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Safal Niveshak Stream – September 27, 2016

Some interesting stuff we read this morning…

Investing/Stock Market

  • John Huber’s comments on value investing are very useful for every investor. In his recent blog post he writes about two important items that every investor should have in his checklist. One of them being the risk of getting tempted to low probability events…

    I read investment pitches all the time that discuss the probability of various outcomes. This makes sense—Buffett himself has talked about assigning probabilities to various outcomes of an investment. And certain odds might tell you that even a low probability event can be a very good bet to take. For example, a bet that has a 25% chance of winning and pays out 10 to 1 is a very good bet. It is a low probability bet that has positive expectancy, and it’s a bet you should take every time…In my experience, it’s better to forego the low-probability investment ideas. They are too difficult to accurately judge, and they usually involve bad (or highly leveraged) businesses.

  • Phoney Buffett-style value-investing is dangerous, warns John Hempton in his recent blog post. He writes –

I still admire Buffett’s portfolio management more than I can say. He really is astonishingly good at what I have chosen to do for a living.

But I can’t emulate Buffett and nor can anyone else I know. And if someone uses his name to describe their investment philosophy my (likely accurate) presumption is that they are a phoney.

  • When the money is gone – After a stock analyst lost $1 million on one penny stock, he set off to find out how — and soon discovered signs of a far bigger scheme than he had ever imagined…

    …it left DiIorio helpless when the stock plummeted from $3.50 to $0.06 a share within two months.

    DiIorio initially saw it as a classic “pump-and-dump” scheme, where major investors in a company lure in other investors with overhyped claims, raising the stock price, and then sell their shares, leading to a drop. Pump-and-dumps have proliferated with the rise of internet message boards. “It’s not just promoters calling you on the phone anymore,” said Laura Posner, bureau chief of the New Jersey Bureau of Securities. “People pretend to be other people, pretend to have inside information.”

    Watch out when someone on social media or a stock forum is spewing overhyped claims about stocks, espcially small and penny stocks…and especially when that person has a large following. He might be dumping the stock on to you.


  • One side-effect of immortality, if at all technology makes it happen, is increased anxiety. Another great insight from Yuval Harari’s new book Homo Deus
  • Here’s an interesting thought that relates the idea of Permutations and Combinations to very a simple real life scenario…

    Read more about Permutations and Combinations mental model.


  • Many of the private insurance businesses in India are ready to get listed. But before your itchy finger pulls the trigger on insurance IPOs make sure you understand how an insurance business works. The heart of any insurance business is Float. Read this detailed report from Jason Rivera on Float. Pair it with Safal Niveshak’s mental model post on Floats.
  • Some businesses have more moving parts than an airplane’s engine. If you claim to understand such businesses, God bless you! Extract from L&T’s FY16 annual report…




How To Read A Book – Safal Niveshak Sketch Notes

  • Barbara Oakley is the author of A Mind For Numbers and chief instructor of the wildly popular online course Learning How To Learn. Here’s a short and crisp animated video briefly covering the ideas discussed in Barbara’s course and her book.

If you don’t see the video above, click here.

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About the Author

Anshul Khare worked for 12+ years as a Software Architect. He is an avid learner and enjoys reading about human behaviour and multidisciplinary thinking. You can connect with Anshul on Twitter.

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