Investing

China was saturated with disabling infectious diseases near the end of 1940s. Tuberculosis, plague, cholera, polio, malaria, smallpox, and hookworm were killing a lot of people in the country. More than 11 million people were infected with the water-borne liver parasite diseases. Cholera epidemics raged through the population freely, some years killing tens of thousands. Infant mortality was as high as 300 per 1000 live births.

The country was going through a political and social transition, and thus creating a national public health system and eradicating entrenched diseases was an obvious first step in improving the lives of its people.

The Chinese Communist government began initiating massive vaccination campaigns against the plague and smallpox, vaccinating nearly 300 million people. Sanitation infrastructures for clean drinking water and waste disposal were implemented throughout the country.

In March 2020, when the Sensex cracked to below 28,000 level caused by the onset of the Covid-19 crisis, I wrote a post about how I was investing my money through the crisis.

Today, just 18 months later, the Sensex has touched the 60,000 mark, or almost 120% up from its March 2020 lows, and I got down to writing another post on how I am investing my money through this euphoria.

But then I stopped, for except my stocks doing well like everyone else’s, nothing has changed as far as “how I invest” is concerned.

I quickly changed my idea for today’s post, and thought why not share with you some of the most important “sanity-check” lessons that I have learned from some of the wisest investors around.

So, here are a few relatively unknown but timeless quotes from some of the investing greats that have served me well and stay grounded over the years, and may also serve you good lessons on how you should view stock investing from the current perch, and not give in to the mindlessness that such times foster.

Don’t just read these quotes. Pause and think about them. Maybe, write them down by hand in your notebook so you remember them for long. As you will realize while you are reading them, they contain the essence of many investment books.

Let’s start.

Are You Rising, Or Is It the Pond?

Bull markets go to people’s heads. If you’re a duck on a pond, and it’s rising due to a downpour, you start going up in the world. But you think it’s you, not the pond.

~ Charlie Munger

No God Wants You to Get Rich

Once a bull market gets under way, and once you reach the point where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that is responding not to interest rates and profits but simply to the fact that it seems a mistake to be out of stocks. In effect, these people superimpose an I-can’t-miss-the-party factor on top of the fundamental factors that drive the market. Like Pavlov’s dog, these ‘investors’ learn that when the bell rings – in this case, the one that opens the New York Stock Exchange at 9:30 a.m. – they get fed. Through this daily reinforcement, they become convinced that there is a God and that he wants them to get rich.

~ Warren Buffett

Things Don’t Get Better (or Worse) Forever

Very early in my career, a veteran investor told me about the three stages of a bull market. Now I’ll share them with you. The first, when a few forward-looking people begin to believe things will get better. The second, when most investors realize improvement is actually taking place. The third, when everyone concludes things will get better forever. Why would anyone waste time trying for a better description? This one says it all. It’s essential that we grasp its significance.

~ Howard Marks

Know What ‘You’ Believe In

When prices go up enough, everybody believes something, even if it is only that everybody else is just about to believe.

~ Adam Smith, The Money Game

Survival is the Only Road to Riches

Survival is the only road to riches. You should try to maximize return only if losses would not threaten your survival and if you have a compelling future need for the extra gains you might earn.

~ Peter Bernstein

There’s Only One Side of the Stock Market

There is only one side to the stock market; and it is not the bull side or the bear side, but the right side.

~ Jesse Livermore

Buy Cheap, Never Bad

My experience teaches me that by far the largest losses have been sustained by investors through buying securities of inferior quality under favorable general conditions.

~ Benjamin Graham

Don’t Just Get Sucked In

As a runaway bull market persists, its relentless vacuum cleaner eventually sucks everyone in. Investors who are skeptical about the perceived overvaluation are forced to watch as their career prospects melt down and security prices melt up. New rationalizations, disguised as rationales, enter the higher levels of discourse to justify jumping, or creeping, onto the asset-price train despite disdaining it when it was dozens of percentage points lower. A feeling of fear and acrophobia then becomes replaced by the giddy and disorienting feeling of finally being on track to make money along with the crowd and not feeling isolated in Cranky Valueland.

~ Paul Singer

Think About Your Wealth Like Your Children

Your wealth is like your children — the primary link between your present and the future. You should try to think about it in the same way. You want your children to have freedom but you also want them to be good people who can take care of themselves. You don’t want to blow it, because you don’t get a second chance. When you invest, it’s not your wealth today, but it’s your future that you’re really managing.

~ Peter Bernstein

* * *

“If we are facing in the right direction, all we have to do is keep on walking,” goes a Buddhist proverb.

It captures the essence of how we can train ourselves to be calm and patient, in life and while investing our hard-earned money, whatever be the situation.

When euphoria or fear runs high, don’t run with it. Instead, keep a calm mind, think well through things, and be patient. Avoid hasty decisions and keep playing according to your plan.

Things go bad after good times, like they go good after bad. But if you maintain your sanity before they go good or bad, you won’t be excessively elated or disturbed when they actually do.

That’s what intelligent investing should be all about.

Rework by Jason Fried is one of the best books I have ever read on starting up. Jason has condensed his wisdom in starting and running a business into pithy, one-page, chapters.

One of the interesting chapters from the book is about the idea of being a curator. In this, Jason writes –

You don’t make a great museum by putting all the art in the world into a single room. That’s a warehouse. What makes a museum great is the stuff that’s not on the walls. Someone says no … There is an editing process. There’s a lot more stuff off the walls than on the walls. The best is a sub-sub-subset of all the possibilities.

Re-reading this chapter reminded me of Costco, one of the world’s largest wholesale retailers and among the very few that have shown remarkable resilience in an industry that has been subjected to increasing pressures from online retail.

[Read more…] about Is Your Stock Portfolio A Museum or A Warehouse?

It was Valentine’s Day in 1990. The Voyager 1 space probe, which had completed its primary mission, was leaving the Solar System.

At the request of astronomer Carl Sagan, the American space agency NASA commanded Voyager to turn its camera around and take one last photograph of Earth, across a great expanse of space. The photograph that got clicked was from a distance of about 6 billion kilometers (same as 240,000 round trips from Mumbai to New York).

In the photograph, against the vastness of space and among bands of sunlight scattered by the camera’s optics, Earth appears like a ‘pale blue dot’ (that’s what the photograph was named) that is smaller than a pixel.

[Read more…] about Zoom Out, Baby, Zoom Out

People indulging in the stock market are often people with a lot of emotions. They get excited by something new, especially if it holds the promise of making them a whole lot richer and provides bragging rights at their next social gathering.

Maybe that’s why amateur and professionals alike tend to lose their minds in bull markets, particularly when a hot initial public offering, or IPO, is offered to them by their broker.

On one hand, had you bought into the IPOs of Infosys (yes, remember?), HDFC Bank, Sun Pharma, or TCS, you would have had some volatile price fluctuations along the way, but there is no question that you have made enough money to substantially change the quality of your life. Clearly, a well chosen IPO can be a life changing experience if you simply make the right choice and stick with the stock for years.

On the other hand, there is a large majority of IPOs such as those of Reliance Power, Suzlon and DLF, which have destroyed investors’ capital. With such businesses, even the “long-term” cannot save you from permanent capital destruction.

[Read more…] about Beware the IP-Ohs

After I had decided to quit my job in late 2010, we got to know that our second child was on the way.

There was a momentary dilemma whether to go ahead with the decision or not, as an added member in the family would have meant added responsibilities, and that too in a period of high financial uncertainty.

I had exhausted a large part of my savings to pay off my home loan to be able to quit that job, and now there would be an extra mouth to feed, apart from other expenses that come along with a new-born – medical bills, diapers, etc.

“Go for it!” was my wife’s call. “We will see what happens only after we take this step,” she comforted me. “Worst, if nothing works out after you quit your job, we will sell our house and move back to our hometown.”

[Read more…] about Safal Niveshak is 10 Years Old