Investing Behaviour

What A Tulip Can Tell You About Sensex Reaching (Or Not Reaching) 100,000

This post has been authored by Dev Ashish of Stable Investor.

Tulip You must be wondering whether what you just read in the title of this post is correct or not? Isn’t it?

You are being told that a flower can tell you whether Sensex can reach 100,000 or not? Now this is really strange.

Not Warren Buffett. Not Charlie Munger. But a flower?

Well, a flower can help you in answering the question whether the Sensex will reach 1 Lac or not. But mind you, this figure of 1 lac is not a figure of imagination which I have pulled out of a magician’s hat. This is a number which has the blessings of many so-called market experts.

But for the time being, let’s park the discussion of whether Sensex will reach that target or not.

Let’s get back to the story of Tulip.

Are You Right Because Your Stock Moved Up 200%?

I find a lot of Mrs. and Mr. Right these days in the stock market – people who bought a few stocks in the past 6-12 months and have seen all or most of them sky-rocket 100-200% since then.

For instance, a schoolmate who is a housewife with no business dealing in stocks, has started recommending trading tips in our batch’s online group, “because” she is getting her price calls right!

Then, someone wrote to me yesterday “praising” how my “recommendations” like BHEL, Engineers India, Crompton, Voltas, HMVL and Tata Motors have finally been “successful” as they have risen sharply in prices.

This very person had written a hate mail to me last year when some of these stocks – or let me say, their prices – were down in the dumps. 😉

Such is the way we behave as investors.

What Are Your Stocks Telling You…About You?

I’ve always believed that there’s more wisdom, insight and instruction to be found in your day to day experiences and results than you will ever find in any book.

There’s much more you can learn from your own life and from the lives of people around you, then you would from the eminent alive and the eminent dead.

But you must pay attention. You must be conscious. You’ll see and learn nothing with your eyes and mind closed. And because it’s your life that’s providing the information, wisdom, insight and instruction that I speak of, it’s all totally specific to you. No book is going to give you that!

This also holds true of your stock investments.

What lies already inside your portfolio says a lot about you.

The Investor Who’s Always Right

If you look back at the careers of the world’s most successful investors, a large majority of them have learned about successful investing in the best possible way – by making mistakes.

Warren Buffett did it with Berkshire Hathaway – the textile business. Charlie Munger admits he still makes mistakes even after many decades as a business person and investor. He has also said that it is important to “rub your nose” in your mistakes.

Doing wrong, or making mistakes (in investing or in life) is inevitable.

As Einstein once said, anyone who has never made a mistake (if there is such a person) has never tried anything new.

Value Investing, the Sanjay Bakshi Way 2.0 – Part 2

Image Source: Outlook India

After talking about the important concept of economic moats in the first part of his interview, in this second and concluding part, Prof. Bakshi talks about his thoughts on valuations, mental models, diversification, checklists, and why you must buy great businesses for the long term.

Safal Niveshak: One of the problems that new or small investors have is that they can’t really get their heads around valuation. It seems so complex. A lot of the terminology is complex, the concepts are, and there is a lot of contrary thinking needed to effectively value businesses.

How can valuations be made easier? How have you made it easier? Or can it not be made easier?

Prof. Bakshi: Vishal, that particular problem is equally applicable to large investors!

Anyway, over the years I have dealt with the problem in many ways. As a disciple of Ben Graham, when working on any business and not necessarily moats, I developed my own ways of thinking about valuation.

Value Investing, the Sanjay Bakshi Way 2.0 – Part 1

Image Source: Outlook India

After much delay owing to issues in getting mutually convenient dates, I have finally finished my interview of Prof. Sanjay Bakshi. 🙂

Here is the first part of the interview. As you will find below, it’s amazing the way Prof. Bakshi has explained critical concepts in investing in a highly comprehensive yet simplified manner.

Enjoy the wisdom!

Safal Niveshak: Let me start with a question I have been waiting to ask you for some time now. Through a comment on a link I shared on FB and through a few of your posts over the past few months, you have suggested that your investment philosophy has moved further towards high quality businesses, and great managements. Can you please elaborate on the same? What has been this transition all about? And why?

Prof. Bakshi: I started my career as a value investor in 1994. Over the last twenty years, I have practiced most styles of value investing including as Graham-and-Dodd style of investing in statistical bargains, risk arbitrage, activist investing, bankruptcy workouts, and Warren Buffett style of investing in moats. There have been times when I have owned 40 stocks and times when I have owned just 10.

I teach all these value investing styles in my course at MDI. I tell my students that they need to pick a style which suits their personality.

A Fundoo Professor Called Sanjay Bakshi

In my preparation for the upcoming interview of Prof. Sanjay Bakshi (this Sunday), I was reading through a few of his past articles and lectures, when a thought struck my mind.

A lot of Safal Niveshak tribesmen still do not know much about Prof. Bakshi and his vast investment insights, except for his interview that I carried in 2012.

As such, I have created a special page on the website dedicated to Prof (after due permission from him), who is one of the best minds in India in the fields of Value Investing and Behavioral Finance.

This page is a collection of my best picks from among his vast writings that are available on his blog as well.

Start by reading about Prof. Bakshi’s life story. Then read through some of his best posts (as per me) I have listed on the page.

I’m sure you will benefit a lot from them in your efforts of becoming a sensible, long-term investor.

Reading Prof. Bakshi has been an important step in my work-in-progress of becoming what Charlie Munger calls a ‘learning machine’. I’m sure it won’t be any different for you.

P.S. This page has been created after due permission from Prof. Bakshi.

Warren Buffett’s Age-Old Secret on How to Get Rich

Have you ever wondered why we are willing to hold on to our real estate investments for years even as we trade in and out of stocks?

So, we may buy and/or sell just 1-2 properties in our lifetimes, but the count of stocks we move in and move out of runs into 100s.

Of course the size of the investment plus ability to liquidate (buy and sell) is one factor. But the most important factor that is at work here is – Stocks provide you minute-to-minute valuations for your holdings, whereas you don’t see quotations for your real estate holdings so frequently.

When it comes to stocks, Ben Graham’s mentally-ill fellow Mr. Market comes to you daily and quotes a random price that causes you to behave irrationally.

“Don’t just sit there, do something!” he shouts at you daily, and you gladly take his advice and buy stocks when he quotes a high price and sell when he quotes a lower price.

Do You Own the Stock or Does The Stock Own You?

That successful investing is more a matter of a strong heart than a strong mind is something I have repeated innumerable times on Safal Niveshak.

Of course, succeeding as an investor requires a strong mind – the ability to study and identify the good and great businesses while avoiding the gruesome.

But what you need is a stronger heart so as to keep your emotions at bay and behaviour in check, especially when stocks plunge – or soar.

I met a friend yesterday who has multiplied his money 8x in Symphony Ltd. in less than four years. Prior to that, I met a relative few weeks back who has grown his money in Bajaj Finance 6x in less than 5 years.

Surprisingly, instead of being happy about their stupendous gains in these stocks, these people were suffering from a peculiar fear.

In fact, I must not term their fear as surprising or peculiar because this is the exact emotion I have gone through a few times in my own investing life.

Like when I was sitting on a 5x gain in Page Industries in January 2011 and 7x in KPIT Technologies in October 2013.

How to Lose Big Money in 2014

“All men’s miseries derive from not being able to sit in a quiet room alone.” ~ Blaise Pascal

One of the many investing mistakes I made during the early part of my investing career was to be rash with cash.

Any extra cash I ever had was immediately invested in the stock market. Cash in bank was considered a wasted opportunity and every chance to “let-me-buy-stocks-now” was grabbed upon.

In the pre-2008 period, I invested a lot of the cash while keeping my eye on stock prices that were rising incessantly.

I see a lot of investors making a similar mistake now.

After getting frustrated by the way stock prices have performed over the past few years, any stock market rise is first disbelieved and then when prices rise further, people jump in so as to not miss out on any further rise.