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 had an interesting email exchange with Prof. Sanjay Bakshi on the subject of valuations.
- Warren Buffett teaches us not only how to invest well, but also to live well. In a recent post, I shared Buffett’s advice on how to succeed in life.
- Holding cash in portfolio is one of the most painful decisions an investor makes, because we always want to remain in the thick of action – playing around with our cash. Read here how you should handle this painful situation of holding cash.
- Buffett (again) on what an investor must look at while researching a business.
Howard Marks’s memos are a treat to read. In fact, this is one resource apart from Buffett’s letters and Munger’s speeches that I would recommend you to read – in case you had to read just three things in your life to learn how to invest sensibly. Here’s an extract from Marks’s latest memo on the subject of liquidity, which dispels a lot of myths people have on when an asset is liquid and when it is illiquid….
It’s often a mistake to say a particular asset is either liquid or illiquid. Usually an asset isn’t “liquid” or “illiquid” by its nature. Liquidity is ephemeral: it can come and go. An asset’s liquidity can increase or decrease with what’s going on in the market. One day it can be easy to sell, and the next day hard. Or one day it can be easy to sell but hard to buy, and the next day easy to buy but hard to sell.
In other words, the liquidity of an asset often depends on which way you want to go…and which way everyone else wants to go. If you want to sell when everyone else wants to buy, you’re likely to find your position is highly liquid: you can sell it quickly, and at a price equal to or above the last transaction. But if you want to sell when everyone else wants to sell, you may find your position is totally illiquid: selling may take a long time, or require accepting a big discount, or both. If that’s the case – and I’m sure it is – then the asset can’t be described as being either liquid or illiquid. It’s entirely situational.
There’s usually plenty of liquidity for those who want to sell things that are rising in price or buy things that are falling. That’s great news, since much of the time those are the right actions to take. But why is the liquidity plentiful? For the simple reason that most investors want to do just the opposite.
The crowd takes great pleasure from buying things whose prices are rising, and they often become highly motivated to sell things that are falling…notwithstanding that those may be exactly the wrong things to do. Further, the liquidity of an asset is very much a function of the quantity involved. At a given time, a stock may be liquid if you want to sell a thousand shares but highly illiquid if you want to sell a million.
Stimulate Your Mind
Here’s some amazing content I read in recent times…
- Farnam Street captures Ray Dalio’s thoughts on the open-mindedness and the power of not knowing.
- Here are some wonderful thoughts on value investing from Joel Greenblatt.
- Prof. Sanjay Bakshi writes on why you shouldn’t invest in a business that even a fool can run.
- Read the complete memo of Howard Marks on liquidity.
- PPFAS’s Rajeev Thakkar shares a framework to understand the e-commerce exuberance.
Avoid hubris. You are not God.
Be cool, even as the weather’s getting hot.
Be kind to others, and to yourself.
Stay happy, stay blessed.
Chief Poker – Poke the Box