Safal Niveshak

Wit. Wisdom. Value Investing.

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.

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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.

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).

[Read more…] about The Last Things on My Mind

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

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.

[Read more…] about The Biggest Killer of Investment Returns

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.

[Read more…] about A Cheat Sheet To Avoid Stock Market Ruin

51 Ideas from 2020

Dear Tribe Member,

Despite the despair all around, I trust 2020 treated you well and that you and everyone around you are keeping safe and healthy.

Right before the year ends, I thought I’d share a handful of ideas I’ve learned, re-learned, and wrote about in the past twelve months. Here are 51 of them categorized under the subjects of investing and life. I hope you find these useful, as much as I did.

[Read more…] about 51 Ideas from 2020

Lost Money on Stocks? Have No Shame

Adolf Merckle was a leading German entrepreneur who, in the early 1970s, founded Germany’s first generic drug manufacturer, Ratiopharm. For several decades he also held large parts of cement company HeidelbergCement as well as vehicle manufacturer Kässbohrer.

In 2007, he was worth US$ 12.8 billion, and among the five richest people in Germany.

Adolf Merckle

However, near the end of 2008, Merckle’s investment company VEM faced a liquidity shortage, and he also faced huge losses on speculation in Volkswagen shares, which he bet would fall but instead surged. It is believed that he lost as much as €500 million on this speculative bet. His trouble was made worse by the spreading financial crunch, which hit his corporate empire hard.

Crushed by watching his life’s work slip through his fingers, on 5th January 2009, Merckle walked out into the bitter cold night and threw himself under a speeding train.
“An industrialist losing a fortune on the stock market has different motives for killing himself than a father with six children who loses his job,” said Detlev Liepmann, professor of economic psychology at Berlin’s Free University. He added, “Merckle’s livelihood was certainly not threatened by his risky investments but he was threatened by shame, a loss of face in society, and a loss of honor.”

A man who spent a life working hard to do good, built a billion-dollar wealth, then lost a part of it due to wrong bets and collapse of world markets, died of guilt and shame seemingly because he equated his financial failure with failure in life.

Though at his memorial service, Gerhard Maier, a retired bishop, said, “What brought a man of great will who felt responsible to God to the point where he took his own life is something that, deep down, we humans will never comprehend.”

There is Merckle in All of Us
Well, the reason I brought in Merckle’s tragic story today is because there is a part of Merckle in all of us that causes us to feel shame for our financial mistakes – even small – that often leads us to bigger mistakes. Of course, most people in the same spot as Merckle would not think of killing themselves no matter what happens.

People talk about regret aversion and how we make decisions to avoid regretting an alternative decision in the future. But I would rather call it ‘shame aversion,’ because most of the time most if you see guilt or shame as a more powerful emotion than plain regret.

So, we feel guilty for not investing in rising stocks when we see our friends making money on them. We feel guilty of not having invested in stocks when the prices were down, and we knew (now, in hindsight) that we should have sold our houses then to invest.

We feel bad accepting we made a mistake that causes us to hold on to our losing stocks (bad businesses) because the shame of such acceptance would be too heavy to bear on our already frail hearts. So, not only would people bet heavily on hot stocks in frothy markets, but they would also double-down when these stocks fall to avoid the shame of turning their paper losses into real ones.

Losing Money on Stocks is NOT a Shame
My dear friend, there is no shame in losing money on a stock or any investment. Everyone loses at some point in time, and there is not a single investor who has never made a mistake.

Of course, that does not mean you bet your house on stocks – even the best ones. Losing ₹ 1 crore on a ₹ 100 crore net worth is not the same as losing ₹ 1 crore on a ₹ 2 crore net worth. So, you should always be worried about losing big money permanently. But that worry should show up in the kind of work you do on your process to pick stocks, not after you have already lost money.

Investing or money are such insignificant parts of this beautiful thing called life that you must not lose sleep over them, forget losing your life.

Markets change, cycles turn, everything passes, and there are numerous opportunities one gets to rise after a fall, clean the dust, give up any guilt or shame of falling, and start walking again.

The noted British writer and speaker Alan Watts said –

Man suffers only because he takes seriously what the Gods made for fun.

Russian philosopher and novelist Fyodor Dostoevsky agreed in a way when he said –

The cleverest of all, in my opinion, is the man who calls himself a fool at least once a month.

Learn from your mistakes, but stop taking them, or yourself, so seriously.

How much I wish Adolf Merckle, and others like him who passed through similar tragedies, understood this.

How much I wish you do.

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That’s about it from me for today.

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Stay safe.

Regards,
Vishal