicycle race for kids. I saw more than 50 kids out there jostling for space meant for not more than 10 cyclists. Worse, most of them were without a helmet.

Now, letting your child cycle without a helmet may be ten times riskier than feeding him a course of dangerous non-steroidal anti-inflammatory drugs. And a thousand times riskier than flying in an airplane.

Moving in the front seat of a car without a seatbelt (which most people, especially teens, do when the policeman is not watching) is hundred times riskier than many common and ‘scary’ diseases in India, like swine flu.

Yet we obsess about the low probability events and take big chances with the high probability ones. Why?

Investing and the Art of Stillness

September 17, 2018 | 1 Comment

This is the fourth issue of Outside the Box newsletter, and is authored by my friend Arpit Ranka. Arpit is a value investor based out of Mumbai. He has worked with two of the leading value investors in India, Prof. Sanjay Bakshi and Late Mr. Parag Parikh before starting out on his own.

In this post, Arpit talks about how we, as investors, need to embrace the good, bad, and ugly side of every investment thesis/strategy and be willing to live through all the seasons, if we have to stand a chance to succeed in the long run. Over to him.

The Art of Stillness
by Arpit Ranka

The noted English singer and songwriter John Lennon said, “Life is what happens while you are busy making plans.”

As an investor, I can tweak this thought to — “Investing is what happens when you are busy pursuing the next big investment idea.”

No doubt that ideation is a very integral part of any investment process but then equally central is to develop a mindset, which allows us to capitalize on the full potential of that investment strategy.

Remembering the 2008 Crisis, and A Few Lessons Learned

September 14, 2018 | 3 Comments

It seems like yesterday, but it was ten years ago. I was in the US for a conference and, on 15th September 2008, was visiting the Wall Street to check out the heart (maybe, the dark underbelly) of the global financial system.

I had just reached there after a visiting the site of the World Trade Center, which was tragically brought down on 11th September seven years ago.

Now, another tragedy was about to happen just five miles from where I was. This time it wasn’t about loss of lives but of livelihood.

Lehman Brothers declared bankruptcy and the world financial system was on the verge of collapsing. It was, and remains, the largest bankruptcy filing in the US history, with Lehman holding over US$ 600 billion in assets, supported by less than US$ 25 billion of own capital. That’s around 23-times debt to equity. In such a highly leveraged structure, a 4-5% percent decline in asset values would wipe out all capital, which it did.

Of Politics, Biases, and Investing

September 10, 2018 | 3 Comments

First, an update. I did my Value Investing Workshop in Bangalore yesterday, and received an overwhelming reponse…

The upcoming sessions are in Chennai (23rd Sept), Mumbai (30th Sept), and Hyderabad (7th Oct). If you wish to register for any of these, please click here.

Coming to this post, this is the third issue of Outside the Box newsletter, and is authored by my friend Ninad Kunder. Ninad runs a venture in the HR staffing space and manages family money. Shuffling between these two hats has helped him both in business and value investing.

The 9 Biases of Value Investors

September 4, 2018 | 4 Comments

“The first principle is that you must not fool yourself — and you are the easiest person to fool.” ~ Richard Feynman

In the 1970s, two psychologists – Daniel Kahneman and Amos Tversky – proved, once and for all, that humans are not rational creatures. They discovered what we now know as “cognitive biases,” showing that humans systematically make choices that defy clear logic.

Now, having these biases and getting influenced by them is often not a bad thing. These have helped us survive for ages. Also, while we don’t always make decisions by carefully weighing up the facts, we often make better decisions as a result. This is applicable to most of what we do in life.

However, when it comes to investment decision making, our biases may get us into (big) trouble. What is more, the irony about these biases is that the more we read about them, the more we believe that we don’t suffer from them as much as others do.

In this second issue of Outside the Box newsletter, my friend Neeraj Marathe pokes a hole in this kind of thinking.

Neeraj is a Pune-based investor, trying to practice value-based investing. He is a SEBI-registered Research Analyst. He has been teaching Security Analysis, Portfolio Management and Behavioural Finance in a few B-schools for the past 12 years.