Blog on Value Investing | Safal Niveshak

Poke the Box: Don’t Set a Bad Goal

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

In investing, knowledge is cumulative and the relation between effort and results is nonlinear, so focus on the process and keep practicing the art of investing.
For investors, like airline pilots, the job entails hours of boredom punctuated by moments of terror. If you can stomach the stock market turbulence you’ll end up with very satisfactory results over long term.

Book Worm
Derek Sivers is the perfect example of what one might want to call as an accidental entrepreneur.

He was a musician who simply wanted to sell his music CDs online. In 1998 the internet was still picking up and e-commerce was pretty much an unknown phenomenon. So Derek started his own website to sell his music CDs online which, to his utter surprise, grew into a multi-million dollar business. He eventually sold his business, CDBaby.com, for $22 million.

Derek’s approach to business is very unconventional but makes a lot of sense. He has compiled his business philosophy in a small book called Anything You Want. It was an absolute treat to read this book. I just couldn’t put it down and ended up finishing this 100 page book in one sitting.

How to Deal with Stock Market Turbulence

“Ladies and gentlemen, please fasten your seatbelts; the captain has just announced that we will be encountering some unexpected turbulence.”

I hate hearing this phrase whenever I am flying, but there is no way an airplane can completely avoid turbulence (unless it is standing still in a hangar). When flying, captains don’t choose the route where there will be fewer clouds or less turbulence. Instead, they choose the safest, fastest way to get their passengers where they need to be. This, more often than not, means hitting a bit of unexpected turbulence.

Now, not unlike a flight, any journey you embark on is undoubtedly going to be a bumpy one. And investing in the stock market is not any different.

A lot of people fear stock market crashes and ‘unexpected’ turbulence like we are seeing now. But if your investment plan will only succeed if there is no turbulence at any time, it’s probably not a very good plan. If you follow a sound process, you need to embrace the turbulence, which I believe is a better option than avoiding it, if you actually want to get somewhere in your investment journey.

Poke the Box: Practice Deliberately

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

How to create your circle of competence. A video from Mastermind Value Investing Course.
Latticework Series: Another mental model from psychology – Reason Respecting Tendency.

Book Worm
A lot of professors give talks called ‘the Last Lecture’ reflecting on what matters most to them and what they’d like to pass on. in September 2007 computer science professor Randy Pausch delivered a last lecture called ‘Really Achieving Your Childhood Dreams’. Ironically, it really was his last lecture, as this youthful, energetic and cheerful man had just been diagnosed with pancreatic cancer and had only months to live.

His lecture video soon went viral on the internet and it was later adopted into a book titled The L ast Lecture. Let me share some of the things which I learned from this book.

I liked the idea of ‘head fake’ introduced by Randy in his book. He writes –

“There are two kinds of head fake. The first is literal. On a football field, a player will move his head one way so you’ll think he’s going in that direction. Then he goes the opposite way. It’s like a magician using misdirection. Coach Graham used to tell us to watch a player’s waist. “Where his belly button goes, his body goes, “ he’d say.

The second kind of head fake is the really important one – the one that teaches people things they don’t realize they’re learning until well into the process. If you’re a head fake specialist, your hidden objective is to get them to learn something you want them to learn.”

Life 2.0: Sugar – The Sweet Killer

Sugar should be treated like an illicit drug, a kind of legal form of heroin, a dark force to be avoided, and a substance whose use leads to physical ruin.

“My God! It’s everywhere!” I almost blurted out while scanning the food section in a supermarket in an attempt to find at least one product which didn’t have sugar in it.

If you thought that sugar is mostly in candies and desserts, you are too naive. Tomato sauce, yogurt, dry fruits, corn flakes, and bread – sugar is added in all of these. I realized that it’s difficult to find any processed food item which doesn’t contain sugar.

I suspect that even the shampoos and the soaps have sugar in it. You know, just in case it goes in your mouth while bathing, they don’t want to miss that one chance to feed you sugar.

And do you know the biggest disguise used by processed food industry to hide sugar is the term – low fat. Products labelled “low-fat” could still contain, and usually do contain, a lot of sugar. And remember, it’s not just fat that makes your fat. Sugar is the biggest culprit in making obesity an epidemic.

Am I complaining too much? Let me change the mood for a bit. Time for some fun trivia.

Did you know that until few hundred year ago, sugar used to be a very expensive item? In fact, it was considered a fine spice and was only available to rich. But from about the year 1500, technological improvements turned sugar into a much cheaper bulk commodity.

Ironically, sugar was imported by Greeks and Romans for its medicinal properties. When it was scarce and expensive, it was a fine spice. Now when it is abundant and cheap, it has turned into a fine poison.

Sugar is slower to impact our health (as we don’t die from an overdose right away), and it’s that slow destructive process that is the most dangerous. Unfortunately, most people don’t know the damage until it has already been done (diabetes for example).
[Read more…] about Life 2.0: Sugar – The Sweet Killer

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.