Archives for August 2013

To the delight of all, the message was typically transformed into something new and bizarre, no matter the sincerity and care given to each retelling.

You see, when information travels through multiple channels – like in the telephone game – it’s easy for some elements of the message to get distorted — by biases, or simple human error.

The effect of the spread of misinformation is called “cumulative error”, like you see in this stock market cartoon…

So, when a company’s management says something, the lead analyst hears something else, his report to the fund manager says something else, the fund manager understands something else, his broker understands something else, the broker’s analyst assumes something else, he blurts out something else to the TV anchor, the anchor – thinking how smart she is – shouts out something else, and you – enamoured with the anchor – understand something else.

If I were to condense the history of stock investing mistakes in a few words, those will be what you just read!

Somehow, we expect information to be faithful to its origin, no matter what history might have corrupted it. And that’s why it is so important to cut yourself from the noise – that create cumulative errors – and concentrate on independent thinking.

This is especially true while investing your hard-earned money, where you don’t just need to minimize mistakes, but minimize cumulative mistakes – those that add up to wreak havoc on your savings.

A joke isn’t funny anymore if it’s repeated too much. The same goes with information. The more you hear the same things, the more they get dangerous.

So please be careful!

I have learned a lot of life lessons just seeing my daughter grow up. Like when she was just a year old and was trying to take her first steps and repeatedly fell down, she tried again…and again…and again.

Sometimes she laughed. Sometimes she cried. Sometimes she laughed and cried at the same time.

But she kept trying and trying…laughing and crying. She did not labelled her experience as a “failure”. She just enjoyed it.

Unlike us adults, our babies don’t know the possibility of a failure, so they happily keep falling down until one day they take a few steps, and then a few more. Before long, they’re jumping and running. All their trying pays off.

They fall but never fail.

As grown-ups, what if we also simply choose not to fail?

What if we treat our mistakes and failures as not things to be avoided but things to be cultivated?

Like Warren Buffett said…

“You’re going to make mistakes. You can’t play in the game without making any mistakes. I don’t think about it, I just move on. Most business mistakes are irreversible setbacks, but you get another chance. There are two things in life that you don’t get another chance at – marrying the wrong person and what you do with your children. Business, you just go on. It’s a mistake to dwell on mistakes, it’s unproductive. It’s like Mark Twain’s story about the cat that sat on a hot stove – he never sat on a hot stove again, but he never sat on a cold one again either.”

Life teaches us each day that stuff happens (and sometimes shit happens!), but we don’t need to give each of our experiences a label.

Good, bad, hard, easy, success, failure etc. do not exist but as labels in our minds.

All we need to do to hold our head high is to break through these labels.

Whenever the salesman, Sid, had a new customer trying on suits in front of the shop’s three-sided mirror, he would admit to a hearing problem, and, as they talked, he would repeatedly request that the man speak more loudly to him. Once the customer had found a suit he liked and had asked for the price, Sid would call to his brother, the head tailor, at the back of the room, “Harry, how much for this suit?”

Many a man would hurry to buy the suit and scramble out of the shop with his “expensive = good” bargain before Poor Sid discovered the “mistake”.

Well, Sid and Harry made their moolah even as the customer thought he got a ‘great’ deal! 🙂

Now look at this image below. The black dots you see are fleeting, and any individual dot will turn white as soon as you focus on it. Clearly, all the dots are actually white, yet at a glance we still perceive some of them as being black.

The contrast affect also works when we are studying physical appearances of people. Research investigating attractiveness reflects the importance of physical appearance.

Despite common phrases such as ‘beauty is only skin deep,’ there is no longer any doubt that being attractive has its benefits.

Attractive individuals are consistently treated significantly better than their unattractive counterparts. Additionally, attractive adults are judged more positively in work-related competence than unattractive counterparts, and are perceived as higher in social appeal and interpersonal abilities.

These results hold true even when familiarity is taken into account. Not only are opinions influenced by attractiveness, but behavior towards attractive children and adults echo the importance of being physically attractive.

Just look at how big accounting scams are created.

Here is what Ramalinga Raju’s aides at Satyam must have told him before the scam came to light – “If we slowly and gradually over time manipulate the numbers, the auditors won’t notice it.”

Incidentally, in this case, even the auditors were involved! But the Satyam scam did not come to light till Raju confessed of riding a tiger.

You see, contrasts may blind us to change until it’s too late. For example, we often don’t notice the bad behavior of others (like we ignore “small” accounting manipulations at companies) if it goes sour gradually over time. Often we see reality as constant, although it gradually changes.

It is, after all, the small, gradual, invisible changes that harm us the most.

There was a time when I was slightly overweight and combined with the rigorous daily travel, suffered from a very bad backache. I didn’t feel in control of my health, because I couldn’t give enough time to improve it.

Or maybe the lack of time was just an excuse to not consider my health a priority. Thinking about my deteriorating health made me feel horrible, so I didn’t want to even think about it!

It was a downward spiral, and really hard to stop.

Most of us don’t like the problems, conflicts, and challenges we face in our lives, because these seem like roadblocks in the path of what we are trying to do.

But Heraclitus, as he writes in the above comment, invites us to consider how these problems — the headwinds we face or things that are moving against us — can benefit us.

If you are an investor in the stock market, your current portfolio of stocks may seem like a big problem to you achieving your financial goals, especially given that stocks across the board are falling like ninepins (and those talked about on Safal Niveshak are falling even faster :-))

So, as a result, one of the following might happen:

1. You eliminate the problem by selling duds from your portfolio even while suffering the losses but avoiding permanent loss of capital;
2. You find a few other stocks that are much better businesses and are available cheap after the crash;
3. You question whether you really want to stress out speculating in stocks and would rather learn the rules of sensible investing that will earn you lower short-term return than speculation, but much higher return per unit of stress.

In short, the problem you think you are facing currently can lead you to stop and re-think what you were doing all this while, and thus lead you to something good.

Think about it: the history of discovery and invention is filled with people whose routines were interrupted and who were forced to come up with alternative solutions.

Even America was discovered as a by-product of the Europeans’s search for pepper!

So, think of the biggest problem you are facing currently and positive things you can discover in seeking the solution?

Like, ask yourself this question now – “What would I have been doing if money was not a problem?”

Then, just do it!

Idea Source: Creative Whack Pack

“The art of investment has one characteristic that is not generally appreciated. A creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to improve this easily attainable standard requires much application and more than a trace of wisdom.”

The ironical truth about investing is that, despite hundreds of rules that guide the practice of being an investor, there is no rule that works all the time, and in the same manner.

Investing is, after all, not like a game of football where the ground and the ball remain the same throughout the ninety minutes of play. It’s more like cricket where the pitch changes its behaviour with every new ball, and the ball changes is shape every time it’s bowled.

So, when you are an investor, the environment in which you play isn’t controllable, and circumstances rarely repeat exactly. What’s most important then is how you behave when others are behaving oddly.

One of the best tools to think and behave better in investing is what Howard Marks calls the “second level thinking”. Here is how Marks explains it in his book The Most Important Thing…

• First-level thinking says, “It’s a good company; let’s buy the stock.” Second-level thinking says, “It’s a good company, but everyone thinks it’s a great company, and it’s not. So the stock’s overrated and overpriced; let’s sell.”
• First-level thinking says, “The outlook calls for low growth and rising inflation. Let’s dump our stocks.” Second-level thinking says, “The outlook stinks, but everyone else is selling in panic. Buy!”
• First-level thinking says, “I think the company’s earnings will fall; sell.” Second-level thinking says, “I think the company’s earnings will fall less than people expect, and the pleasant surprise will lift the stock; buy.”

In other words, first-level thinking, as the name suggests, is what comes to our mind first. And given that our mind is searching for simplicity, in most cases, this kind of thinking is simplistic and superficial, and just about everyone can do it (a bad sign for anything involving an attempt at superiority, like in investing).

In essence, if you wish to perform better than the rest – or in other words, perform better than average – your thoughts actions, expectations, and portfolio have to diverge from the norm.

Most importantly, you don’t have to be just different, you also must get it right…not 100% of the times, but it’s good to aim for a distinction…that is 75%. And for that, you need to practice second-level thinking.

Sure, children are stubborn, noisy, and often hard to deal with. But they also possess some of the most fearless and creative minds in the world, a trait that should be made second nature to anyone grown up.

My daughter, for instance, won’t take “I don’t know” for her “Why?” questions. She is fearless in the face of things I consider as daunting – like trying something new.

She will look at everything in a new, fresh way. For her, there isn’t “one right way” do a thing.

To a child the world is a playground and everything therein is a toy. If, as grown-ups, we can look at life, work, and our problems in the same way and then try to find solutions, we would indeed possess power of kings.

You see, there is always enjoyment hiding in what you do, you just have to find it. Start taking a look at your world with a renewed sense of vigour, like a child does.

You will be much happier with the results of your hard work.

The renowned chair designer Bill Stumpf was once asked what criteria he used to select new projects.

He responded – “There are three things I look for in my work: I hope to learn something, I want to make some money, and I’d like to have some fun. If the project doesn’t have the promise of satisfying at least two of these, then I don’t sign on.”

That’s the way to go!