Blog on Value Investing | Safal Niveshak

Investor, Pay Attention

Note: This is an excerpt from the article Where Do Great (Investment) Ideas Come From, which I wrote for the May 2015 issue of our premium newsletter, Value Investing Almanack. To read the complete article and our vast archives spanning 4+ years, please click here to subscribe.

Consider that you are looking to buy a stock and the two that you come across on your screen are, say, Company A and Company B. Here are a few data points about the two companies, which are the only factors you would look at while making your decision. Look at them and think which one you would rather purchase –

Did you make a decision? Before you read on, jot down either Company A or Company B. Now I’m going to give you some more data points on these companies. No information has been changed, but some has been added.

Which stock would you rather purchase now? Again, write down your answer. I’m going to present the options a third time, again adding one new element.

Now, which of the two would you prefer?

Safal Niveshak, Uncopyrighted

January 11 2013 was a sad day for the Internet world. That day, Internet pioneer and open information activist Aaron Swartz committed suicide at a young age of 26.

Swartz’s “crime” – he had logged into JSTOR (Journal Storage), a database of scholarly articles, and rapidly downloaded those articles with the intent to make them public.

He didn’t “hack” the network to secure those downloads. MIT is anyways an open network.

He didn’t crack any special password system to get behind JSTOR’s digital walls. All he did was figure out how JSTOR was filing the articles that he wanted and wrote a simple script to quickly gather those articles and then copy them to his computer.

If Swartz had lived to be convicted of the charges against him, he either had to accept the label of a criminal and go to jail for 50 years or fight a million-dollar lawsuit.

Aaron decided to take a third option. He hanged himself!

Stock Market Crisis: Your Big Questions…Answered

Here is my attempt to answers a few key questions I have received from Safal Niveshak readers on the current turmoil in the stock market.

You won’t find perfect answers below, but this is just my attempt to help you get over your fears, which may otherwise lead you to act in haste, which can cause some damage to your process of long term wealth creation.

Let’s start right here.

1. Why is the market crashing?
It hasn’t crashed…so far! The BSE-Sensex is down just 6% from its peak this year. BSE-Smallcap is down 14%. BSE-Midcap is down 11%. This isn’t a crash!

If you think it is, you maybe be suffering from ‘denominator blindness’, which is the tendency to focus on the absolute number then the percentage decline. Or you just seem to have been spoilt by rising markets over the past few years and were not investing in 2008 when the last real crash happened. That was painful for people who experienced it with their money (and not just their eyes and ears). We have not seen anything like that since then.

Being Prepared

On July 20, 1969, Neil Armstrong and Edwin Aldrin became the first men to walk on the moon. It’s been 50 years since then, and it remains one of the single greatest achievements of modern human history.

My father, who was nearing 20 then, had in fact transcribed the event as it was happening, while listening to Voice of America station on the radio.

Here is his transcript (click on the image below to download a clearer version my father copied from his original transcript on the day the astronauts landed back on Earth).

[Read more…] about Being Prepared

Picking Stocks Like a Mathematician

Have you ever noticed that finding an available spot in the multilevel car parking in any mall or shopping complex is an interesting exercise in mental maths? Let me explain.

Whenever I enter the parking area, I often try to optimize, i.e., find a spot near the lift lobby/staircase. Which means the moment I enter the parking area, I have to forego the easily available spots and keep driving towards the lift lobby and then hope that there’s a spot available near it. If there isn’t, then I would have to drive up to the next floor, which is kind of worse than the case where I would have taken the first few available spots near the parking entrance. So how many first available spots should I pass before I decide to stop searching?

It turns out that mathematicians have spent centuries thinking about this class of problems. They call it The Optimal Stopping problem.
[Read more…] about Picking Stocks Like a Mathematician

Two Big Lessons from History

I was never fond of history in school. I am, now.

The difference, as I realize, has occurred due to the way the subject was taught to me in school and the way I have come to look at it over the past few years.

What I was taught in school were the details – British Rule, French Revolution, World Wars, etc. – and the rote learning that had to accompany it.

What I now love about the subject is simply the concept of it, how we have come to be since humans first walked the Earth, how our thinking has evolved, and how some things have not changed at all.

Safal Niveshak is 8 Years Old

Yep, it’s time to put on the big boy pants…Safal Niveshak completes eight years today. 🙂

As per my son’s pediatrician, eight-year-olds start developing complex language skills. Their focus and attention span improves. Around this age, they see that some words have more than one meaning. That helps them understand jokes and puns and start verbally expressing a sense of humor. Kids this age also show fast growth in mental ability.

Well, except moving towards greater simplicity, not complexity, this eight-year-old named Safal Niveshak seems to match the doctor’s description to the tee. That makes me happy. 🙂

Anyways, I started this initiative with a simple idea in 2011 – that of helping people become better at their stock market investment decisions. The idea was just that, and I had no clue how I would do it (I still have no clue how I would do it tomorrow or the day after!)

However, a lot has happened in these eight quick years – and the tribe is reaching 60,000 members. But as with any kid of this age, we’re just getting started.

Most of all, I want to thank you for “raising” this initiative to this point — it truly could not have happened without you, dear tribe member.

I know I’ve said it before, but it bears repeating – Thank you so much for reading, for commenting, for your interest and support, for helping this entire movement of creating smarter and independent stock market investors become greater and spread wider.

You are magnificent, and I am supremely grateful for your time and attention.

Just in case Safal Niveshak has touched your life, I would be happy and honoured to read your thoughts in the Comments section of this post.

By the way, “eight,” also known as ashtha in Sanskrit, is the number of wealth and abundance. That is what I wish for you, dear tribe member.

Thanks again for being there!

With respect,
Vishal

We the Corrupt

Disclaimer: I am not in a bad mood today, and this is not an anti-national post. I love my country and its people. These are just some thoughts on my general observations over the years, so please don’t take any of what you read below personally. And if you do take it personally, please keep it personal.😊

As I boarded my return flight to India recently, I heard some noises coming from near the back rows of the airplane. It appeared that two middle-aged men and their wives were shouting at each other.

The reason? One of the Indian couples had occupied the luggage rack above the seats of the second couple. As was visible from my seat, there were empty racks close to the one these guys were fighting for, but this was seemingly a prized one for which they were shouting at the top of their voices.

As I was taking my seat, a similar hustle, though relatively more civilized happened just next to me. This time it was two aunties who were at loggerheads about their spaces.

Anyways, flights to India, and in India, are a sight to watch when the plane lands and stops at the parking lot. Passengers get up from their seats in such a hurry as if the flight would take off again in the next few seconds and they would miss getting out!

[Read more…] about We the Corrupt

Being Average in the Age of Alpha

I was an average student in school. Though I was surrounded by high achievers, and never questioned the importance of being extraordinary, I somehow never expected myself to rise to their levels. The most common remark I found in my annual report cards read something like this – “An obedient boy who can do better than average with more hard work.”

I knew I could not work any harder and rise above being average.

Anyways, I never had the credentials to get into the best college after school, there were no scholarships on offer for me, and no one in my family, including myself, expected me to become a star in life.

Life continued this way even when I got into doing my MBA, again from an average college in Mumbai. My first job profile was average too, and it paid an average salary that, in my father’s eyes, was below average.

Living in a costly city like Mumbai also meant I never had better than average savings for the first few years of my life, even though I was saving as much as possible.

More than twenty-five years have passed since I started considering myself as an average person with average capabilities and average ambitions in life. Somehow, being like this in the world where people are seeking alpha, keeps me happy and satisfied with myself.

Buy and Hold: Simple, NOT Easy

This is the stock price chart of Asian Paints over the past 19 years (since May 2000). Point to point, the stock is up over 80x.

Our brain that works with perfection in hindsight would lead us to believe that buying and holding the stock during these 19 years would have been an easy choice for anyone who did it. After all, the only thing the investor would have done during these 19 years was, well, nothing.

I wish investing was that easy.

Of course, the idea of buying and holding high-quality businesses over a long period of time is simple. Everyone knows that, and even those who don’t practice it appreciate that this works with most high-quality businesses as history has proven time and again.

But then, it’s important to understand that the action of not doing anything over such a long period of time involves hundreds of decisions over months and years that lead to such inaction.