Archives for October 2020

“Investing is simple, but not easy,” said Charlie Munger.

Why? Because…

Understanding that sensible investing is about buying a thing worth Rs 100 at Rs 50 is simple, but actually buying something worth Rs 100 that falls to Rs 50 is not easy.

Working on spreadsheets is simple, but not twisting spreadsheets to fit your version of reality is not easy.

Calculating past growth and profitability numbers for a business and understanding whether those are good or bad is simple, but actually trying to understand a business deeply enough to visualize how it will look like in the future is not easy.

Knowing that a business has moat as seen from its superior profitability and clean balance sheet is simple, but understanding whether this moat is sustainable or fleeting is not easy.

Calculating book value of a company is simple, but understanding whether that book really has value, and roughly how much, is not easy.

Knowing the results that numbers shout out of financial statements is simple, but knowing which of those results are signal and which are noise is not easy.

Knowing how DCF works is simple, but looking at businesses with a DCF frame of mind is not easy.

Calculating precise intrinsic values for businesses is simple, but trusting approximations that really work is not easy. (Keynes said – “It’s better to be approximately right than precisely wrong.”)

Knowing beta is a measure of volatility is simple, but appreciating that volatility isn’t the real risk you face in investing is not easy.

Earning alpha from an investment for a year or two is simple, but appreciating with complete humility that it is next to impossible to sustain it over a long period of time is not easy.

Understanding that money can multiply 100x in 25 years when you compound at 20% annually is simple, but sitting through these 25 years patiently when others are cashing in after having made 5-10x is not easy.

The celebrated American physicist and a great teacher Richard Feynman said that there’s a big difference between ‘knowing the name of something’ and ‘knowing something’.

Math helps you know the name of a lot of things, which is simple. But it’s your mindset that helps you really know things, which is not easy.

Of course, understanding basic math is a prerequisite for becoming a smarter investor. But if you need math to tell you whether you are doing right in investing or not, you are doing something seriously wrong.

By the fifth century BC, the Greeks had firmly established that the earth was a sphere. Although they knew it was a sphere, they did not know how big the sphere was.

The philosopher Plato (400 BC) declared the earth’s circumference to be 64,412 km. Some 150 years later, the mathematician Archimedes estimated it to be 48,309 km.

It is not known exactly how Plato or Archimedes arrived at their calculations, but Plato’s measurement was off by sixty percent and Archimedes’ by twenty percent. At least they were making progress.

Then, in around the third century BC, which is more than 2,200 years before modern scientists calculated it, the Greek mathematician Eratosthenes used just a tower and simple math to arrive at Earth’s circumference of about 40,000 km (less than one percent off the mark from the exact circumference of 40,075 km).

Eratosthenes lived in the city of Alexandria in northern Egypt. He knew that on a certain day each year, the Summer Solstice (21st June), in the town of Syene in southern Egypt, there was no shadow at the bottom of a well.

[Read more…] about Lesson in Valuation from a 2200-Year-Old Greek Mathematician

Update: Admission to the 12th batch of my premium, online course in Value Investing – Mastermind – is now open, and will remain so till tomorrow, 20th October. Click here to subscribe at a special discount.

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We have seen some dramatic market action over the last eight months.

An eleven-year bull market turned into a bear market in less than four weeks, the fastest on record.

From its high on February 19, the BSE-Sensex fell more than 37% to its March 23 low. It then bounced around 30% off the bottom over the next four weeks.

Since then we have had up days and down days, but the market has mostly held its ground and has risen another 20% over the past six months.

[Read more…] about The Easier Money Has Been Made

Update: Admission to the 12th batch of my premium, online course in Value Investing – Mastermind – is now open, and will remain so till 20th October. Click here to subscribe at a special discount.

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Just last night, as I was watching (maybe, for the twentieth time) the animated adventure comedy film ‘The Croods’ with my kids, I got particularly captivated by a specific scene.

I saw it a few times and loved it each time I heard the story in that scene.

Before I share the scene with you, and why it holds great relevance to your own life, let me tell you the movie’s plot as quickly as I can.

The Croods is the story of an overprotective caveman Grug who, along with his family, is one of the few survivors in the hostile pre-historic times.

“Never not be afraid” is Grug’s repeated advice to his family, and especially to his curious daughter Eep.

For Grug, anything new, anything that raises curiosity, is bad. And this is good advice as it has helped his family survive against the predators.

But then things change when Grug and his family meet a clever and inventive caveboy named Guy who tells them that the world is reaching its end, and asks them to join him in the pursuit of survival.

[Read more…] about I Have Seen Tomorrow