Blog on Value Investing | Safal Niveshak

Fighting the Last War

Note: This post was originally published in the November 2017 issue of our premium newsletter – Value Investing Almanack (VIA). To read more such posts and other deep thoughts on value investing, business analysis and behavioral finance, click here to subscribe to VIA.

In Safal Niveshak’s Value Investing workshops, when we discuss the mental biases, we show the following video to our participants.

I would suggest that you pause here and watch this video before reading further.

It’s a test of your awareness so don’t cheat 🙂 [Read more…] about Fighting the Last War

From Darkness Unto Light

I was recently reading a story on the classical Greek philosopher, Socrates, who was tried and executed in 399 BC. He was tried on two charges – corrupting the youth, and impiety (perceived lack of proper respect for something considered sacred).

The Death of Socrates, by Jacques-Louis David (1787)

Socrates had done no such thing. What he had done was educate the youth, teaching them to challenge arguments from authority and question what they believed to be true.

In the process, he frustrated and embarrassed many powerful people with his constant line of questioning, known today as the Socratic method.

In Praise of Mediocrity, Being Happy, And Learning How to Learn

Here’s some stuff I am reading, watching, and thinking about this weekend…

Book I’m Reading – The Art of Learning
One of the best books on the art of learning I’ve read is, well, The Art of Learning by Josh Waitzkin. I picked it up again this week, and it was as refreshing as the original read.

Josh is a champion in two distinct sports – chess and martial arts. He is an eight-time US national chess champion, thirteen-time Tai Chi Chuan push hands national champion, and two-time Tai Chi Chuan push hands world champion. In his book, Josh recounts his experiences and shares his insights and approaches on how you can learn and excel in your own life’s passion, using examples from his personal life. Through stories of martial arts wars and tense chess face-offs, Josh reveals the inner workings of his everyday methods, cultivating the most powerful techniques in any field, and mastering the psychology of peak performance.

How to Get Wealthy (Over Time)

Life is simple. Why do we make it so hard?

This is what Jon Jandai, a farmer from northeastern Thailand, asked the audience while delivering a TED speech in 2011.

He echoed what Confucius had said 2,500 years earlier, “Life is really simple, but we insist on making it complicated.”

While I recommend you watch Jon’s complete speech, the crux of what he says is that we don’t have to do what society tells us, we can have the life we want, and our choices determine if we get such a life.

Consider wealth creation. Spending less than you earn, i.e., saving money and investing it well over a long period of time is all you need to meet all your financial goals. Simple, right? But the question again is, like Jon asked, why do we make it so hard?

Look at this chart that talks about the three simple steps to get wealthy over time…

Could this get any simpler?

The Low Stress Way to Research Stocks

This issue of Outside the Box newsletter is authored by Jatin Khemani. Jatin talks about his equity research process and how he tries to balance the stress part of the equation that it involves. Over to him.

The Low Stress Way to Research Stocks
by Jatin Khemani

Six years ago, Prof. Sanjay Bakshi published a blog post where he suggested looking at returns from a very different perspective – Returns Per Unit of Stress.

One of the key points he made in the post was –

For proprietary investors (and maybe for all investors), stress should figure in one’s investment strategy, much more than it does, perhaps, even more than financial risk, because stress is a killer and high-stress situations – whether they carry high or low investment risk – will always carry a high risk to one’s health. In fact, one can now measure how many years of one’s life is cut short by being exposed to a high-stress life.

In this post, I take that idea further with my own experiences of being a full-time value investor over the better part of this decade.

Exploration Vs Exploitation

In his 2010 letter to shareholders, Warren Buffett tells a joke —

Customer: Thanks for putting me in XYZ stock at 5. I hear it’s up to 18.
Broker: Yes, and that’s just the beginning. In fact, the company is doing so well now, that it’s an even better buy at 18 than it was when you made your purchase.
Customer: Damn, I knew I should have waited.

Reading this joke the first time, I laughed at broker’s convoluted argument and the stupidity of the customer. How can a stock be better buy at 18 than it was at 5?
[Read more…] about Exploration Vs Exploitation

Thinking in Bets, Lessons from Howard Marks, and Few Insights on D-Mart

Here’s some stuff I am reading, watching, and thinking about this weekend…

Book I’m Reading – Thinking in Bets
In this book, Poker champion turned business consultant Annie Duke shares insights on how we can get comfortable with uncertainty and make better decisions as a result. It’s a lively read that presents a useful and novel framework for analyzing decisions when we are faced with less than perfect information: that is, the situation we likely find ourselves in daily. Annie writes –

Life, like poker, is one long game, and there are going to be a lot of losses, even after making the best possible bets. We are going to do better, and be happier, if we start by recognizing that we’ll never be sure of the future. That changes our task from trying to right every time, and impossible job, to navigating our way through the uncertainty by calibrating our beliefs to move toward, little by little, a more accurate and objective representation of the world.

The most charming parts of the book are where the principles presented can be applied in much of my daily life, from those facing me as a father of two kids to better considering possible outcomes when making investment decisions.

It’s a nice, practical book – Thinking in Bets.

What We (Don’t) Know

“Within infinite myths lies the eternal truth, who sees it all? Varuna has but a thousand eyes, Indra but a hundred, you and I, but two.” ~ Devdutt Pattanaik

“Accepting that you don’t know — and can’t know — what the future holds should be liberating, not frustrating.” ~ Jason Zweig

I was recently reading an old post by Jason Zweig titled I Don’t Know, and I Don’t Care.

Jason wrote about –

How he graduated from not believing in indexing and instead picking sector funds and small cap funds,
And then realizing that he was not good at fund-picking and that beating the market was amazingly hard,
And then starting to invest in index funds that he said liberated him from the feeling that he needed to forecast what the market was about to do,
And that gave him more time and mental energy for the important things in life.

If I were to chart out my own life as an investor, I am still at the first stage as described by Jason above. In fact, about six years back, I wrote about my reasons for not investing in index funds as I believed well-managed, low-cost, actively managed funds were a better bet for investors.

[Read more…] about What We (Don’t) Know

One Big Investing Lesson I Learned Late in My Life

One of the most profound thoughts I’ve ever read on the child-parent relationship comes from the noted Lebanese-American artist and poet Kahlil Gibran, who wrote the following under the title “On Children” –

Your children are not your children.
They are the sons and daughters of Life’s longing for itself.
They come through you but not from you,
And though they are with you yet they belong not to you.

You may give them your love but not your thoughts,
For they have their own thoughts.
You may house their bodies but not their souls,
For their souls dwell in the house of tomorrow,
which you cannot visit, not even in your dreams.
You may strive to be like them,
but seek not to make them like you.
For life goes not backward nor tarries with yesterday.

You are the bows from which your children
as living arrows are sent forth.
The archer sees the mark upon the path of the infinite,
and He bends you with His might
that His arrows may go swift and far.
Let your bending in the archer’s hand be for gladness;
For even as He loves the arrow that flies,
so He loves also the bow that is stable.

The first time I read these thoughts, my first reaction was – “If my children are not my children, then whose are they? And what do you mean they are not mine?”

Stock Analysis Excel Template Version 4.0

Whether you’re training for a marathon or going on an adventure trip, being ready can make a world of difference.

The same is true for the stock market. It’s important to be prepared with a watchlist of fundamentally sound stocks ready to be bought at the right prices. Whether the market is in rally mode or in a phase of correction, being prepared with a watchlist is key.

Here is Version 4.0 of my Stock Analysis Excel Sheet that will help you with exactly that – identify high-quality businesses to create your watchlist and buy them when the prices are right.

Download this sheet on your computer, read carefully through the instructions to follow a few simple steps, and then analyze not just the past performance of a company but also arrive at its approximate intrinsic value range.

Click Here to Download Stock Analysis Excel Template Version 4.0

Like the previous version 3.0, this latest version feeds in data automatically from Screener.in website, which subsequently feeds into my sheets on financial analyses and intrinsic value calculations. So, please thank Screener’s creators and my friends Ayush and Pratyush before thanking me. 🙂

If you have been into financial modeling in the past, this excel file may seem like a child’s play. But, if my 15+ years of experience as an analyst is anything to go by, this is most of all you require to “quantitatively” analyze stocks…not models running into hundreds of rows and tens of sheets.