Investing

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Two Big Lessons from History

I was never fond of history in school. I am, now.

The difference, as I realize, has occurred due to the way the subject was taught to me in school and the way I have come to look at it over the past few years.

What I was taught in school were the details – British Rule, French Revolution, World Wars, etc. – and the rote learning that had to accompany it.

What I now love about the subject is simply the concept of it, how we have come to be since humans first walked the Earth, how our thinking has evolved, and how some things have not changed at all.

Safal Niveshak is 8 Years Old

Yep, it’s time to put on the big boy pants…Safal Niveshak completes eight years today. 🙂

As per my son’s pediatrician, eight-year-olds start developing complex language skills. Their focus and attention span improves. Around this age, they see that some words have more than one meaning. That helps them understand jokes and puns and start verbally expressing a sense of humor. Kids this age also show fast growth in mental ability.

Well, except moving towards greater simplicity, not complexity, this eight-year-old named Safal Niveshak seems to match the doctor’s description to the tee. That makes me happy. 🙂

Anyways, I started this initiative with a simple idea in 2011 – that of helping people become better at their stock market investment decisions. The idea was just that, and I had no clue how I would do it (I still have no clue how I would do it tomorrow or the day after!)

However, a lot has happened in these eight quick years – and the tribe is reaching 60,000 members. But as with any kid of this age, we’re just getting started.

Most of all, I want to thank 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 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.

Just in case Safal Niveshak has touched your life, I would be happy and honoured to read your thoughts in the Comments section of this post.

By the way, “eight,” also known as ashtha in Sanskrit, is the number of wealth and abundance. That is what I wish for you, dear tribe member.

Thanks again for being there!

With respect,
Vishal

We the Corrupt

Disclaimer: I am not in a bad mood today, and this is not an anti-national post. I love my country and its people. These are just some thoughts on my general observations over the years, so please don’t take any of what you read below personally. And if you do take it personally, please keep it personal.😊

As I boarded my return flight to India recently, I heard some noises coming from near the back rows of the airplane. It appeared that two middle-aged men and their wives were shouting at each other.

The reason? One of the Indian couples had occupied the luggage rack above the seats of the second couple. As was visible from my seat, there were empty racks close to the one these guys were fighting for, but this was seemingly a prized one for which they were shouting at the top of their voices.

As I was taking my seat, a similar hustle, though relatively more civilized happened just next to me. This time it was two aunties who were at loggerheads about their spaces.

Anyways, flights to India, and in India, are a sight to watch when the plane lands and stops at the parking lot. Passengers get up from their seats in such a hurry as if the flight would take off again in the next few seconds and they would miss getting out!

[Read more…] about We the Corrupt

Being Average in the Age of Alpha

I was an average student in school. Though I was surrounded by high achievers, and never questioned the importance of being extraordinary, I somehow never expected myself to rise to their levels. The most common remark I found in my annual report cards read something like this – “An obedient boy who can do better than average with more hard work.”

I knew I could not work any harder and rise above being average.

Anyways, I never had the credentials to get into the best college after school, there were no scholarships on offer for me, and no one in my family, including myself, expected me to become a star in life.

Life continued this way even when I got into doing my MBA, again from an average college in Mumbai. My first job profile was average too, and it paid an average salary that, in my father’s eyes, was below average.

Living in a costly city like Mumbai also meant I never had better than average savings for the first few years of my life, even though I was saving as much as possible.

More than twenty-five years have passed since I started considering myself as an average person with average capabilities and average ambitions in life. Somehow, being like this in the world where people are seeking alpha, keeps me happy and satisfied with myself.

Buy and Hold: Simple, NOT Easy

This is the stock price chart of Asian Paints over the past 19 years (since May 2000). Point to point, the stock is up over 80x.

Our brain that works with perfection in hindsight would lead us to believe that buying and holding the stock during these 19 years would have been an easy choice for anyone who did it. After all, the only thing the investor would have done during these 19 years was, well, nothing.

I wish investing was that easy.

Of course, the idea of buying and holding high-quality businesses over a long period of time is simple. Everyone knows that, and even those who don’t practice it appreciate that this works with most high-quality businesses as history has proven time and again.

But then, it’s important to understand that the action of not doing anything over such a long period of time involves hundreds of decisions over months and years that lead to such inaction.

Latticework of Mental Models: The Rashomon Effect

The parable of six blind men and an elephant, goes like this —

When a group of blind men, who had never come across an elephant before, encounter the tusker for the first time, they try to conceptualize the animal by touching it. Each blind man feels a different part of the elephant’s body, but only one body part, such as the tail or the trunk. Then they discuss their understanding about the elephant.

The man who had touched the elephant’s side says, “It’s very much like a wall.”

The one who held the elephant’s tusk declares, “No! it’s like a smooth spear.”

“Not really. It’s like a python.” Claims the man who grabbed the trunk.

“You’re all mistaken.” shouts the man who got the elephant’s tail. “It’s like a thick rope.”

“I know we’re all blind but have you guys lost your mind also?” The fifth man who touched the animal’s ears says, “It’s like a big fan.”

“Come on, folks! What’s wrong with all of you?” Argues the sixth man who was leaning against the elephant’s knee, “It’s definitely like a tree.” [Read more…] about Latticework of Mental Models: The Rashomon Effect

Investing and the Art of Due Diligence

In the 2008 shareholder meeting of Berkshire Hathaway, a shareholder asked Warren Buffett and Charlie Munger –

“If you could not talk with management, could not read the annual report, and did not know the stock price of the company, but were only allowed to look at its financial statements, what metric would you look at to help you determine whether you should buy the company?”

They replied –

Buffett: Well, what we’re doing in investment – and what everybody does – is we’re laying out money now to get more money back later on.

Now, let’s leave the market aspect of the asset out of it. When you buy a farm, you really aren’t thinking about what the market on it is going to be tomorrow, next week, or next month. You’re thinking about how many bushels of beans or corn per acre you can get, and what the price is likely to be. You’re looking to the asset itself.

[Read more…] about Investing and the Art of Due Diligence

The Risks of Speculating During Rising Markets

It was sometime during late 1999 through early 2000, near the peak of the dot-com bubble, the legendary George Soros and his hedge-fund team were working on how to prepare for the inevitable sell-off in technology stocks.

The man in charge of Soros’ high profile technology funds was Stanley Druckenmiller – one of the best-performing hedge fund managers of all time, till date – and he was busy warning his team that the sell-off could be near and could be brutal.

As the markets soared further in March 2000, Druckenmiller was quoted as saying, “I don’t like this market. I think we should probably lighten up.” Soros himself would regularly warn his team that tech stocks were a bubble set to burst.

Despite this, when the sell-off finally did begin in mid-March 2000, Soros Fund Management wasn’t ready for it. His funds were still loaded with high-tech and biotech stocks. Just in five days, starting 15th March, Soros’s flagship Quantum Fund saw what had been a 2% year-to-date gain turn into an 11% loss. By the end of April, the Quantum Fund was down 22% since the start of the year, and the smaller Quota Fund was down 32%.

Post that, in April 2000, Soros said at a conference, “Maybe I don’t understand the market. Maybe the music has stopped, but people are still dancing.”

Wandering with a Beginner’s Mind

Among all the contemporary business leaders, very few come close to Jeff Bezos’ talent for communicating business strategies in a simplified manner. Like Warren Buffett, Bezos writes an open letter to Amazon’s shareholders every year. He’s been doing it for over two decades.

These letters have become an extraordinary source of insight into how Bezos (the world’s richest man) and his company (Amazon) think about customers, innovation, building products, and future.

Amazon started as an online bookselling platform and interestingly didn’t turn a profit for the first six years. Today it’s the second publicly traded company (after Apple) to ever hit a market capitalization of $1 trillion.

Like me, if you’re an admirer of Bezos, then you’re in the good company of people like Warren Buffett and Charlie Munger who are also big fans of the Amazon CEO. Buffett and Munger admit that they failed to see Bezos’ genius early on. Buffett called him the most remarkable business person of our age. Munger, in his nonchalant voice, said, “Jeff Bezos is a different species.”
[Read more…] about Wandering with a Beginner’s Mind

Investing’s False Positives

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It was sometime in early 2009 that, as I was running my screeners to find investment-worthy businesses, I came across a Delhi based packaging firm Uflex Ltd.

The company was involved in the flexible packaging business, was doing well in terms of growth, and expanding globally. What’s more, the stock was available at a single-digit P/E.

In all, it sounded like a great investment that was available cheap. Anyways, while I was busy preparing my rosy predictions for the business and the stock, I was warned by an analyst friend about some shady land dealings he had heard of about the company’s promoters. What is more, the promoters had pledged a large amount of their shareholding.