Blog on Value Investing | Safal Niveshak

Reflections on My Life

19 years have passed since I entered the stock market through my first and last job as an equity research analyst. 11 years have passed since I left that job to start on my own.

I recently tweeted about my experiences during both these phases, which I thought I would share with you here too.

There have been numerous lessons I have learned along the way, but what follows below contains some of the most important ones. Mostly, it’s about the memories I have made on this journey.

This is how an important part of my life has flowed over the past 19 years, and the best thing I have enjoyed about the whole journey is, well, the flow, with not much idea about where I would go.

If you are still reading, let’s start right here.

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Reflections on the Purpose of Life

I did not know who Dr. Sarah Hallberg was till yesterday morning. By the end of the day, however, I had known her well. At least that is what I felt after seeing her multiple videos and reading about her outstanding work in the field of reversing type 2 diabetes without medications or surgery.

And the reason I got to know about Sarah and her work just yesterday was because I read news of her passing away a day before yesterday, after suffering from advanced lung cancer, at the age of fifty.

Sarah was revered in the medical community, especially those working in the field of diabetes, for the path-breaking work she did over the past few years. As much as I got to read and know about her, all I could gather was the amount of good karma she had accumulated over the years for helping diabetics sort out their lives through just food and lifestyle. The best part about Sarah’s story is that her work did not stop even after she got to know she was down with a terminal disease. She was selfless to the core.

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Why Value Investing Works

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Jack Schwager, the author of Market Wizards series, when answering a question on whether value investing works, turned to the wisdom of Joel Greenblatt, one of the foremost experts on the subject.

Schwager quoted this from his interview with Greenblatt –

Value investing doesn’t always work. The market doesn’t always agree with you. Over time, value is roughly the way the market prices stocks, but over the short term, which sometimes can be as long as two or three years, there are periods when it doesn’t work. And that is a very good thing.
The fact that the value approach doesn’t work over periods of time is precisely the reason why it continues to work over the long term.

Why Value Investing Works - Safal Niveshak

You see, the biggest problems in the long-term practice of value investing are that –

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The Need for an Investment Premise

This is an excerpt from my upcoming book – Shut Up and Wait: And Other Timeless Principles to Win at Investing and in Life – which I aim to release in August 2022. Click here to read more about the book and download five chapters.

One of the most important lessons I have learned as a writer is that every great story, bestselling novel, or a blockbuster movie’s screenplay began with a ‘premise, that, in simple words, is the foundational idea that expresses the plot in simple terms.

A strong premise in writing or storytelling ideally includes three elements. First, the description of the main character or protagonist of the story – “misfit team of deep-core drillers.” Second, the protagonist’s goal – “save Earth from the impact of a large asteroid.” And third, the situation or obstacle the protagonist find themselves in – “how to destroy the asteroid the size of Texas.”

A good premise serves as both a hook for the reader or the audience and a guiding light for the writer, providing a storytelling roadmap from the start of a story to its end.

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Of Ben Graham, Investing, and Eternity

The Sketchbook of Wisdom: Did you get your copy?

The Heilbrunn Center for Graham and Dodd Investing created a wonderful video in 2013 titled ‘Legacy of Ben Graham,’ which contains bytes from some of his students on how Graham’s teachings changed their lives.

Marshall Weinberg, one of the students from Graham’s class said that the biggest lesson he drew out of that class was on long-term thinking. Here’s what he said –

One sentence changed my life…Ben Graham opened the course by saying: ‘If you want to make money in Wall Street you must have the proper psychological attitude. No one expresses it better than Spinoza the philosopher.’
When he said that, I nearly jumped out of my course. What? I suddenly look up, and he said, and I remember exactly what he said: ‘Spinoza said you must look at things in the aspect of eternity.’ And that’s what suddenly hooked me on Ben Graham.

Spinoza actually said, “Sub specie aeternitatis,” which translates to “under the aspect of eternity,” or “from the perspective of the eternal.”

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The Dangers of Averaging Down

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One of the biggest flaws in my decision-making process caused me a lot of anguish and a few losses in the early part of my investing career.

It was the idea of averaging down or buying more of the stocks from my portfolio after they fell from my original buying prices just so that I could ‘average down’ my costs.

The math is simple. Assume you buy 100 shares of ABC Co. for ₹120 per share. Your total investment is ₹12,000. The stock falls to ₹90, because the stock market falls, and you buy 100 more shares. Your new investment is ₹9000. Your total investment is ₹21000 (12000 + 9000) and for a total holding of 200 shares, your average cost now stands at ₹105. You have ‘averaged down’ your cost.

Now, this is not a problem if the underlying business remains good but the stock has fallen just because the overall market has taken a hit.

Anyways, ABC Co. falls from ₹90 to ₹60 because there is a rumour in the market about some mismanagement in the company, but you ignore that. You buy 100 more shares for a total investment of ₹6000. Your total cost now is ₹27000. Your total holding is 300 shares. Your average cost of total holding is ₹90.

You feel happy seeing your average cost come down, from ₹120 for the first transaction to ₹90 for the total of three transactions.

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My Notes on Warren Buffett’s 2021 Letter to Shareholders

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Warren Buffett recently released his 2021 letter to shareholders of Berkshire Hathaway.

I have prepared some notes on the letter. Click here to read my notes.

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Stay safe.

With respect,
– Vishal

Investing in Uncertain Times

…is almost always more profitable than investing when everything seems certain.

Investors, like most people going about their daily lives, don’t like doubts and uncertainties – like the Covid-19 pandemic, or the Russia-Ukraine crisis. So, we would anything we can to avoid it.

Of course, it’s a good idea to avoid entirely what you can’t totally get your mind around, successful investing is largely about dealing well with uncertainties.

In fact, uncertainties are the most fundamental condition of the investing world.

Seth Klarman wrote in Margin of Safety –

Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen.
Investors frequently benefit from making investment decisions with less than perfect knowledge and are well rewarded for bearing the risk of uncertainty. The time other investors spend delving into the last unanswered detail may cost them the chance to buy in at prices so low that they offer a margin of safety despite the incomplete information.

What Klarman suggests is that if you need reassurance and certainty, you’re giving up quite a bit to get it. Like high fees to experts who would predict the future (which you falsely believe as certainty, which it isn’t), or expensive prices for stocks (because everyone knows their future is clear, which often isn’t).

On the other hand, if you can get in the habit of seeking out uncertainty, you’ll have developed a great instinct. Plus, in the long term, it’s highly profitable.

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The Secret of Investing

The small town I was born in West Bengal gets occasional loud and wild mud storms. Growing up there in my early years, though, no one really freaked out about it, not even the people residing in small mud houses surrounding my house.

They had built their houses so strong that any wild storm was rarely a problem. And so was the attitude towards the storms, that it was hardly a problem worth getting nervous about.

The case with the place in Rajasthan where I grew up in my teens was different. Temperatures during summers peaked at 50 degree Celsius, and dropped to 5 degree during winters. But we rarely went crazy because we had learnt to prepare for and live with both the extreme seasons.

Now, the weather where I have lived for the past 21 years i.e., Mumbai, is so humid throughout the year that people travelling from North India, who do not get freaked out about the extremes there, find Mumbai terrible. On the contrary, I find Mumbai’s weather much more comfortable than the extremes of the places I grew up in.

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Shut Up and Wait: My Upcoming Book on the Timeless Principles to Win at Investing and in Life

If someone had told me this in February 2020 that I would be writing this to you in February 2022, I would have laughed at that person. But here I am, writing to you, announcing my second hardcover book (first being The Sketchbook of Wisdom).

The book is titled – Shut Up and Wait: And Other Timeless Principles to Win at Investing and in Life. I am working on it and aim to release it in August 2022.

First, the credit where it is due. The idea of this title – Shut Up and Wait – came from a tweet from Morgan Housel of Collaborative Fund. I checked with Morgan if he would like to ever write a book with this title. He had no plans of doing this and so I sought his permission to use it for this book.

Shut Up and Wait is not a book of investing advice or secrets. Instead, it is a collection of notes I have written to myself over the past 20 years in my pursuit of becoming a better investor and a better person.

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