“Investing is simple, but not easy,” said Charlie Munger.
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.
Earning alpha from an investment for a year or two is simple, but appreciating with complete humility that it is next to impossible to sustain it over a long period of time 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.
Mohit Israni says
I am grateful to have you select as a mentor for my long term journey of investing, thanks for guiding and giving me insight to reality.
The math has created recently lot of nuisance to me by looking daily price changes and constat profit booking and seeing that price goes up after that sometiems down, sometimes opportunity miss and all,
Resulted in hindrance of mind working freely recently, there was only prices revolving in my mind recently
But after this wrote I am pretty much sure that I will live and sleep peacefully without any noise🙌
Kaushik Dana says
Beautifully explained! Thanks a lot Vishal!
Mohan Lal Tejwani says
“Investing is simple, but not easy” Mr Charlie Munger
You have explained very well. Thank you so much for sharing.🙏
With regards 😊
Nitin Kale says
Nicely explained, dear Vishal…It’s not easy to have unflinching faith in your selected stock … go through times of crisis….Survive the onslaught… for many years. You have to be a sadhu in samadhi!!! There is no gain without pain as they say is very much right but what if you are untouched / unfazed by the throes!!!
That’s precisely the reason that winning portfolios have been invariably found from the dormant ones…
Although patience is a virtue practicing it is not easy at all….maths or no maths at times you feel that you also need to be plain lucky to have laid your hands on the would be super star stock either from the nascent stage or when it is going through difficult times. Conviction & commensurate allocation is the key followed by hold such that time to sell the same is almost never!!!!
Very nicely explained Vishal, Thanks for sharing !