Blog on Value Investing | Safal Niveshak

The Wisdom of Intelligent Investors (Special E-Book)

If the history of stock market is anything to go by, investors often make decisions that can undermine their ability to build long-term wealth. As such, it is often very valuable to look back in history and study closely the principles that have guided the investment decisions of some of the best minds and practitioners in this field through both good and bad markets.

By studying these experienced investors, we can learn many important lessons about the mindset required to build long-term wealth.

With this goal in mind, here is a special e-book that aims to offer the wisdom of some of the best investment minds of current times from India and abroad.

Investing Lessons I Learned from Tic-Tac-Toe

If you have sat in a classroom dragging your feet through an uninteresting lecture, you must be familiar with the game of tic-tac-toe, also known as noughts and crosses or Xs and Os.

The game’s simplicity lies in fact that it takes not more than a minute to learn it and it can be played anywhere. All you need is a piece of paper, a pen/pencil and some time to kill. Like chess, it needs two players, but some people don’t mind it playing alone by taking turns and becoming their own opponent.

When I was a kid I even had a water bottle which had the grid of tic-tac-toe built on one of its side and plastic pieces (crosses and circles) to play.

In case, you’ve forgotten how the game is played, here’s a crash course to refresh your memory. A 3X3 grid is drawn on the paper and each player chooses their mark i.e. X or 0. The player who succeeds in placing three of their marks in a horizontal, vertical, or diagonal row wins the game.

Latticework of Mental Models: Asymmetric Information

Exactly eleven days after buying my windows smartphone, I realized my mistake. Unfortunately, the ten day return window (no pun intended) had already closed.

So I listed it for sale on couple of online used item marketplaces (OLX, Quikr etc.). To my utter surprise no one was willing to pay more than 70 percent of the original cost for my brand new phone. Was my phone model so bad?

But I found that almost all the other similar deals for used electronic gadgets (which were only few days old) were being sold at significant discount to MRP. I was quite sure that many of those sellers, like me, were selling because they didn’t like the product, and not because there was some defect in it.

Then why was the used-item-market heavily discounting the price for an item which was almost brand new? I also noticed that there wasn’t much difference between the price of a 1 year old phone a 1 month old phone of the exactly same brand and model.

Another observation – the number of listings for relatively newer items were very few as compared to the ones for 1-2 years old items. Why so?

Happy Birthday, Mr. Warren Buffett

Me: Happy birthday, Mr. Warren Buffett.

Warren Buffett (WB): Thanks Vishal!

Me: So how does it feel at 86?

WB: Oh, I’m feeling younger than ever. I continue to do what I have loved doing all my life. I continue to eat like a six-year old. I continue to be friends with people I have been friends with for decades now. And that makes me feel younger than ever.

Me: You truly know the secret of a long and happy life, don’t you?

Latticework of Mental Models: The Halo Effect

Complexity is the indispensable thread in the fabric of world of business today. As a result, in spite of all the secrets formulas and all the self-proclaimed thought leadership, success in business is as elusive as ever. Unlike hard sciences there are no immutable laws in management because managing business isn’t a science.

Rajiv Bajaj, Managing Director of Bajaj auto, said this in one of his talks –

I joined the company [Bajaj Auto] twenty years back. In my college I was trained to think ‘Just in Time’ because it was supposed to be one solution for all the problems. And then somebody said, Just in Time is not enough. They said there must be Kaizen, World class manufacturing, Toyota production system, Kawasaki system, automation and robotics. Then they said you must also know CAD, CAM, simultaneous engineering, re-engineering, six-sigma, TQM, and you must wear six hats, follow seven habits, look for blue oceans, be a bit of a maverick and indulge in management by walking around. Every time I learnt something new, I found myself back at the starting point. There was always the new book on the shelf, and there was always the new consultant on the seminar circuit. And these guys would do anything to keep themselves in demand and keep all of us confused. So I decided to ignore all of these.

Rajiv Bajaj turned around Bajaj Auto from a loss making company in the year 2000 to the most profitable auto company in world and it’s pretty clear from his talk that he didn’t do it just by blindly listening to those management experts and celebrity CEOs who claim to have the next new thing.

Annual Report Review: Bajaj Auto

Here is my review of the FY16 annual report of India’s leading two-wheeler company, Bajaj Auto.

Click here to download the PDF review (4 MB file), or read it in the panel below.

Let me know your thoughts and questions on this review in the Comments section of this post, plus any additional thoughts from your own review of Bajaj Auto’s FY16 annual report. Also share any suggestion(s) you may have to make future reviews better and easier for your understanding.

Click here to read past annual report reviews

Statutory Warning: This is NOT an investment advice to buy or sell shares. Please make your own decision, as blindly acting on anyone else’s research and opinions can be injurious to your wealth. I own the stock, and thus my analysis is biased, and may be wrong. I have been wrong many times in the past. I am a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014 (Registration No. INH000000578).

Latticework of Mental Models: The Zero Price Effect

Would you buy something if it were discounted from Rs. 500 to Rs. 200? May be.

What if it was discounted from Rs. 500 to Rs. 10? Possibly.

How about if it were discounted to zero? Absolutely!

Getting something for free feels good. Isn’t it?

But don’t get too excited. Although the ‘cost of free’ is zero, it’s also a source of irrational behaviour. Remember those pile of free key chains, free pencils and notepads lying at some corner of your house? Well that pile may be harmless but there are other situations where this irrational affinity for FREE stuff can cause us to make bad decisions. The Zero Price Effect says that we often pay too much when we pay nothing.

I regularly give in to this zero price effect in my day to day decisions. Amazon offers zero shipping charges if I make a minimum purchase of Rs. 499. Every time I order a book which costs less than 499, I end up buying another book (which I don’t plan to read) just to avail the free shipping offer. I just can’t let go off the free offer.

So what explains our unusual love for FREE! stuff?

Latticework of Mental Models: Deliberate Practice

There are moments in life when you are in awe of someone so much that you wish to be in that person’s shoes, doing what he or she is doing.

For that matter, everybody aspires to be really good at something. It could be a sport, an art, playing a musical instrument or any other activity like reading, painting or drawing. When we see someone who displays an extraordinary talent in any of these fields, it leaves us awestruck and inspired.

So how do you become good at something? How do you improve your performance in a chosen activity?

The most popular strategy among people is to practice by mindlessly repeating an activity over and over. Many performance coaches and motivational gurus tout this idea of working incessantly for long and hard hours. Practice makes perfect – is the mantra they preach. Ten thousand hours of practice, they say, is the key to world class performance.

Latticework of Mental Models: Naive Realism

Let me start by inviting you to have an intellectual and emotional experience. Take a few seconds and stare at the picture below.

**Image-1 (Source: The Seven Habits of Highly Effective People by Stephen Covey)**

Observe closely. What do you see?

You’d probably see a woman who is looking away from you. You may notice that she is wearing a necklace. She seems to have high cheekbones, long eyelashes, and a pointy nose.

Now I ask you to take your eyes off her and focus on the second picture below –

**Image-2 (Source: The Seven Habits of Highly Effective People by Stephen Covey)**

What do you see now? Another woman? What does she look like? How old do you think she is? What is she wearing? In what kind of roles do you see her?

You probably would describe this second woman as beautiful as the first one. You might guess that she is about 25 years old and fashionable. In fact, the second image looks like a lower resolution version of the first image.

Latticework of Mental Models: Antifragility

As a kid, one of the most fascinating thing I ever witnessed while conducting my own zoology experiments, was to watch a lizard leave it’s tail behind.

I am sure many of you must have found it intriguing that a lizard, if threatened, can voluntarily let go of its tail. It’s common in many lizard species to shed a part of their tails. It’s a survival mechanism. The trick allows these reptiles to escape when captured by the tail by a predator. The detached tail writhes and wiggles, creating a deceptive sense of continued struggle, distracting the predator’s attention from the fleeing prey animal.

It’s a marvellous self-preservation mechanism that evolution has given to lizards. And what’s more fascinating is that the lizard can grow that tail back in a matter of few weeks. What a robust way to deal with loss!

If that sounds cool then you must also know about Hydra. It is a serpent-like creature from Greek mythology. Hydra grows two new heads every time you cut one off. In Indian mythology, there is a similar character called Raktavija. A demon (asura) who who has the magic boon that every drop of blood shed from his body gives rise to another Raktavija (literally the blood borne).

These apocryphal characters are very important metaphors to improve our understanding about fragility and robustness.

What is fragile? Something which breaks or disintegrates easily when subjected to a stress or disorder. Isn’t it?