Wit. Wisdom. Value Investing.
You seem to be stressed out today?” asked my Yoga teacher, a gentleman in his late fifties.
“Oh, not really!” I said.
“No, you look a bit stressed. Are you unwell?”
“Not at all. Just feeling a bit confused.”
“May I help?”
“Knowing you, I think you can.”
“Shoot!”
“You see, I have been a stock market investor for many years now, and now also don the role of a teacher trying to help people make saner and better investment decisions. But I am often faced with a dissonance.”
“And what’s that?”
For my twin toddlers, the instant attention-grabbing words are — Once upon a time. They drop everything and dash to whoever uttered those words.
It’s my only weapon to break their fights and tantrums. But once those words slip out then there is no escape.
“Tell me the story, Papa. Please tell me the story.” To their relentless prodding, I give in every time.
It doesn’t matter how interesting or boring the story is. Neither does it matter if I am telling them the same narrative for the hundredth time. Fed up they’re not. Any pause to catch my breath is cut short by an impatient stare demanding an exciting twist in the tale. Their eyes widen as if it’s not the ears but eyes they’re listening with.
Kids are suckers for stories. So are adults. Aren’t we?
The content may change but the fascination for stories is deeply ingrained trait that evolution has bestowed on the human brain.
[Read more…] about On Stories We Tell
I am in Chennai for my Value Investing Workshop that happened yesterday.
After my session, I went to meet a friend in the evening. His residential society had organized a bicycle race for kids. I saw more than 50 kids out there jostling for space meant for not more than 10 cyclists. Worse, most of them were without a helmet.
Now, letting your child cycle without a helmet may be ten times riskier than feeding him a course of dangerous non-steroidal anti-inflammatory drugs. And a thousand times riskier than flying in an airplane.
Moving in the front seat of a car without a seatbelt (which most people, especially teens, do when the policeman is not watching) is hundred times riskier than many common and ‘scary’ diseases in India, like swine flu.
Yet we obsess about the low probability events and take big chances with the high probability ones. Why?
A few months back I had written a post on Benford’s Law. It’s a fraud detection method to estimate if a given financial statement could be fake. In other words, it tells you if the numbers in a document are cooked up or real. When I first learned about Benford’s Law, I was like a kid with a new toy. I wanted to play with it immediately. Being a programmer, I wrote a small piece of code to extract the numbers from an annual report and test those numbers against Benford’s rule.
The next logical thought was to use my code and run it on the annual reports of all the publicly listed companies. This way, I could immediately identify all the companies which could be faking numbers. Wouldn’t that be cool? For some time, I even dreamed of floating a startup with this killer fraud detection product. I was going to be rich.
Now, instead of building my million dollar startup, I am writing this post. That should already give you a hint how that story turned out.
[Read more…] about The Tyranny of Screening Tests: From Medicine to Investing
There is a story, not often told, in Mahabharata where the eldest of the Pandavas, Yudhishthira, comes upon a lake and finds that his brothers lay dead on its banks.
Before beginning the search into his brothers’ murder, the prince in exile finds himself burning with thirst and reaches into the lake to drink, not knowing that it was drinking from the lake that brought his brothers’ end.
At that moment a celestial appears, a Yaksha, no god or angel but instead a presence of power presiding over the lake. The Yaksha warns Yudhisthira not to drink lest he suffers the fate of his brothers.
He has an alternative: Yudhisthira can instead answer Yaksha’s questions. There are said to be eighteen questions that Yaksha asked Yudhisthira, but here is the one that concerns what I am writing today.
[Read more…] about Meditations on Mortality in Life and Investing
This is the fourth issue of Outside the Box newsletter, and is authored by my friend Arpit Ranka.
In this post, Arpit talks about how we, as investors, need to embrace the good, bad, and ugly side of every investment thesis/strategy and be willing to live through all the seasons, if we have to stand a chance to succeed in the long run. Over to him.
The Art of Stillness
by Arpit Ranka
The noted English singer and songwriter John Lennon said, “Life is what happens while you are busy making plans.”
As an investor, I can tweak this thought to — “Investing is what happens when you are busy pursuing the next big investment idea.”
No doubt that ideation is a very integral part of any investment process but then equally central is to develop a mindset, which allows us to capitalize on the full potential of that investment strategy.
It seems like yesterday, but it was ten years ago. I was in the US for a conference and, on 15th September 2008, was visiting the Wall Street to check out the heart (maybe, the dark underbelly) of the global financial system.
I had just reached there after a visiting the site of the World Trade Center, which was tragically brought down on 11th September seven years ago.
Now, another tragedy was about to happen just five miles from where I was. This time it wasn’t about loss of lives but of livelihood.
Lehman Brothers declared bankruptcy and the world financial system was on the verge of collapsing. It was, and remains, the largest bankruptcy filing in the US history, with Lehman holding over US$ 600 billion in assets, supported by less than US$ 25 billion of own capital. That’s around 23-times debt to equity. In such a highly leveraged structure, a 4-5% percent decline in asset values would wipe out all capital, which it did.
[Read more…] about Remembering the 2008 Crisis, and A Few Lessons Learned
First, an update. I did my Value Investing Workshop in Bangalore yesterday, and received an overwhelming reponse…
Coming to this post, this is the third issue of Outside the Box newsletter, and is authored by my friend Ninad Kunder.
“The first principle is that you must not fool yourself — and you are the easiest person to fool.” ~ Richard Feynman
In the 1970s, two psychologists – Daniel Kahneman and Amos Tversky – proved, once and for all, that humans are not rational creatures. They discovered what we now know as “cognitive biases,” showing that humans systematically make choices that defy clear logic.
Now, having these biases and getting influenced by them is often not a bad thing. These have helped us survive for ages. Also, while we don’t always make decisions by carefully weighing up the facts, we often make better decisions as a result. This is applicable to most of what we do in life.
However, when it comes to investment decision making, our biases may get us into (big) trouble. What is more, the irony about these biases is that the more we read about them, the more we believe that we don’t suffer from them as much as others do.
In this second issue of Outside the Box newsletter, my friend Neeraj Marathe pokes a hole in this kind of thinking.
Welcome to the first edition of Outside the Box, Safal Niveshak’s new, free newsletter.
Now, what’s new here? Well, this newsletter will not be authored by me (you must be thanking goodness!), but a few of my friends in the value investing circle.
I have been connected to these people over the past few years, and highly respect their thoughts and ideas about investing, decision making, learning, and life in general.
Now, who are these people? In an alphabetical order, they are – Arpit Ranka, Gaurav Sud, Jatin Khemani, Neeraj Marathe, Ninad Kunder, Samit Vartak, Shyam Sekhar, and Vitaliy Katsenelson.
While these gentlemen are well-known in the value investing circles, I would introduce them better as we move forward and also have a few others join in.