Blog on Value Investing | Safal Niveshak

Latticework of Mental Models: Reason Respecting Tendency

Next time when you approach an ATM machine and find a queue in front of it, try this hack – tell the person in front of the queue “Excuse Me. May I go before you because I have to withdraw money?”

I am sure you haven’t tried this before, neither have I. But at first look it sounds like a lame idea. Why would they let you go ahead unless you have a genuine reason. Isn’t withdrawing money a redundant excuse? Isn’t it obvious that everybody in the queue is there to withdraw money?

But there might be some merit to above idea because in 1970s Harvard psychologist Ellen Langer conducted a similar experiment. She went into a library, where there was a long waiting queue in front of the photocopier, and approached the first person in the queue and asked, “Excuse me. I have five pages. May I use the Xerox machine?” That would probably infuriate a lot of people because everybody was there to make copies. Naturally most people refused to oblige to Langer’s request.

In the second part of the experiment she gave a reason while making a request. “Excuse me. I have five pages. May I use the Xerox machine, because I’m in a rush?” This time most people gave in to her request and allowed her to go ahead. This is reasonable because if people are in a hurry, you would often let them cut into the front of the queue. But then came the interesting twist in the experiment.

In the final part of the experiment she tried another approach, this time saying, “Excuse me. I have five pages. May I go before you, because I have to make some copies?” Now that’s a lame excuse. Everybody in the queue has to make copies, but surprisingly the result in this approach was amazing. She was allowed to pass to the front of the queue in almost all cases.

How to Create Your Circle of Competence (Video Post)

Here is a video I created for students of my Mastermind Value Investing Course.

I thought it would be useful for you as well, so sharing it here.

If you can’t see the video above, see here.

Tom Watson [the founder of IBM] said – “I’m no genius. I’m smart in spots and I stay around those spots.”

The entire idea about the Circle of Competence concept is to help you find your spots, which is so very important to your success as an investor. And that’s exactly what the above video will help you learn.

Poke the Box: Recycle Your Wealth

Let’s Start with Safal Niveshak
Just in case you missed any of this on Safal Niveshak over the last few weeks…

Safal Niveshak’s sent out the first annual letter to tribe members.
Mr. Huzaifa Husain, a value investor and Head of Indian Equities at PineBridge Investments, shares investing insights in his interview with Safal Niveshak.
Learn some new mental models in Latticework Series – Social Proof, Game Theory and Matthew Effect.
As we begin 2016, here are a few things one should aspire to do each day – Safal Niveshak’s eight rules to live by in 2016.

Book Worm
So how do you judge if a book is worth reading or not? One is, if you find a book which starts with a foreword from Warren Buffett. Don Keough’s The 10 Commandments of Business Failure is one such book.
[Read more…] about Poke the Box: Recycle Your Wealth

Latticework of Mental Models: Matthew Effect

In April 2013, Little Brown, an American publishing company, released The Cuckoo’s Calling, a début novel by an obscure author called Robert Galbraith, who the publisher described as “a former plainclothes Royal Military Police investigator who had left in 2003 to work in the civilian security industry”.

The novel, a crime detective story, sold 1500 copies in hardback. Some even say that this number is the number of copies that were printed for the first run, while the sales total was closer to a meagre 500. Nothing surprising, as more than 90% of the books that are published worldwide, hardly sell more than couple of hundred copies.

But unlike others, something remarkable happened with Galbraith’s novel. Four months after it was first published, the sale skyrocketed by 4000 percent. This happened when it was revealed that Robert Galbraith was a pseudonym used by J.K. Rowling, author of Harry Potter series and United Kingdom’s best-selling living author. (source: Wikipedia)

Calling her a successful author would be a huge understatement. Her books have sold more than 400 million copies.

The Stock Market is Getting More Expensive

One of the most underrated but among the most valuable skills required to succeed in stock market investing is resilience i.e., the ability to properly adapt to stress and adversity – either in the market, or in the businesses one is owning.

How easily can you bounce back from a market crash? What would be your reaction to a sharp decline in your stocks’ prices? How many ‘surprises’ can you withstand in quick succession? How safe are your overall finances in light of extreme stress on the equity component of your portfolio?

These are extremely important questions you must ask yourself every time you are looking at your portfolio, or looking to spend cash to buy more stocks.

Surprisingly, despite its importance, resilience is least talked about by stock market investors and experts alike, and rarely considered an important mental model in investment decision making.

Latticework of Mental Models: Social Proof

Imagine it’s Friday evening, the beginning of a long weekend, and you decide to watch the latest action flick in your nearest multiplex. Since you don’t want to miss the beginning of the movie, you decide to take the elevator as soon as you reach the mall. Although the health freak inside you is mad because you promised him to always take the stairs in a mall.

The moment you enter the elevator, you notice that there are half a dozen other people inside but strangely everybody is facing towards the back of the elevator. Isn’t that odd? So what would you do in this situation?

Can you guess what most people do in such situation? Watch this video of a social experiment which tried to capture people’s reaction in the similar situation.

Mastermind Value Investing Course: 6th Batch Admission Now Open

Admission to the sixth batch of The Safal Niveshak Mastermind – my premium, online course in Value Investing – is now open, and will remain so for the next 10 days.

Click Here to Join Mastermind Now
My idea through Mastermind is simple – to help you with a simple, common-sense approach to successful investing, so that you can avoid the uncertainty and outlandish time you would otherwise spend doing it all alone.

I’ve lined up a lot of things that you will receive when you become a part of The Safal Niveshak Mastermind. Here’re the key ones…

50+ lessons and few hours of video classes that will help you learn the nuances of Value Investing and how you can apply it to create long-term wealth through stock investing.
Lessons on identifying moats and analyzing specific sectors to help you build your circle of competence.
Lessons on building a latticework of mental models – the Charlie Munger way – to make better investment decisions.
Lessons on calculating Intrinsic Values of stocks.
Lessons on creating a portfolio of high-quality stocks.
Exclusive Forum to participate in learning exercises and discuss practical examples so that you can gain experience in doing your own independent analysis.

Over the past few years, I’ve sifted through a mountain of amazing books, documents, lectures, websites, and the last twelve years of my personal experience as an investor – to ensure that I bring the best ideas and lessons for you in investing and building wealth.

The goal of The Safal Niveshak Mastermind Course is simple – To help you get richer every single day.

This is your opportunity to become a simpler, sensible, long-term investor, and avoid the uncertainty and outlandish time and pain that you would otherwise spend doing it all alone.

Here are the key features of the Course –

100% online, self-study course
Convenient 24X7 online availability of all lessons
Downloadable basic excel models and templates
Members-only Forum for discussions and performing exercises after each lesson
Quizzes to test your understanding of key concepts
Premium access to the exclusive Mastermind website

Now, if you are willing and ready…

Let Me Offer You a Deal
The Safal Niveshak Mastermind, with all its invaluable contents and benefits as I have mentioned above, is priced at Rs 14,500/- (incl. taxes).

However, if you are among the first 100 subscribers, you can claim an early-bird discount of Rs 3,000.

Click Here to Join Mastermind Now

By the way, here is what a couple of Mastermind students have to say about their experience with the Course…

I am very humbled by Vishal’s approach in the Mastermind Value Investing Course. The course is created to strengthen us in our investment skills and techniques, allowing individuals to know which stocks are fundamentally sound.

One thing that really differentiate the Mastermind course from the other investing courses is the emphasis and build up on the mindset of an investor which is really very important. I highly recommend anyone who wants to build his wealth in a wise way to be part of Vishal’s Mastermind community.

~ Sean Seah

This is one of the best courses I have ever done. As a true value investor, this is one of the best investments I have made. I thoroughly enjoyed the course and would be happy to recommend the course to anyone who is interested in value investing.

Your course is the true example of ‘The more you learn, the more you’ll earn.’

~ Antony Sakkariyas

Click Here to Join Mastermind Now
If you have any further question(s) about the Course, please write to me at vishal@safalniveshak.com, or call me at +91-8097073918.

Latticework of Mental Models: Game Theory

Every time I get into my car, the thought of crossing the “dead-circle” sends a shiver down my spine.

“Dead-circle” is the name that I have given to the intersection near my house. It’s a small intersection with no traffic lights and rarely managed by any traffic police. What scares me most about this intersection is that it doesn’t need a lot of traffic to invite a gridlock situation.

A traffic gridlock is so frequent in that junction that I have started calling it the dead-circle. Throw in four five cars, couple of two wheelers and you have the perfect recipe for a jam.

In the first few minutes of traffic jam the whole area drowns in the echo of incessant honking. In another few minutes you find few restless drivers rolling down their windows and shouting at each other.

I feel very bad for the people living near that intersection. Poor victims of a serious case of negative externality.

What’s interesting is that just like stock market, greed and fear rules the behaviour in traffic jams. Everybody is either scared of staying stuck in traffic (even if it’s only for 5 more minutes) or greedy about saving another 5 seconds by not giving way to another fellow.

Given an option between offering the way to another car and zooming past shamelessly, most people go for the latter. It’s as if they are trying to cross a collapsing bridge.

Teach Your Kids About Money – Join Warren Buffett’s Secret Millionaires Club

Warren Buffett's Secret Millionaire’s Club I’m good friends with Warren Buffett,
He’s gonna teach me how to do my best, learn to invest
And have a lot of fun doin’ it…

Well, that’s how the jingle begins for the cartoon series called “Secret Millionaires Club” (SMC) where Warren Buffett (in his own voice) teaches kids the basic of good financial decision making and some of the basic lessons of starting a business.

While my 11-year old daughter loves the lessons Buffett teaches, my 4-year old son loves the jingle itself, and thus I have to often watch some videos from the series alongwith them. 🙂

“It’s not intended to teach kids how to read a balance sheet,” Buffett says about SMC. “It’s meant to provide a fun way for kids to understand business and develop good habits from an early age.”

SMC has lots of good lessons about money such as learning not to spend more than you have, and saving for the unexpected, and not borrowing money unless you have a plan to pay it back. The series shows the consequences that can happen if people don’t make wise decisions.

Some of the other lessons kids (and adults) can learn from this series include…

The best investment you can make is an investment in yourself.
The more you learn, the more you’ll earn.
Find something you enjoy doing and you’ll never work a day in your life.
Treat other people the way you would like to be treated.
Never trade your reputation for anything.

Then, there’s the most important lesson Buffett doles out on making mistakes – “Learn from your mistakes. Better yet, learn from the mistakes of others.”

And finally, on failure – “Failing is not falling down…it’s staying down.”

You can watch all 26 episodes of the series here.

I find SMC a fun-filled and effective way to pass on critical lessons on money and business to my child. I am sure you will not find it any different.

Value Investor Interview: Huzaifa Husain

Note: This interview was originally published in the December 2015 issue of our premium newsletter – Value Investing Almanack (VIA). To read more such interviews and other deep thoughts on value investing, business analysis and behavioral finance, click here to subscribe to VIA.

Mr. Huzaifa Husain is the Head of Indian Equities at PineBridge Investments based in Mumbai. Since he joined the asset management company in 2004, Mr. Husain has been a key member of the team advising the PineBridge India Equity Fund (a Dublin domiciled India offshore fund). Prior to this, he was an Equity Analyst at Principal Mutual Fund and SBI Mutual Fund. Mr. Husain received a Post Graduate Diploma in Management (PGDM) from Indian Institute of Management (IIM) Bangalore and a B.Tech from the Institute of Technology (Banaras Hindu University).

In this interview for the Value Investing Almanack, Mr. Husain shared how he found his calling in value investing, and reveals key insights about his investment strategy and the underlying thought process.