Blog on Value Investing | Safal Niveshak

5 Things I Learned from Jeff Bezos on Business and Investing

It was 18 years back when Amazon, the world’s largest bookseller and one of the most successful Internet companies, got listed. The company’s IPO was unique for two reasons.

One, that was a period before the dawn of Internet businesses, and thus most investors and brick-and-mortar competitors were convinced the company was a joke – an “Internet bookseller” with “no barriers to entry”. Michael Porter’s framework said it would go bust quickly.

Then, Amazon’s founder and CEO Jeff Bezos was extremely frank with shareholders from the word go, which is truly unique in this world where CEOs hide more than they reveal.

So, in 1997, after the IPO, Bezos wrote an honest letter to shareholders in which he explained Amazon’s philosophy, which was (and is) quite different from the philosophies of most public companies.

Why different?

Because, unlike other public companies that were (and are) obsessed with meeting and beating short-term shareholder demands, Bezos’s game plan was (and is) focused on long-term investments and value creation.

Annual Report Review: Indian Hotels

In continuation of this series on reviewing annual reports, here is my review of the FY15 report of India’s largest hotel company, Indian Hotels.

Click here to download the PDF review (11 MB file), or read it in the panel below.

Please note that this review is just to help you dig deeper, in case you are interested to read and understand more of the reviewed company. Don’t treat this as an end to your quest for learning more about businesses and industries, and how to analyze them.

In fact, this is just the beginning. 🙂

Let me know your thoughts on this review in the Comments section of this post…and also share any suggestion(s) you may have to make future reviews better and easier for your understanding.

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 do not own the stock, but despite this, my analysis may be biased, and 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: Thermodynamics

The big idea that we are going to look at today is from the field of Physics and it’s called Thermodynamics. Before you get too scared of the big word let me assure you that we’re not going to be discussing any mind bending formulae here.

In fact, here a confession is in order.

The subject of Thermodynamics has fascinated me since my college days. And the fascination was mostly because it provoked more dread than excitement. Perhaps my bad karma from past life, call it Karma-dynamics, made sure that I barely got passing marks in any paper related to Thermodynamics.

So trust me, I won’t even make an attempt to go anywhere near complex equations.

The plan is to learn some basics and use that knowledge to gain useful insights that will help us make an educated guess about few interesting problems. What kind of problems? Here is one for starter –

Life 2.0: Sleep

Some of the greatest things, the greatest discoveries, have come about by serendipity. Let’s explore its magic here
A wise man once said, “Your future depends on your dreams.” to which a not-so-wise man replied, “So go to sleep”.

That’s an old joke but I believe that there may be some element of truth to it. After all if we spend a third of our lives sleeping, the nature must have a crucial design principle behind it.

I am sure everybody has experienced sleep deprival. Can you recall few such instances in your life? Let me help you – remember those all night movie marathons during college days? Or those night outs spent chatting with your buddies for hours together.

Well, not every night out is for fun. How about those do-or-die project deadlines with unlimited supply of pizzas and coffee but very limited supply of time and tolerance for mistakes?

The only common thread at the end of these kinds of events, apart from bloody red eyes and tired mind, is a burning desire to find a bed and just crash.

Ideally, you shouldn’t lose your sleep over harmful effects of sleep deprival (pun intended), unless it becomes a regular feature of your routine.

On 21st Oct. 2009, 42-year old Ranjan Das, CEO of SAP-Indian Subcontinent and the youngest CEO of an MNC in India, collapsed and died after suffering a massive heart attack. He had returned home after completing a workout at the gym.

Perhaps his body was not prepared to handle overexertion? Actually no! He was as fit as anybody could be at his age. He was very active in sports, was a fitness freak and a marathon runner. So why did an exceptionally active, athletic person succumb to heart attack at a relatively younger age.
[Read more…] about Life 2.0: Sleep

10 Useful Rules of Thumb for Your Personal Finances

I had written this post in February 2012. However, given a lot of reader emails on topics covered herein, I am re-posting it.

I use a few rules of thumb when it comes to how I manage my personal finances. Here are some rules of thumb that I practice for managing my own personal finances. I hope you will find some of these useful for your own purpose.

1. Rule of 72. The Rule of 72 states that you can divide the number 72 by whatever yield you are getting to see how long it would take for your investment to double.

For instance, if your fixed deposit earns an annual interest of 8%, it will take 9 years for your money to double (72/8).

2. The number one rule of saving money is: Pay yourself first. It’s very important to set aside your savings every month before you use the money for other things, including paying of bills. Always pay yourself before anything else.

Annual Report Review: Exide Industries

It’s annual report reading season…and a constant inflow of new reports is keeping me busy.

I have a habit of making hand-written notes on the annual reports I read (if they are soft copies, I print the important pages). This time, however, I thought of sharing these notes with you…just as an experiment. Maybe, this would nudge you closer to reading annual reports on your own, if you don’t read them.

Anyways, I start this review series with Exide Industries, India’s leading storage battery manufacturer.

Latticework of Mental Models: Deprival Super Reaction Tendency

Few weeks back when we discussed the Variable Reinforcement mental model, there was a brief mention about casino slot machines. Let me pull out that text for you –

Now that we are talking about slot machines, it’s worth mentioning another extremely intelligent aspect of slot machine design called calibrated near misses, which exploits another behavioural quirk called Deprival Super Reaction Tendency. But let me save that story for some other day.

Well, I was saving that story for today. 🙂

If you buy a ticket for the lottery that has the number 49 on it and the number 48 is drawn, you think, “I was so close…” BUT were you really? No you weren’t. If you have read the basics of statistics, you would know that the numbers in lottery are supposed to be random and the probability of each number is ideally same. So you weren’t anymore closer (or farther) from winning as you would have been if the number you got was 1.

However, that’s not how the gambling systems are designed.

In casinos, some slot machines receive better results (for the casino owner, not the gambler) than other machines based on the same payouts, same locations, same design, etc. How come?

An Extraordinary Edge You Have as a Small Investor

It goes without saying that capital allocation is a CEO’s most important job. How he allocates capital over the long run is what determines the value he creates for the business and its shareholders. But the reason many CEOs fail in profitably allocating capital is their incentives, which are aligned to what they can do in the next 1-2 years than what they must do in the next 7-10 years.

This is also how most investors and money managers work – especially after a period of good performance, they would rather go for the kill in the next few months or maybe 1-2 years, than build portfolios that would do well over a 10+ year period.

“Who wants to get rich in old age?” goes the thought process. “Why not gun for a 30-40% return and retire rich in the next 10 years?”

After all, this is what simple math suggests. If you can invest Rs 5,000 per month and do that every month for 25 straight years, and at an annual rate of return of 30%, you will have almost Rs 34 crore after 25 year.

On the other hand, if you earn just 20% annually, and everything else remains same, the amount in your bank after 25 years would be just Rs 4 crore. That’s a difference of a huge Rs 30 crore.

5 More Reasons to Read Annual Reports

Here’s an old joke. A policeman sees a drunk man searching for something under a streetlight and asks what the drunk has lost. He says he lost his keys and they both look under the streetlight together.

After a few minutes, the policeman asks if he is sure he lost them here, and the drunk replies, no, and that he lost them in the park.

The policeman asks why he is searching here, and the drunk replies, “This is where the light is.”

Behavioural scientists call this the “streetlight effect”, which is a type of observational bias where people only look for whatever they are searching by looking where it is easiest.

When it comes to investing, most people suffer from the streetlight effect and search for keys (stock ideas) where it looks the easiest (stock market and stock prices). But the reality is that the stock market is rarely the place where you can find the best ideas for long term investment.

Rather, the best ideas are found by looking at businesses, studying them, and identifying which ones are doing well, which ones may continue to do well, and which ones may be going downhill.

And how do you know that?

Latticework of Mental Models: Contrast-Misreaction Tendency

Do you remember my old friend, Mr. Irrational? He made a cameo appearance in Latticework series when we discussed Mean Reversion.

For the uninitiated, he is a figment of my imagination, inspired by Benjamin Graham’s Mr. Market.

One fine day, it so happened that Mr. Irrational was trying on suits in front of a shop’s three-sided mirror. The men’s tailor shop was owned by Sid and Harry. The younger brother, Harry, being less experienced, was sitting at the back of the room with all the design catalogues and price list.

Sid, elder brother and the chief tailor, who seemed to have hearing problems, was helping Mr. Irrational make a choice.

“How does this one look?” asked Mr. Irrational. He liked the dark grey colour but wasn’t sure about the woollen texture of the suit.

“Pardon me Sir. Can you please speak up little louder?” This was the third time that Sid had requested his patron to speak louder.