Investing Behaviour

A couple of announcements before I begin today’s post – 

1. Online Value Investing Workshop: Admission is now open for the June 2024 cohort of my online Value Investing workshop, which has already been taken by 1500+ students since I launched it two years ago. Here is what you get when you sign up for this workshop –

• 30+ hours of pre-recorded lectures and Q&A videos
• 60+ questions answered in the Q&A
• Live Q&A session of 3 hours on Sunday, 23rd June 2024 (7 PM IST Onwards)
• One-year unrestricted access to the entire content
• 7 readymade screens to filter high-quality stocks
• Stock analysis spreadsheet (otherwise priced at ₹1999)

I am accepting 100 students for this cohort, and now have just 20 seats remaining. Click here to read the details of the workshop and sign up.

2. The Sketchbook of Wisdom: Special Discount until 15th June 2024: Buy your copy of the book Morgan Housel calls “a masterpiece.” It contains 50 timeless ideas – from Lord Krishna to Charlie Munger, Socrates to Warren Buffett, and Steve Jobs to Naval Ravikant – as they apply to our lives today. Click here to buy now at a special discount (available only till 15th June 2024).

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It was mid-1974.

Fred Smith, the founder of FedEx had a problem at hand. FedEx was a young company, just three years old, and primarily due to rising fuel costs, found itself millions of dollars in debt and on the brink of bankruptcy.

As per demands from oil companies that provided fuel to run FedEx’s planes, every Monday, the latter was required to prepay for the anticipated weekly usage of jet fuel. It was one of those Fridays and FedEx had just about $5,000 in its bank account, while it needed $24,000 for the jet fuel payment for the coming week.

[Read more…] about When to Bet Big in Life and Investing, and When Not To

A couple of announcements before I begin today’s post – 

1. The Sketchbook of Wisdom: Special Offer until 20th April 2024: I have published an abridged version (44 pages) of my upcoming book, “The Worldly Wisdom of Charlie Munger.” This version contains 30 of his best lessons on life, decision-making, and investing. It’s not available for sale separately as of now, but you can get it for free until 20th April 2024 with your order of The Sketchbook of Wisdom. Read more and order here.

2. Value Investing Meetups in Dallas and New York: I am organising in-person meetups on Value Investing in –

• Dallas (US): Saturday, 27th April
• New York (US): Saturday, 11th May

If you are in or around these cities and wish to attend, kindly register here.

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Here is the latest issue of The Journal of Investing Wisdom, where I share insightful stuff on investing I am reading and thinking about. Let’s get started.

A Thought: Beware the Winning Streak

Howard Marks of Oaktree Capital, wrote this in his seminal book The Most Important Thing –

In bull markets – usually when things have been going well for a while – people tend to say ‘Risk is my friend. The more risk I take, the greater my return will be. I’d like more risk, please.’

The truth is, risk tolerance is antithetical to successful investing. When people aren’t afraid of risk, they’ll accept risk without being compensated for doing so… and risk compensation will disappear. But only when investors are sufficiently risk-averse will markets offer adequate risk premiums. When worry is in short supply, risky borrowers and questionable schemes will have easy access to capital, and the financial system will become precarious. Too much money will chase the risky and the new, driving up asset prices and driving down prospective returns and safety.

Risk, which Marks and Warren Buffett have often defined as losing significant amounts of money and permanently, often moves in the same direction as valuations.

In other words, risk increases/decreases as valuations rise/fall. At the same time, high valuations imply weak prospective returns, while depressed valuations imply strong prospective returns. Consequently, both Marks and Buffett suggest that risk is lowest precisely when prospective returns are the highest, and risk is highest precisely when prospective returns are the lowest.

Economist and investment strategist Peter Bernstein said –

The riskiest moment is when you are right.

In much of life, doing things right over and over again is a sign of skill. Consider chess players or expert musicians. They rarely make a wrong move or hit a wrong note. Also, the skill of one good musician does not cancel out the skill of other musicians, that is, it does not make it harder for others to be equally good. This is not true of financial markets. ‘Skilled’ investors’ actions cancel each other out as they quickly bid up the prices of any bargains, which makes luck the main factor that distinguishes one investor from another.

Skill in investing shines through over the long term, but a streak of being right in the short term can make anyone forget how important luck is in determining the outcome.

Watch out for that streak of being right, dear investor.

[Read more…] about Beware the Winning Streak

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[Download PDF version of this post]

A Masterclass on Financial Freedom

‘Financial freedom’ is a subject that people tie only to money and not to the peace that no amount of money or wealth would get us. It is, however, a subject matter of the understanding within, of course, along with enough money.

I am holding a 2-hour online session on the subject of “Rethinking Financial Freedom.” The session is free for Mastermind members. However, if you are not one, you can join the session by registering here (India), or here (outside India).

[Read more…] about Rethinking Financial Freedom – A Masterclass

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Shyam Sekhar on Mastering the Long Game of Investing

In the latest episode of The One Percent Show, I talked to Shyam Sekhar, the Chief Ideator and Founder of iThought Financial Consulting. Among a lot of insights, Shyam talked about –

• Role of right mentors in life,
• Importance of developing an investment philosophy, and
• Playing the long game in investing.

On his learnings from mentors, Shyam had this to say –

[Read more…] about Mastering the Long Game of Investing

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A Few Ideas I’m Thinking About

Here are a few ideas I have been thinking about over the last few days.

Long Term Investing is Hard

The biggest reasons more people do not practice long term investing are that –

1. It flies in the face of anything taught in business schools – that is, short termism – where most influencers/experts come from,
2. It requires a painful degree of patience because it is only over long periods of time that the market eventually gravitates toward value,
3. Life spans of businesses and their competitive advantage periods, on an average, are shortening,
4. Our attention spans and holding periods are shrinking, and
5. Noise is magnifying.

Given all of this, long term investing has become an increasingly difficult and contrarian endeavour. And so, not many investors have the ability or the wherewithal to practice it.

In fact, most people participating in the stock market don’t even understand what they are doing. This is especially when making money gets quick and easy, and they are doing great at it.

[Read more…] about Long Term Investing is Hard

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I recently met a bunch of high school students, who wanted me to explain them the ‘idea of the stock market.’

One of them asked a brilliant question, “What does the market seem like? What kind of an experience does it provide to a new investor?”

[Read more…] about A Young Investor’s Guide to Navigating the Stock Market Wilderness

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In the course of my interaction with young investors, a question that’s asked by many is this – “What do you think about the idea of trading in stocks early on to create capital, and then invest that capital for the long run?”

I ask, “Why do you want to do this?”

Often, the reply is, “So that I can create that capital for long-term investing fast, and grow rich fast.”

I then ask, “Why are you in such a hurry?”

[Read more…] about A Young Investor’s Guide to Avoiding the Fast-Wealth Trap