Let’s Start with Safal Niveshak
Just in case you missed any of this on Safal Niveshak over the last few days and weeks…
- I’m organizing my next Value Investing Workshop in Pune on 1st Feb. 2015. Register here if you wish to join.
- I recently wrote about the Butterfly Effect and the huge impact it has created in my financial life. You may find some value in my experiences.
- Dev of Stable Investor recently interviewed me for his website. You can read the complete interview here.
I have been re-reading Rolf Dobelli’s amazing book, The Art of Thinking Clearly, and I just read about Beginner’s Luck, which Wikipedia defines as – “…phenomenon of novices experiencing disproportionate frequency of success or succeeding against an expert in a given activity.”
With the stock market booming over the past few months, I’m sure a lot of people must be enjoying beginner’s luck, and thus the relevance of this extract from Dobelli’s book….
…how do you tell the difference between beginner’s luck and the first signs of real talent?
There is no clear rule, but these two tips may help: first, if you are much better than others over a long period of time, you can be fairly sure that talent plays a part. (Unfortunately, though, you can never be 100%.) Second, the more people competing, the greater the chances are that one of them will repeatedly strike lucky. Perhaps even you. If, among ten competitors, you establish yourself as a market leader over many years, you can clap yourself on the back. That’s a sure indication of talent. But, if you are top dog among 10 million players (i.e. in the financial markets) in one particular year, you shouldn’t start visualising a Buffettesque financial empire just yet; it’s extremely likely that you have simply been very fortunate.
Watch and wait before you draw any conclusions. Beginner’s luck can be devastating, so guard against misconceptions by treating your theories as a scientist would: try to disprove them.
Stimulate Your Mind
Here’s some amazing content I read in recent times…
- Mohnish Pabrai recently gave a million-dollar advice to a 12-year-old investor.
- A nice post on whether Benjamin Graham is still relevant in 2015.
- My friend and tribesman, Jana Vembunarayanan wrote a wonderful piece on 10 golden nuggets.
- Some amazing thoughts on life, decision making, and wisdom captured in Farnam Street’s best of 2014.
- Legendary bond king Bill Gross thinks 2015 is the year it will all fall apart.
- Another warning, this one on health – Antibiotic resistance may well be the greatest human crisis we face this century.
Then, around 100 years later, just before the Titanic was about to embark on its maiden journey, one passenger asked a ship’s agent for extra insurance on some valuables in her luggage. The agent replied, “Ridiculous. This boat’s unsinkable.”
Captain Smith himself was asked about the safety of the Titanic. He answered – “I cannot imagine any condition which would cause a ship to founder. I cannot conceive of any vital disaster happening to this vessel. Modern shipbuilding has gone beyond that.”
Then, after the ship had struck the iceberg, a passenger asked her employer if they should do something about it. He replied, “Go back to bed. This ship is unsinkable.”
Cut to almost 100 years later. In 2008, fund managers and stock investors who were betting big on infrastructure and realty stocks, when asked about the valuations at which they were buying such stocks, said, “Real estate and infra are the new gold and prices will continue to head north.”
If we’re repeatedly successful – like Napoleon, or fund managers and analysts prior to 2008 – we’re tempted to believe that we’ve found the formula for success and are no longer subject to human fallibility. This is devastating, especially in a world that is continually changing, and where every right idea is eventually the wrong one.
Here is something the legendary investor Seth Klarman said in an interview with Charlie Rose in 2012 – You need to balance arrogance and humility…when you buy anything, it’s an arrogant act. You are saying the markets are gyrating and somebody wants to sell this to me and I know more than everybody else so I am going to stand here and buy it. I am going to pay 1/8th more than the next guy wants to pay and buy it. That’s arrogant. And you need the humility to say ‘but I might be wrong.’ And you have to do that on everything.
Staying humble with your analysis and forecasting powers (which you don’t have anyways) will keep you from risking too much in a view of the future that may well turn out to be wrong. Don’t be blinded by arrogance. A little humility can help you steer clear of disaster, especially in the stock market.
Be confident, but avoid arrogance.
Be kind to others, and to yourself.
Stay happy, stay blessed.
Chief Poker – Poke the Box
Vishal, thanks a lot for the job you’ve been doing.
A query from my end- just entered the market a few months back and have been trying to get a grasp of investing. Have gone through Ben Graham and Seth Klarman’s books. However, I’d like to read one good book on valuation techniques, what they mean etc – could you help me on the same?
Lakshmi pathy says
Thanks for this article . Yes agreed some times easily confidence changes to arrogance. Thanks for reminding.
Vishal Khandelwal says
My pleasure Mr. Lakshmipathy!