Investing

This page contains our best articles on the subject of value investing and investment behaviour.

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Safal Niveshak Stream – September 23, 2016

Some nice stuff we read this morning…

A bored investor is a dangerous thing. Boring market can prod investors into trying to do exciting things, according to Jason Zweig.
Elon Musk has revolutionized four different industries – Automobile, Finance, Energy and Space. What makes him such a brilliant thinker? Find out how Musk learns faster and better than everyone else.
How should we read investor letters? A very useful New Yorker article.
Temperament matters, writes Seth Godin, “And it can be developed like any other skill.”
You can never be sure what the future will look like, but one thing is for sure that it will be very little like we expect.
remember that a management that steals FOR you, will one day steal FROM you.
Bull(S**t) Alert – Loan against shares is back again. Please be safe!

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Latticework of Mental Models: Scarcity Bias

In 1999, on being introduced to the Internet for the very first time, do you know what I did? Like many others, I created a dozen new email accounts. But once I realised the futility of having so many email addresses I discarded almost all of them and stuck to my Yahoo mail. It stayed that way until Gmail arrived.

Some of the Gmail features were quite attractive as compared to Yahoo but what made the former very tempting was its policy of invite-only registrations. You couldn’t get a Gmail account unless someone with Gmail invited you. This made me want it even more. But why?

Folks at Google certainly understood human behaviour better than anyone else. They used the principle of Scarcity Bias to make their product more appealing.

Scarcity principle states that people assign more value to opportunities when they are less available. In other words, things seem more valuable to us when their availability is limited. This bias stems from the basic human tendency to shun losses.

Daniel Kahneman, who is known for his pioneering work in the field of behavioural economics, came up with the Loss Aversion theory, which explains the root of many of the human psychological biases. The theory says that human beings are motivated more by the thought of losing something than by the thought of gaining something of equal value. This is especially true under conditions of risk and uncertainty.

Put simply, the threat of potential loss plays a powerful role in human decision making.

Safal Niveshak Stream – September 22, 2016

Some great stuff we read this morning…

The big fight is on – interesting perspectives on Flipkart vs Amazon.
Benjamin Franklin did this one hour a day, five hours a week. Read what it is and why you should do it too.
10 things found in Warren Buffett’s office.
Stunning videos of evolution in action. Harvard scientists designed a fascinating experiment that enabled them to watch bacteria adapting to antibiotics before their eyes.
If you can recreate the material that you’ve digested then you truly understand it. A wonderful read on power of writing what you read.
Collection of words of wisdom to aspiring value investors from some of the more experienced value investing practitioners.
Bruce Lee on willpower, emotion, reason, memory, imagination, and confidence.
Michael Mauboussin reflects on ten attributes of great investors.
Insight from Howard Schultz’s book Pour Your Heart Into It. Schultz is the creator of the super brand Starbucks…

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Safal Niveshak Stream – September 21, 2016

Some nice stuff we read this morning…

What a time to be alive!
Ways to apply the lessons from Howard Marks’ “The Most Important Thing.”
Does Uber’s US$ 69 billion valuation makes sense only in a world where it’s the only player in town? Some nice insights here.
22 lessons from Stephen King on how to be a great writer.
Where creativity comes from: Studies of humans and other animals indicate that inventiveness often stems from factors other than need.
Rule No. 1 – Never LOSE money. (Image Source – Nassim Taleb’s Logic of Risk Taking)

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Investing and the Paradox of Perfection

A lot of people I meet in the startup world and in investing are aiming for that perfect start when all their stars will align to take them off to the moon.

So, some keep waiting for their “best product” or “best design” before starting up their businesses, and others wait for the “perfect business to invest in” or “perfect price to invest at” before starting to invest their money.

The reason? They don’t want to be criticized for any mistake – like not getting business, or temporarily losing money in the stock market – they may make due to not being perfect at the start.

If you think about why we feel the need to be perfect in the first place, it all goes back to how we think about ourselves and our self-worth. If we have a strong desire to be perfect, then we may use the idea of perfection as a way to validate ourselves as worthy and valuable human beings.

Latticework of Mental Models: Hawthorne Effect

The Hawthorne plant of the Western Electric Company in Cicero, Illinois, figured out, albeit accidentally that increasing lighting in the plant made workers more productive. Then someone pointed out a confusing detail. Productivity also improved when they dimmed the lighting. In fact, making any change at all seemed to result in increased productivity. That was a surprising finding.

It turned out that the workers seemed to be responding more to the attention they were receiving from management than to any physical change in their environment. With each change, the workers suspected (consciously or unconsciously) they were being observed and therefore worked harder.

This phenomenon came to be known as the Hawthorne Effect. It states that the very fact that people are under study, observation or investigation can have an effect on them and the results.

An Advice to CEOs: Plain English, Please

In August 1998, the US stock market regulator, Securities and Exchange Commission (SEC) released a book called A Plain English Handbook.

You may wonder, “What business does a stock market regulator has to focus on plain English?”

The SEC released this handbook to show corporate managers, especially CEOs, how they could use well-established techniques for writing in plain English to create clearer and more informative disclosure documents like annual reports, while meeting all legal requirements.

The preface of the handbook was written by none other than Warren Buffett – the man who writes the world’s best shareholders letters – and this is what he wrote –

For more than forty years, I’ve studied the documents that public companies file. Too often, I’ve been unable to decipher just what is being said or, worse yet, had to conclude that nothing was being said.

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Investing and Fear of Missing Out

We conducted our Value Investing Workshop in Ahmedabad yesterday, and here are the tribe members…

Let’s get to today’s post…

“You know I saved 50 rupees today,” declares the husband to his wife as he enters the house in the evening.

“And how did you do that?” the surprised wife asks.

“I missed the bus and ran behind it all the way from office to home.” The air of pride was palpable in the husband’s voice.

“Well, then you should have chased a taxi and saved 200 bucks!” the wife said. And her logic was spot on, wasn’t it?

Here is question for you – how much do you think the poor husband saved? Rs 50 or Rs 200? Extending the wife’s argument, the guy could have chased a Limousine and saved Rs 2,000. Do you see the absurdity of the logic?

The Wisdom of Intelligent Investors (Special E-Book)

If the history of stock market is anything to go by, investors often make decisions that can undermine their ability to build long-term wealth. As such, it is often very valuable to look back in history and study closely the principles that have guided the investment decisions of some of the best minds and practitioners in this field through both good and bad markets.

By studying these experienced investors, we can learn many important lessons about the mindset required to build long-term wealth.

With this goal in mind, here is a special e-book that aims to offer the wisdom of some of the best investment minds of current times from India and abroad.

Investing Lessons I Learned from Tic-Tac-Toe

If you have sat in a classroom dragging your feet through an uninteresting lecture, you must be familiar with the game of tic-tac-toe, also known as noughts and crosses or Xs and Os.

The game’s simplicity lies in fact that it takes not more than a minute to learn it and it can be played anywhere. All you need is a piece of paper, a pen/pencil and some time to kill. Like chess, it needs two players, but some people don’t mind it playing alone by taking turns and becoming their own opponent.

When I was a kid I even had a water bottle which had the grid of tic-tac-toe built on one of its side and plastic pieces (crosses and circles) to play.

In case, you’ve forgotten how the game is played, here’s a crash course to refresh your memory. A 3X3 grid is drawn on the paper and each player chooses their mark i.e. X or 0. The player who succeeds in placing three of their marks in a horizontal, vertical, or diagonal row wins the game.