In July 2016, Bill Gates wrote a memoir on his 25 years of friendship with Warren Buffett. Here is how Gates started his memoir –

I don’t remember the exact day I first met most of my friends, but with Warren Buffett I do. It was 25 years ago today: July 5, 1991.

I think the date stands out in my mind so clearly because it marked the beginning of a new and unexpected friendship for Melinda and me—one that has changed our lives for the better in every imaginable way.

Warren has helped us do two things that are impossible to overdo in one lifetime: learn more and laugh more.

That last note caught my attention. Including the two lessons that Gates learned from Warren, there are four most important lessons I have learned from studying the latter and his partner Charlie Munger over the past 15+ years.

[Read more…]

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. ~ Warren Buffett

My fundamental philosophy of life: Preparation. Discipline. Patience. Decisiveness. ~ Charlie Munger

Combining whatever I have learned from these and other legends of investing, and also my little investment experience spanning the last 14+ years, here is my “framework” for selecting stocks that have mostly worked well for me over time (sorry for a bit darkish image, but it just shows how cloudy it is here where I live).

Click here to download a larger image
A few pointers from this framework –

• Screeners I use – Screener.in, Google Finance
• My screening criteria is what has worked for me over time. You can modify it to suit what you are looking for
• What this framework shows is the science part of investing. The art part involves changing the flow of filters in the funnel to suit your style. So, some people may have the “moat filter” prior to the “financial stability filter,” etc.
• Warning – This framework has also handed me to a few mistakes, so beware. But overall, it has helped me build a portfolio of stocks that have done extremely well over a period of time. How well? I won’t put a number to it. Just that it’s been a number that has helped me build enough to pay off my financial liabilities, quit my job, and work on things and with people I love (don’t want to prove this to anyone). 😉

Anyways, the proof of the pudding is in the eating. So I would suggest you try this process, in case you don’t have one of your own, and let me know your thoughts/results five years from now. 🙂

And by the way, this framework will only help you prepare. You must get discipline, patience and decisiveness on the table yourself.

Send me your thoughts/questions on this framework, in the Comments section of this post.

“Investing is simple, but not easy,” said Charlie Munger.

Why? Because…

Understanding that sensible investing is about buying a thing worth Rs 100 at Rs 50 is simple, but actually buying something worth Rs 100 that falls to Rs 50 is not easy.

Working on spreadsheets is simple, but not twisting spreadsheets to fit your version of reality is not easy.

Calculating past growth and profitability numbers for a business and understanding whether those are good or bad is simple, but actually trying to understand a business deeply enough to visualize how it will look like in the future is not easy.

Knowing that a business has moat as seen from its superior profitability and clean balance sheet is simple, but understanding whether this moat is sustainable or fleeting is not easy.

Calculating book value of a company is simple, but understanding whether that book really has value, and roughly how much, is not easy.

Knowing the results that numbers shout out of financial statements is simple, but knowing which of those results are signal and which are noise is not easy.

Knowing how DCF works is simple, but looking at businesses with a DCF frame of mind is not easy.

Calculating precise intrinsic values for businesses is simple, but trusting approximations that really work is not easy. (Keynes said – “It’s better to be approximately right than precisely wrong.”)

Knowing beta is a measure of volatility is simple, but appreciating that volatility isn’t the real risk you face in investing is not easy.

Understanding that money can multiply 100x in 25 years when you compound at 20% annually is simple, but sitting through these 25 years patiently when others are cashing in after having made 5-10x is not easy.

The celebrated American physicist and a great teacher Richard Feynman said that there’s a big difference between ‘knowing the name of something’ and ‘knowing something’.

Math helps you know the name of a lot of things, which is simple. But it’s your mindset that helps you really know things, which is not easy.

Of course, understanding basic math is a prerequisite for becoming a smarter investor. But if you need math to tell you whether you are doing right in investing or not, you are doing something seriously wrong.

If compound interest is so good, why do we have simple interest?

If bankers know so much about money, they must be the richest in the world, right?

If you get more knowledgeable as you grow up, why don’t you get wiser with money?

Why don’t they teach us about saving and investing in schools?

If saving money is so important, why are you giving us balloons, which is a waste of money?

Well, these were just a few of the many questions that stumped us during the first session of our Camp Millionaire money workshop for children (click here to know more) in Bangalore last Saturday.

We had 32 children in the room, ranging from ages 8 to 15. It was heartening to see a few traveling all the way from far off places like Kerala, Chennai, Gurgaon, Sambalpur, Ichalkaranji, and Kuwait. For us, it was a fascinating experience especially because it was the first time we were handling kids and the subject of money together at one time.

[Read more…]

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.

[Read more…]