Archives for 2020

Owning Stocks is a Long-Term Project

Here is some stuff I am reading and thinking about this weekend…

Book I’m Reading – Zen and the Art of Motorcycle Maintenance
Zen and the Art of Motorcycle Maintenance (ZAMM) is the autobiography of American writer and philosopher Robert Pirsig, wherein he chronicles his motorcycle journey across the country with his son. It is however much more than just an adventure tale. Through his journey, Pirsig explains his philosophy on life, creating a manifesto through motorcycle maintenance.

There are many lessons to be learned from this book, but a handful of persist throughout the story that can help reshape your perspective. Like, here is what Pirsig writes on how we lose so much time on unnecessary affairs that we move swiftly past what is really important –

We’re in such a hurry most of the time we never get much chance to talk. The result is a kind of endless day-to-day shallowness, a monotony that leaves a person wondering years later where all the time went and sorry that it’s all gone.

Once Upon a Time in the Stock Market

I started my career in the stock market in 2003, when I joined an equity research firm in Mumbai. It was purely an accident that I got into this field, as this was the only decent job that came to my MBA Finance class, among all others that required door-to-door selling of insurance and loan products. We were just coming out of the 2000 dot com crash led economic decline, and thus jobs were far and few in between.

My job, starting day one, was to study companies from the technology space, and write reports around what I understood. Annual reports were available online, but most companies made available only the latest 2-3 years’ reports. Not many companies were conducting investor meets or conference calls, and not many had functional investor relations department.

When I look back at those days, equity research was not such a well-known career and not many people outside finance really knew what investing in stock market was all about. Yes, we had passed through the Harshad Mehta and Ketan Parekh days, but stocks were mostly looked upon as a way to gamble instead of creating serious long-term wealth. Apart from television and newspapers, there were no other media to read about the stock market or investing and related ideas. Yes, Internet was available, but investing resources were not that much available or credible.

Despite this, that period around the start of 2000s was still modern compared to investors who came even earlier, some of whom I have had the privilege of interacting over the past few years.

Where Should You Begin?

One question that gets asked most often by Safal Niveshak readers is — As a new investor, where should I begin learning about investing?

In fact, it’s the most common question by people who are getting started with a new skill or new body of knowledge — Where should I begin? Which books to read first? Which online courses/blogs/websites should I start with?

Do you remember how you learned to walk? Probably you don’t.

Most babies take their first steps sometime between 9 and 12 months and are walking well by the time they’re 14 or 15 months old. When a child learns to walk, does it matter which leg was used first? How important is it that the toddler takes help of a wall or a walker? Whether she looks up, down, or forward while taking the first step?

My point is this — when it comes to picking up a skill or gaining knowledge about a new field, there’s no 100 percent foolproof step by step plan. What matters the most is how curious you are, and why do you want to learn.

Anatomy of A Stock Market Loss

“Somewhere beyond right and wrong, there is a garden. I will meet you there.” ~ Rumi

If you invest in stocks, at some point, you are going to lose money. Try as much as you can, but there is no way around it.

Sometimes, a stock market loss is immediate and clear. A stock you bought at a higher price has plummeted. Like this one…

In other cases, your losses are not as obvious because they are more subtle. Like for investors in this stock, who suffered a time correction by holding on for five years yet seeing slightly negative returns…

Each of these types of losses can be painful, and especially for the fact that we assign negative connotations to the very word “loss.”

A “loss” in the stock market is essentially considered as a synonym to “failure,” and as being “wrong.”

Why We Make Bad Decisions

Here is some stuff I am reading and thinking about this weekend…

Book I’m Reading – What I Learned Losing A Million Dollars
The backdrop of this book is the true story of a trader called Jim Paul. His career in stock market started with a string of unusual successes that vaulted him from a dirt-poor country boy to jet-setting-millionaire. However, after 15 years of uninterrupted success, all of Jim’s wealth was wiped out in a matter of few weeks when he lost $1.6 million in a speculative trade. This devastating failure led him to intense self-reflection and discovery of some unusual insights about success and failure.

The Most Important Stock Investment Lessons I Wish I Had Learned Earlier

Have you heard of Anthony Deden?

Well, I had not until 2018 when I came across his interview with Grant Williams. I thought that was one of the best investment interviews I had ever seen. And I stand by that thought even today.

Anthony, or Tony, is the Chairman of Edelweiss Holdings (not related to India-listed Edelweiss Financial Services), a Bermuda-based investment holding company that he launched as a fund in 2002. After building a remarkable track record, he converted Edelweiss into a holding company with over US$ 300 million in assets and holdings.

As he talked about in his interview with Grant Williams, Tony came into the profession of wealth management by accident when in 1985, he was asked to manage the monetary affairs of a family where the lead earning member had passed away. Gradually, one family became two, then three, and so on.

Thinking, the Einstein Way

Here is some stuff I am reading and thinking about this weekend…

Book I’m Reading – Who Moved My Cheese
I read this little book multiple times before quitting my job to start work on Safal Niveshak in 2011. It is about, well, coping up positively with change. Who Moved My Cheese illustrates the simple fact that change will happen, whether we choose to accept it or not. The defining factor is how we deal with it; whether we allow ourselves to change or insist on staying the same.

What Stock Market Disclosures Must Read Like

Here is what a general stock market disclosure reads like –

Stock Market Disclosure (as it is said): I, the analyst, do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past. The stocks recommended are based on our analysis which is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The views expressed in this research report accurately reflect the personal views of the analyst about the subject securities or issues, and no part of the compensation of the research analyst was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst in this report. It is important to do your own research and analysis before making any investment.

Well, without much malice, that’s what the regulator requires but that’s also a decent use of jargon to confuse the reader while at the same time cleaning yourself up of any misadventures that may happen with your advice in the future.

In that light, I believe, stock market disclosures should read like what is stated below, because that is what the reality is like in most cases.

ROCE-Growth Matrix, and Few Potential Wealth Creators (Update)

I did a post in March 2019 on one of the best theories I have read on the importance of high ROCE and good earnings growth, which make a great combination for long-term wealth creation.

This theory came from Bharat Shah of ASK Group, who wrote a book (sad, it’s not available publicly) titled “Of Long Term Value and Wealth Creation from Equity Investing.”

You Are A Black Swan

Here is some stuff I am reading and thinking about this weekend…

Book I’m Reading – The Black Swan
Black swan is a Latin expression, which was commonly used as a metaphor to describe something impossible or something non-existent. It came from the old-world belief that all swans are white since no one had seen a black swan before. Every time someone spotted a white swan, it was confirmation of their belief i.e., “all swans are white.” But this long held notion was invalidated the day first black swan was spotted.

A black swan event has following three attributes, writes Taleb in his book –

First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact (unlike the bird). Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

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