Investing Behaviour

Charlie Munger on Bitcoins, Banking, AI, and Life

I recently attended the annual shareholder meeting of Daily Journal Corp, a publishing company based in Los Angeles, US. I am not a shareholder in DJCO, but this was a chance to hear the 94-year old Charlie Munger, who is its chairman and director.

Mr. Munger answered questions from the audience for around two hours – on wide-ranging topics like bitcoins, banking, artificial intelligence, and life – including one from me (see below). Here are excerpts from the notes prepared by Adam Blum (see the link to entire notes at the bottom of the post).

On searching for ideas – The two rules of fishing are to fish where the fish are, and don’t forget the first rule. Investing is the same thing. In some places, no matter how good a fisherman you are, you won’t do well. Life is a long game. Take it as comes and do the best you can, and if you live to an old age, you will get your full share of opportunities, which will be two in total, maybe, but seize one of the two, and you will be alright.

On personal success – Approach life like [Thomas] Carlyle, and get up every day doing the best you can. Marry the right person. Everyone here who’s your age will do well. You’re not that mad at the world; instead you’re trying to cope with how to make it a little better. If you were here with placards shouting, you wouldn’t have bright future. Avoid extremely intense ideology, because it ruins your mind. The kids with the placards are pounding the idiocy in instead of shouting it out.

Dealing with Stock Market’s Moments of Terror

I received this Whatsapp message from a friend recently, where he wanted my opinion on the post-Budget crash in Indian stocks and how to deal with the same…

My friend’s message reminded me of Howard Marks’ Feb. 2016 memo to clients, where he described the situation in the stock market then –

My buddy Sandy was an airline pilot. When asked to describe his job, he always answers, “hours of boredom punctuated by moments of terror.” The same can be true for investment managers, for whom the last few weeks have been an example of the latter. We’ve seen bad news and prices cascading downward. Investors who thought stocks were priced right 20% ago and oil $70 ago now wonder if they aren’t risky at their new reduced prices.

Lecture Presentation and Notes: Seeking Wisdom in the Age of Information

I recently spoke at a finance and business conclave in Chennai, organized by Naanayam Vikatan, a leading Tamil language finance magazine. The topic was ‘Seeking Wisdom in the Age of Information.’

Click here to download the presentation and notes, or read it in the panel below.

How to Teach Kids the Value of Money

Warren Buffett is undoubtedly a famous man. And he is not just famous for his riches, but also for his rejection of the trappings of wealth. As we all know, he lives in the same house he had bought in 1958 for US$ 31,500, and his annual salary of US$ 100,000 is far less than what most CEOs (including many in India) earn.

But there’s one aspect of Buffett that many people don’t know much about. And that is about how he has brought up his kids when it comes to the subject of money.

Over the years, several interviews with his kids have revealed how Buffett’s message to them on money was loud and clear as they were growing up. And it was that money wasn’t what mattered in life. Instead, it was finding something you loved to do and then doing it.

In his book, “Life Is What You Make Of It,” Peter Buffett, a musician and the youngest son of senior Buffett writes about the values he absorbed growing up as the son of Warren Buffett and his late mother, Susan Buffett, and the path he has pursued to identify and pursue his passions in life.

He also writes about things like requiring children to do chores and letting them solve problems on their own instead of bailing them out. But he warns that children will pick up on their parents’ true beliefs about money – no matter what a parent says about money.

10-Point Action Plan for a Young Earner

Noted Irish playwright and philosopher George Bernard Shaw opined, “Youth is wasted on the young.”

What he possibly meant was that many young people have everything going for them physically; they’re in the best health they will ever be in, and their minds are sharp and clear.

However, they lack patience, understanding, and wisdom which results in so much wasted efforts.

The energy that can be directed towards building a solid thought process and action plan for the future is spent on short-lived pleasures.

Shaw’s words are especially applicable to those young adults who are starting a career and wondering if they should start saving and investing for their future or spend the next few years living life kingsize.

How to Generate Stock Ideas: An Unusual Lesson from a 1939 Book

One of the best books I read before starting on my journey of building Safal Niveshak was James Webb Young’s A Technique for Producing Ideas, originally published in 1939. After all, I was trying to build my idea bank for things I wanted to do in life then.

In this book, Young lays out with brilliant simplicity the five essential steps for a productive creative process. Explaining how the production of ideas is largely a result of process than talent, he writes –

The production of ideas is just as definite a process as the production of Fords; that the production of ideas, too, runs on an assembly line; that in this production the mind follows an operative technique which can be learned and controlled; and that its effective use is just as much a matter of practice in the technique as is the effective use of any tool.

My limited experience in investing suggests that what is most valuable to know about idea generation is not just where to look for a particular idea, but how to train the brain in the method by which all ideas are produced and how to grasp the principles which are at the source of all ideas.

How to Survive the Next Stock Market Crisis

Note: I am not predicting a stock market crisis in the near term. But what follows below is a discussion on how an investor can survive a crisis that will certainly happen at some time in the future. That’s the nature of financial markets, you see.

“Hey Vishal, how are you doing today?” asked my friend Ravi as we met for lunch last weekend.

“I’m good, Ravi. How have you been?”

“Super, and more excited than ever!” he replied.

“Glad to know that,” I said. “You got a promotion at the job?”

“No, I’m excited for another reason.”

“Bull market?” I asked, almost knowing what was coming next.

“Yeah, yeah, you guessed it right this time!” Ravi exclaimed. His joy seemed to know no bounds.

“I just sold a five-bagger from my portfolio,” he said with great pride, “And three more stocks are almost hitting that level.”

“Great to know that Ravi. The last time I saw you this happy was in 2007.”

“Oh, don’t be a sadist Vishal,” Ravi said. “Don’t remind me of what happened then.”

Reasonable Expectations

“You’ve got to be careful if you don’t know where you’re going, ’cause you might not get there.” ~ Yogi Berra

At the heart of Ben Graham’s teachings lies his advice that the intelligent investor must never forecast the future exclusively by extrapolating the past.

Unfortunately, that’s exactly the mistake that stock market experts and investors have made innumerable times in the past. Some go even further. Since stocks had “always” beaten bonds over any period of at least 30 years, stocks must be less risky than bonds or even cash in the bank. And if you can eliminate all the risk of owning stocks simply by hanging on to them long enough, then why quibble over how much you pay for them in the first place?

In India, it’s easy to find a forecaster who argues that stocks have returned an annual average of around 18% over the past 30 years and thus that’s what investors can easily expect in the future. But what if I tell you that the average annual return for the BSE-Sensex has been just around 10% over the past 25 years (since the peak of Harshad Mehta bull run)?

Of course, this is just one number and you may accuse me of being selective in my choice to prove a point. But that’s what I am up to – prove a point, that when you do not pay heed to the price you are paying for stocks because you have unreasonable expectations for the future, you are bound to get disappointed.

The Curse of a Bull Market

“Vishal, since the market is up so much over the past 3-4 years, and especially after the surge over the last few months, I’m looking for cheap stocks and sectors that have been left behind, even if they are average businesses,” a value investor friend Ravi told me this as we met for lunch last weekend.

“Why?” I asked.

“Because it’s almost impossible to find value among good quality companies…your so-called moat businesses. And I am a true blue ‘value’ investor you see.”

“Oh no,” I told Ravi. “That is a dangerous thing to do.”

I understood what Ravi was hoping to do. It also sounded logical i.e., to identify and buy stocks that remain cheap in a market where most businesses are quoting at high valuations.

But sensible investing doesn’t work that way.

“There is a big difference between ‘cheapness’ and ‘value’, Ravi.”

“Why do you say that, Vishal?”

Oh, My Impatient Generation!

Impatience I met a guy yesterday who spent the past ten years of his life – and he’s just 32 years of age – destroying his body with alcohol, excessive food, and a sedentary lifestyle.

“I have resolved to be fit, lean and healthy in the next six months,” he told me with great confidence.

Well, not surprisingly, he got irritated when I told him that it might take a little longer than six months to achieve what he wanted.

His reaction wasn’t much different from a cousin of mine, who recently told me how she wanted to become a life coach and was ready to do whatever it took to get there in one year.

When I asked her, “What if it takes you ten years to get there, instead of one?” she had no answer.

Clearly, she hadn’t considered the possibility that years of learning, experience and skill development could be one of the necessary success ingredients in becoming a good life guru. But she wanted the results without all this work…or by investing the necessary time.