Safal Niveshak

Wit. Wisdom. Value Investing.

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Archives for January 2025

The Psychology of Investing #7: The Hidden Cost of Ownership

A quick announcement before I begin today’s post – 

My new book, Boundless, is now available for ordering!

After a wonderful response during the pre-order phase, I finally have the book in my hands and am shipping it out quickly. If you’d like to get your copy, click here to order now. You can also enjoy lower prices on multiple-copy orders.

Plus, I’m offering a special combo discount if you order Boundless along with my first book, The Sketchbook of Wisdom. Click here to order your set.

The Internet is brimming with resources that proclaim, “nearly everything you believed about investing is incorrect.” However, there are far fewer that aim to help you become a better investor by revealing that “much of what you think you know about yourself is inaccurate.” In this series of posts on the psychology of investing, I will take you through the journey of the biggest psychological flaws we suffer from that causes us to make dumb mistakes in investing. This series is part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund.

There’s an old, tattered shirt in my wardrobe. It has five holes in it. The fabric is thinning, and its white colour has turned into cream. My wife has threatened to throw it away multiple times. But I refuse to let it go. To me, it isn’t just a shirt—it’s the shirt that I wore the first time I picked up my daughter in 2004, on the first day of my first international trip in 2008, and also on my last day at job and the first when I felt really free, in 2011. The shirt has somehow survived years of wear and tear. Rationally, it should be in a dustbin. Emotionally, it’s priceless.

If you empathise with me because you also own one such shirt, or a pen, a bag, or something that you don’t want to part ways with despite it now being in tatters, but just because it was there on your big days, then you are not alone! But know that, like I do, you suffer from Endowment Bias or Endowment Effect.

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Markets Are a Mirror

A couple of announcements before I begin today’s post – 

1. Two “Life-Changing” Books, One Exclusive Offer: I have been running a special offer on the combo of my first book The Sketchbook of Wisdom and the new one Boundless. Click here to order your set. Also, check out Boundless, which releases soon, and is available for pre-order.

2. Classroom Course in Value Investing: Admission is now open to the February 2025 batch of my most comprehensive classroom course in Value Investing, titled – Value Investing Blueprint. This residential course is scheduled to be held from 27th February to 2nd March 2025 at the campus of Pune-based FLAME University. The last date to apply is 15th January 2025. Click here to read more and apply if you are interested in joining this course. Since it’s a classroom course, seats are limited.

I recently received a call from a school friend, who, after much convincing had started investing his money through SIPs around two years back. He sounded panicky when we spoke.

“The markets are falling, Vishal!” he said.

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Letter to A Young Investor #7: The One Financial Step You Can’t Skip

A couple of announcements before I begin today’s post – 

1. The Sketchbook of Wisdom – Special Offer Ends Today: I have been running a special offer on The Sketchbook of Wisdom, that ends today. Click here to order your copy. You can also club it with my upcoming book, Boundless, and claim an even special offer. Finally, check out Boundless, which releases soon, and is available for pre-order.

2. Classroom Course in Value Investing: Admission is now open to the February 2025 batch of my most comprehensive classroom course in Value Investing, titled – Value Investing Blueprint. This residential course is scheduled to be held from 27th February to 2nd March 2025 at the campus of Pune-based FLAME University. The last date to apply is 15th January 2025. Click here to read more and apply if you are interested in joining this course. Since it’s a classroom course, seats are limited.

I am writing this series of letters on the art of investing, addressed to a young investor, with the aim to provide timeless wisdom and practical advice that helped me when I was starting out. My goal is to help young investors navigate the complexities of the financial world, avoid misinformation, and harness the power of compounding by starting early with the right principles and actions. This series is part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund.

Dear Young Investor,

I hope you are doing well, and that the lessons we have covered so far have been helpful in guiding you through the early stages of your investing journey.

In my previous letter, I wrote about the idea of savings—the cornerstone of financial independence and the first step toward building wealth.

In today’s letter, before we get into the heart of the matter, I want to tell you a story about my friend. Let’s call him Sameer.

I have known Sameer since college. He was a bright young man, raised by his mother, and always had a plan for how his life would pan out over the next few years. He was one of the first from our MBA batch to land a job, one he had always wanted, and the kind that makes you feel like you’ve finally stepped into adulthood.

His salary was decent, his confidence was through the roof, and he had big dreams about the future. He started saving money every month from the very first paycheque he received and invested all of that in stocks. He was on the path of building wealth while many of us were still struggling to find real jobs—or so we thought.

Anyway, in the busy-ness of life, I lost touch with Sameer for a few months, and so was pleasantly surprised to get a call from him almost a year after he started his job. I was waiting to hear some good stories about his job and investments, but he started the call on a sombre note.

He mentioned how his life had taken a bad turn a couple of months back, when his mother had fallen seriously ill. The hospital bills had started piling up fast. If that wasn’t enough, he also had a car accident. He was lucky to escape unhurt, but his car was severely damaged and had to be taken to the garage for major repairs. Since this was an old car, Sameer did not have adequate insurance to cover the damage, and so had to pay out of his pocket.

As Sameer was telling me about his struggles, I asked him about his investments that would have helped him in these times. But he told me how the recent market crash had reduced the value of his stock investments by 30%, and that they were not enough to cover his mother’s medical bills and the car repairs. So, he had to borrow some money from his uncle.

This was my first brush with one of the most important legs of a sound personal financial plan: emergency funds—a financial safety net of readily accessible savings set aside to cover emergencies, like unexpected expenses or loss of income.

Sameer apparently had no emergency fund to fall back on, and so he had to sell all his investments at a loss. Plus, he had to borrow money.

Now, as he told his story, that wasn’t the worst part. The worst part was the helplessness he felt, knowing that all his careful plans had been undone by something as inevitable as an emergency.

I don’t tell you this to scare you. I tell you this because I’ve seen what happens when people, even smart, well-meaning ones, skip one of the most important steps in their financial lives: building an emergency fund.

Before you think about compounding wealth or finding the next great investment, you need to create a safety net. It’s not flashy or exciting, but it’s essential.

An emergency fund is like the foundation of a house. Without it, the whole structure can collapse the moment the ground shakes. Life is unpredictable, and that’s not pessimism—that’s reality. Cars break down. People fall ill. Jobs disappear. The question isn’t whether unexpected expenses will come your way, but whether you’ll be prepared when they do. An emergency fund gives you the power to handle these moments without derailing your financial future or losing sleep over how you’ll pay the next bill.

Now, how much should you save as an emergency fund? The answer depends on your circumstances, but a good rule of thumb is six to eight months’ worth of your essential expenses. So, if your monthly household expenses are around Rs 1 lakh, you can aim to have Rs 6-8 lakh in an emergency fund. Think of rent, groceries, school fees, and every other key expense you’d need to keep your life running, even if your income suddenly stopped.

If that sounds daunting, don’t worry. You don’t need to build it overnight. Start small. Save a month’s worth of expenses first, then build from there. The key is to start, even if it’s just a little.

Where should you keep this emergency fund? Somewhere safe and accessible, but not so easily accessible, like a regular savings account, where you might be tempted to dip into it for non-emergencies. In my view, bank fixed deposits and liquid funds that are offered by mutual fund companies are great options.

Resist the urge to invest this money in stocks or mutual funds—it’s not meant to grow, but protect.

The beauty of an emergency fund isn’t just practical. It’s psychological. It gives you peace of mind. You walk a little taller, knowing you’re ready if something unexpected happens. And you know what? That confidence, that peace, will make you a better investor. You’ll take well-thought-out risks because you know you have a cushion to fall back on. You’ll invest for the long term without the fear of needing to sell just because there’s an emergency.

My friend Sameer learned this lesson the hard way. But you don’t have to. You’re just starting out, and you have the chance to build your financial life on a solid foundation. Start small, but start today.

Calculate what your emergency fund should look like and take the first step toward building it. It might not feel as exciting as picking stocks or watching your investments grow, but I promise you, it will be one of the most important decisions you ever make.

I wish you all the best on this exciting journey.

Warm regards,
Vishal

Disclaimer: This article is published as part of a joint investor education initiative between Safal Niveshak and DSP Mutual Fund. All Mutual fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (‘RMF’). For more info on KYC, RMF & procedure to lodge/ redress any complaints, visit dspim.com/IEID. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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The Art of Writing #1: Why Everyone Should Write

With this article, I am beginning a new series on the topic of writing well. As we start, it’s apt to first make a case for why you should write. In fact, my argument is that everyone should write.

You could argue that we all write hundreds of words every day — WhatsApp messages, Social Media updates, email replies, and sometimes long documents as part of our work. But the purpose of that kind of writing is often to merely inform.

The writing that I am talking about is something that’s intended to be part of a public discourse. Not just to pass on some facts and opinions but to persuade, convince, and debate in public. For this kind of writing has enormous benefits for the writer, even if no one ends up reading the output.

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If you are not a member, please consider joining the Mastermind Membership to access my most comprehensive value investing course, plus practical, time-tested ideas in investing, human behaviour, business analysis, and decision making, and get onto the path of becoming a better version of yourself.

Investing Lesson for 2025: Unmask Your True Self

David Whyte, the noted Anglo-Irish poet, said this in a 2019 interview with Krista Tippett* –

One of the interesting qualities of being human is, by the look of it, we’re the only part of creation that can actually refuse to be ourselves. As far as I can see, there’s no other part of the world that can do that. The cloud is the cloud; the mountain is the mountain; the tree is the tree; the hawk is the hawk. The kingfisher doesn’t wake up one day and say, “You know, God, I’m absolutely fed up to the back teeth of this whole kingfisher trip. Can I have a day as a crow? You know, hang out with my mates, glide down for a bit of carrion now and again? That’s the life for — ” No, the kingfisher is just the kingfisher.

And one of the healing things about the natural world to human beings is that it’s just itself. But we, as human beings, are really quite extraordinary in that we can actually refuse to be ourselves. We can get afraid of the way we are. We can temporarily put a mask over our face and pretend to be somebody else or something else. And the interesting thing is then we can take it another step of virtuosity and forget that we were pretending to be someone else and become the person we were on the surface at least, who we were just pretending to be in the first place.

This is a great lesson to take as we dip our toes into a new year.

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The Art of Learning #1: It Takes a Village to Raise a Child

My daughters go to a Montessori school. One of the most unusual things about the Montessori method is their emphasis on having a mixed-age environment. So, unlike a conventional school where children of the same age are grouped together in a class, the Montessori method groups children from adjacent grades together. The idea is to make children of different ages interact and learn from each other through play and participation.

In a Montessori, a 2nd grade child has the company of children from 1st grade as well as 3rd grade in her class. So she not only learns from the 3rd grader but also teaches a 1st grader. And a big part of this learning-teaching involves the subtle element of learning through observation. 

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If you are not a member, please consider joining the Mastermind Membership to access my most comprehensive value investing course, plus practical, time-tested ideas in investing, human behaviour, business analysis, and decision making, and get onto the path of becoming a better version of yourself.