Blog on Value Investing | Safal Niveshak

The Most Important Question We Never Ask

A few years ago, the key executives of Disney summoned a study of their theme parks to figure out what kids found most absorbing.

Were they more enticed by Mickey and Minnie Mouse, or were they more in awe of Cinderella’s castle? Were they attracted more by the sweet-smelling snacks or colourful toys that were sold at the parks?

The study revealed that it wasn’t the Disney magic that captured the young children’s attention the most. Instead, it was their parents’ cell phones, especially when the parents were using them. And because the parents were always staring at their phones, the kids wanted to as well – even when they were surrounded by giant mice, spinning teacups, and the magic of pumpkin turning into a carriage.

Today, more of us are hooked to our devices, which in turn keep us hooked to work…and away from the more important things in life. An average American spends over two hours on his or her smartphone every day.

An average Indian smartphone user spends almost three hours every day on his or her device. We check them first thing in the morning, and often the last thing at night.

Now, what are the consequences of such an addiction towards cell phones?

Consistency, the Playground of Dull Minds

Two men went to a priest to resolve a dispute.

Having listened to the first, the priest said, “You are right.” When the second man insisted on being heard, the priest listened to him and said, “You’re also right.”

The priest’s wife was overhearing the conversation from the next room. She called out, “But they can’t both be right!” The priest paused for a moment, reflected on what the wife said and then concluded, “And you’re right too.”

How wonderful that we’ve met with a paradox, observed Great Danish physicist Niels Bohr, “Now we have a hope of making some progress.” Bohr wasn’t the only one who thrived on contradictions. It’s said that Einstein discovered relativity by way of resolving an apparent conflict between electromagnetism and mechanics.

A physicist is only too happy, writes Carlo Rovelli in his book Seven Brief Lessons on Physics, “when he finds a conflict of between successful theories: it’s an extraordinary opportunity.”

The Books That Made Me – Part 2

In the first part of this series, I profiled books on life and living that have inspired me the most. In this second part, I cover books on learning, thinking, and decision making (more coming in the third part).

Before I begin, here’s something worth reiterating. You should not read good books for the sake of talking about them. Mentioning them by name may give you the appearance of literacy, but you do not have to read them to outshine someone else at a dinner party. Reading is a means toward living a good human life. It’s a means toward living the life of a free man/woman.

Anyways, what follows below is not an exhaustive list but is made up of books I go back to time and again, and return wiser.

The Books That Made Me – Part 2 - Safal Niveshak

Let’s start right away with my favourite books on learning, thinking, and decision making.

Where is the Stock Market Headed: A Conversation With My Friend

“What is happening with the stock market, Vishal?” my very concerned trader-who-thinks-he-is-an-investor friend Ravi asked me on phone.

“Why Ravi, what happened?” I asked in my usual show of ignorance.

“Hey, haven’t you seen the crash in small and midcap stocks?”

“Okay, so you already know what is happening with the stock market, right?” I asked.

“Vishal, I have already lost all my profits in this crash, which I made during the past two years.”

“Oh! Were you playing around with stuff like Vakrangee, or PNB, or Suzlon?”

“I know I am bad at investing, but not so bad Vishal. Luckily, I never got into these stocks.”

“Wonderful. Now tell me how I can help you,” I asked.

“Tell me if you have any clue where the stock market is headed?” Ravi asked.

Warren Buffett, Humility, and 25 Other Lessons in Investing

This is going to be the shortest post on Safal Niveshak, but one with the most amount of wisdom (it doesn’t come from me, of course).

What follows below is a series of tweets from James O’Shaughnessy, the chairman and founder of O’Shaughnessy Asset Management, and the author of What Works on Wall Street.

The entire thread is worth reading, given that it contains the most important things an investor in stocks must understand, appreciate and tie into his/her investment philosophy.

It’s a gem of a tweetstorm, and I suggest you read through this and, maybe, print this out as it can serve as a wonderful reminder when you feel lost in the world of investing and the information overload that’s a part of it.

1/ I have been a professional investor for over 30 years. What follows is some things I think I know and some things I know I don’t know. Let’s start with some things I know I don’t know.

— Jim OShaughnessy (@jposhaughnessy) May 10, 2018

Click on the tweet above to read the entire series, or click here.

Results: Value Investing Contest 2018

Safal Niveshak Book Review Contest 2016 We recently concluded the 2018 edition of Safal Niveshak’s Value Investing Contest. Today, I feel happy to announce the winners of the same.

We received 34 entries in total and found it extremely tough to rank most of them in terms of quality, simplicity, and thoroughness of analysis.

While our choice of winners does not devalue the quality of analysis sent by others, it’s just that we had to pick the best very few, and here they are –

1st Prize

Ameet Chitnis – DB Corp

2nd Prize

Subroto Baul – APL Apollo
Swapnil Nadkar – Symphony

3rd Prize

Abhijit Roy – Parag Milk Foods

Congratulations to the winners, and thanks to all who participated!

Click here to view/download all the submitted entries.

Roulette, Mispriced Bets and Investing

Joseph Jagger, born in September 1830 in a village near Bradford, Britain, was an engineer in a cotton factory in Yorkshire.

With years of practical experience in the cotton manufacturing industry, Jagger developed an intuitive feel about what machines could do. He figured that even the most sophisticated instruments are far from mechanical perfection. Every machine has flaws. And every flaw brings with it an opportunity to exploit it.

The Englishman often wondered if it was possible to convert his expertise into more cash, not by scamming his employer at the cotton factory but by discovering the possible flaws in the gambling machines at Monte Carlo? Especially the roulette wheels.

In 1873, Joseph Jagger became the first man to break the bank at Monte Carlo.

The Beaux-Arts Casino at Monte Carlo, Monaco was inaugurated in 1863. In Beaux-Arts casino, at the start of the day, every table was funded with a cash reserve of 100,000 francs – known as ‘the bank’. François Blanc, the original owner of the casino, devised a rule for the Casino. If any gambler won more than the cash allocated for the table, the play was temporarily suspended and a black cloth was laid over the table in question. This ceremony was called breaking the bank. After an interval, while extra funds were brought out from the casino’s vaults, the table re-opened and play continued.

How to Create An Antifragile Life, and A Stock Portfolio (A Personal Experiment)

Life was good when I was working at my job as a stock market analyst around 2005-06. Markets were doing well, and my stock picks were flying high. My company’s clients were happy with our recommendations, and consequently, my salary was coming in.

Talking about salaries of stock market analysts, the less that’s said the better. You get paid undeservingly (salary-to-effort ratio, as compared to most other knowledge workers) for constantly questioning the hard work of entrepreneurs and then not questioning your own analyses while churning out words that lose relevance in a few weeks or months.

Anyways, since I was an analyst then, I did not question what I am questioning now. Life was good. I felt safe and comfortable in my job, loved what I was doing, and thought that I would be happy doing the same thing for the rest of my life.

Do Nothing When Nothing Must Be Done

Disclaimer: This post isn’t against doctors or financial advisors. I respect both these professions but believe that a system bent on action often leads professionals in these fields astray. The consequences are often bad for their counterparties – patients and investors.

It was sometime in 2008. I had an uncle who was a well-known dermatologist in my hometown. One day, on a routine annual checkup, the radiologist found a lump in his stomach. My uncle then got himself checked by his surgeon friend. The diagnosis was stomach cancer.

This surgeon was one of the best in this field and had even successfully tried a treatment on this exact cancer for other patients that tripled the five-year-survival odds – from 5 percent to 15 percent – albeit with a poor quality of life.

My uncle was not interested in this treatment. He knew the prognosis well and his focus now was spending time with family and feeling as good as possible for whatever time he had on hand.

A few months later, he died at home. He got no surgical treatment, no chemotherapy, no radiation.
[Read more…] about Do Nothing When Nothing Must Be Done

Nassim Taleb on True Wealth

Here’s some good stuff I read in recent times that might interest you…

Nassim Taleb on True Wealth
Nassim Taleb is one of my favourite authors, and his Antifragile is one of my favourite books. One of this book’s chapters that interests me particularly is titled Via Negativa. Here, Taleb argues that the solution to many problems in life is by removing things, not adding things.

For example, here is a list of things Taleb counts as constituents of true wealth that are all about subtracting things (via negativa) from life than adding –

Worriless sleeping
Clear conscience
Reciprocal gratitude
Absence of envy
Good appetite
Muscle strength
Physical energy
Frequent laughs
No meals alone
No gym classes
Some physical labor
Good bowel movements
No meeting rooms
Periodic surprises

I could check twelve from this list (let the ones I didn’t check remain a secret). What about you? What in the list remains getting checked for you?