Archives for 2021

A Marwari Mental Model to Make Quick Decisions

I come from a Marwari business family. My grandfather used to own mustard oil mills and multiple other businesses in West Bengal. My father, despite being a top-ranking engineer, had to join the family business. However, given the labour and power issues in Bengal, he along with his brother charted out into the sanitaryware and paints trading business, and then into marble and granite trading.

Now, despite hearing the business talks at home all day long, I was never really interested in joining the family business. Looking back, I think the reason for my lack of interest in business stemmed from me being on the slower side in understanding the fast calculations and having the razor-sharp acumen required to become the good business owner that most Marwaris are.

That is not to say that I did not learn some useful lessons, first-hand, seeing how my father and uncle went about doing their business.

The most important lessons revolved around the usefulness and preciousness of cash, which according to a Marwari, is the most important thing that matters in the business. Not just the quantum of cash, but also its velocity or the speed at which cash could be rotated or circulated.

Avoid Multiplying by Zero

The Sketchbook of Wisdom: The first print of my new book – The Sketchbook of Wisdom – is almost 90% over, and has already been bought across 30+ countries within 2 months of its launch. Click here to get your copy today. Send me an email at vishal@safalniveshak.com if you wish to place bulk orders.

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Peter Bevelin, in his wonderful book “All I Want To Know…” tells the story of Napoleon’s mother, Letizia. She couldn’t understand why Napoleon should take on the British since things were going so well. So, she sold all her French holdings and exchanged them for British pounds.

Why? She reasoned, if her son won, she should have a good life in the victorious nation. But if Napoleon lost, she would not be wiped out but still be ok since she had the pounds. She hedged against the possibility of facing a zero.

Letizia’s story is the perfect example of how to arrange our affairs in life to protect against the downside.

How to Minimize Shocks from the Unknowns and Unknowables of Life

“Life,” John Lennon said, “is what happens to you while you are busy making other plans.” We have seen ample proof of this in the last year.

However, here is a tool, a mental model, a practice that can help us minimize the shocks that the unknowns and unknowables of life render us from time to time.

It is called ‘margin of safety’ – a widely known but rarely applied idea – which is an engineering concept that is used to describe the ability of a system to withstand loads that are greater than expected. In simple words, it is a buffer between what you expect to happen and what could (and often would) happen.

Life may offer you a raw deal, sometimes when you least expect it. A wide margin of safety ensures that the effects of good decisions are not wiped out by errors, uncertainties, or simply bad luck.

Of course, applying margin of safety in your decisions will not keep situations from going wrong, it will act as a cushion for you to fall back on and survive if and when things go wrong, which they will.

Stay safe. Get vaccinated. Wear a mask.

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The Sketchbook of Wisdom: The first print of my new book – The Sketchbook of Wisdom – is almost 90% over, and has already been bought across 30+ countries within 2 months of its launch. Click here to get your copy today. Send me an email at vishal@safalniveshak.com if you wish to place bulk orders.

How to Be Okay When Things Are Not

Trust you and everyone in your family is safe and fine.

Here is my latest podcast episode, the first in a series on my book – The Sketchbook of Wisdom – wherein I talk about how we can be okay when things around us are not. This applies not only to life but also to investing. So, I hope you find this useful anyway.

The Last Things on My Mind

“Sometimes fate is like a small sandstorm that keeps changing directions,” wrote Haruki Murakami in Kafka on the Shore –

You change direction but the sandstorm chases you. You turn again, but the storm adjusts. Over and over you play this out, like some ominous dance with death just before dawn. Why? Because this storm isn’t something that blew in from far away, something that has nothing to do with you. This storm is you. Something inside of you. So all you can do is give in to it, step right inside the storm, closing your eyes and plugging up your ears so the sand doesn’t get in, and walk through it, step by step. There’s no sun there, no moon, no direction, no sense of time. Just fine white sand swirling up into the sky like pulverized bones. That’s the kind of sandstorm you need to imagine.

It is no news that we are currently in the midst of a “storm” that has changed our lives beyond recognition.

Millions of people are fighting for their lives, struggling at home, in intensive care units, separated from their loved ones in their hours of need. Billions are in lockdown, unable to visit one another, or go to work, or attend school.

The virus has hit hard not just at our bodies and minds, but at our most instinctive desire of being close to our family and friends, to express and receive love and care in the face of this existential threat – for even that could bring illness and death. We have, as humanity, never been so vulnerable like we are now (I may be suffering from recency bias here, but that is the way it is).

My Talk on Long Term Investing in the Age of Short Attention Spans

I recently spoke at a webinar organized by MoneyWiseSmart on the subject of long-term investing in the age of short attention spans.

Click here to watch the video of my talk, or watch below.

Thank you for your time!
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Buy The Sketchbook of Wisdom: The first print of my new book – The Sketchbook of Wisdom – is almost 80% over, and has already been bought across 30+ countries within 2 months of its launch. Click here to get your copy today. Send me an email at vishal@safalniveshak.com if you wish to place bulk orders.

The Sketchbook of Wisdom: Buy Now

My new book – The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life – is flying off the shelves (despite its 800-gram weight). 🙂

I have already despatched 1150+ copies of the book across India, plus in process of sending off another 200+ copies internationally.

Here are just a few reviews the book has received –

The book is now also available on Amazon India, so if you want fast delivery, please order from there.

But if you want an autographed copy and are fine with delivery in 5-7 days within India, and 25-30 days internationally, click here to order straight from my website.

And why do I take extra time to deliver the book when ordered through my site? Here’s why –

Packed with 50 timeless ideas from Lord Krishna to Charlie Munger, Socrates to Warren Buffett, Lao Tzu to Nassim Taleb, and Steve Jobs to Naval Ravikant – as it applies to our lives today, The Sketchbook of Wisdom is a manual on virtue, happiness, and the pursuit of wealth and good life.

Please email me at vishal@safalniveshak.com if you have any questions about the book.

With respect,
Vishal

No Stock is Safe

The Sketchbook of Wisdom Now on Amazon: My new book – The Sketchbook of Wisdom – is now available on Amazon India. Packed with 50 timeless ideas, the book is a manual on virtue, happiness, and the pursuit of wealth and good life, and has already been bought across 30+ countries within 15 days of launch. Click here to get your copy on Amazon or buy on my book website.

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The bulls may want you to believe this, but no stock is safe.

There are businesses that may remain good (earning return on capital greater than cost of capital) for some time, maybe a long time, but you must not attach infinite values to them.

This is because high returns attract competition, generally causing return on capital to move towards the cost of capital. While such companies may still earn excess returns, but the return trajectory is down.

Everything in this world, after all, is momentary. So, your best bet is to just stick with quality (even that is momentary, just for longer moments that allows time for compounding to work its magic).

The good thing about high-quality stocks is that you can pay up for them (never overpay), expensive looking prices, and still do well till the underlying businesses remain good.

With poor quality, most probably, you have no hope.

As Charlie Munger says –

Over the long term, it’s hard for a stock to earn a much better return that the business which underlies it earns. If the business earns six percent on capital over forty years and you hold it for that forty years, you’re not going to make much different than a six percent return – even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you’ll end up with one hell of a result.

The Biggest Killer of Investment Returns

Somewhere, right this very moment, an investor you know of is having more fun than you. He has made a lot of money – more than you – in the stock market surge of the past few months. And you missed out on it.

In fact, you may even know of someone who owns all the stocks that are rising, and you are cursing yourself for not being that person, plus envying him.

Not just that, looking at your portfolio you realize that somewhere, something isn’t right. There’s one stock, or maybe more, that hasn’t done much even when other stocks you don’t own have skyrocketed.

I know this affects you, annoys you. And that’s a normal emotion to have, and one you have no control over, which is also normal. Your lizard brain – part of the brain that is responsible for primitive survival instincts such as aggression and fear – is hardwired to behave that way.

So, even when you own more assets and privileges than you could have imagined by this age, and are reasonably happy in your life outside stocks, you feel terrible because you missed out on a few stocks that have done wonders for other investors you know of.

A Cheat Sheet To Avoid Stock Market Ruin

In his book, Skin in the Game, Nassim Taleb runs an interesting thought experiment where he talks about two cases of playing the casino.

Equate the first case with ‘stock market trading’ in general –

…one hundred people go to a casino to gamble a certain set amount each over a set period of time, and have complimentary gin and tonic. Some may lose, some may win, and we can infer at the end of the day what the “edge” is, that is, calculate the returns simply by counting the money left in the wallets of the people who return. We can thus figure out if the casino is properly pricing the odds.

Now assume that gambler number 28 goes bust. Will gambler number 29 be affected? No.

You can safely calculate, from your sample, that about 1 percent of the gamblers will go bust. And if you keep playing and playing, you will be expected to have about the same ratio, 1 percent of gamblers going bust, on average, over that same time window.