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I did a post in March 2019 on one of the best theories I have read on the importance of high ROCE and good earnings growth, which make a great combination for long-term wealth creation.
This theory came from Bharat Shah of ASK Group, who wrote a book (sad, it’s not available publicly) titled “Of Long Term Value and Wealth Creation from Equity Investing.”
[Read more…] about ROCE-Growth Matrix, and Few Potential Wealth Creators (Update)
Here is some stuff I am reading and thinking about this weekend…
Book I’m Reading – The Black Swan
Black swan is a Latin expression, which was commonly used as a metaphor to describe something impossible or something non-existent. It came from the old-world belief that all swans are white since no one had seen a black swan before. Every time someone spotted a white swan, it was confirmation of their belief i.e., “all swans are white.” But this long held notion was invalidated the day first black swan was spotted.
A black swan event has following three attributes, writes Taleb in his book –
First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact (unlike the bird). Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.
Being locked down at home isn’t something new or unusual for me. I have been working from home for the past nine years. And when I say working from home, I mean consciously being locked down, with my eyes in my books or on the computer screen and my hands on the keyboard most of the time.
However, this situation is unusual for my kids. Like all kids, they are finding it uneasy not being able to meet their friends and go out and play, though they understand the responsibility of not doing so as of now.
So, one of my responsibility as a “locked-at-home-father-with-locked-at-home-kids” is to come up with ideas to keep them from getting bored. And one of those ideas has been for our kids to tell us stories that they have read or heard. It’s like they are enacting as parents and me and my wife as kids, waiting to hear good night stories before we sleep.
Here is a story my eight-year-old told us last night, which I thought had a great lesson for most of us chasing success, fame, wealth, and everything that we think makes life better.
Occasionally, I send out this special post with a few ideas I am reading and thinking about. Plus, a question I am meditating on.
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Book I’m Reading – A Few Lessons from Sherlock Holmes
This is a brilliant book from Peter Bevelin. Through this book, he has distilled Arthur Conan Doyle’s Sherlock Holmes into bite-sized principles and key quotes. In fact, this book is much more than a collection of quotes. It is a way to learn the powers of observation, understand the limits of our mind, and counter the narrative fallacy.
Sherlock Holmes is the epitome of rationality, and when it comes to making businesses decision, a rational thinking goes a long way in keeping you out of trouble.
Thinking is mostly an automatic process for everybody but while making critical decisions in life (and in business of investing) one needs to come out of the autopilot mode and learn the art of thinking clearly. Sherlock Holmes give us a framework, a blue print if you will, of thinking.
The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life
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.
With the possible exception of Warren Buffett, no investor today commands more respect than Baupost Group’s Seth Klarman. Since founding his investment partnership in 1983, Klarman has not only produced unrivaled returns, but he has also from time to time offered wise and timeless commentary on markets and the craft of investing.
Klarman is the author of Margin of Safety, Risk Averse Investing Strategies for the Thoughtful Investor, which became a value investing classic ever since it was first published in 1991.
Anyways, Klarman wrote a letter to his clients in February 2009, that contained some timeless ideas on investing, including the power that investors can derive from uncertainty.
In this letter, titled “The Value of Not Being Sure”, Klarman described the biggest challenge in investing, how he was responding to the market’s turmoil then and why he considered fear of the unknown such a great motivator.
Here is an insightful piece from this letter –
Time horizons have shortened even more than usual, to the point where the market’s 4:00 p.m. close seems to many like a long-term commitment. To maintain a truly long-term view, investors must be willing to experience significant short-term losses; without the possibility of near-term pain, there can be no long term gain.
Buying early on the way down looks a great deal like being wrong, but it isn’t. It turns out you won’t be able to accurately tell who’s been swimming naked until after the tide comes back in.
If you look to “Mr. Market” for advice, or if you imbue him with wisdom, you are destined to fail. But if you look to Mr.Market for opportunity, if you attempt to take advantage of the emotional extremes, then you are very likely to succeed over time.
If you see stocks as blips on a ticker tape, you will be led astray. But if you regard stocks as fractional interests in businesses, you will maintain proper perspective. This necessary clarity of thought is particularly important in times of extreme market fluctuations.
In defense of ‘uncertainty’, he wrote…
Uncertainty breeds doubt, which can be paralyzing. But uncertainty also motivates diligence, as one pursues the unattainable goal of eliminating all doubt. Unlike premature or false certainty, which induces flawed analysis and failed judgments, a healthy uncertainty drives the quest for justifiable conviction.
Click here to download this 2-page letter, and read it from start to end.
Klarman does not advise you to go all out leaving your process behind, but understand the power of uncertainty in a new light and then try to benefit from it.
Here is some stuff I am reading and thinking about this weekend…
Book I’m Reading – The Daily Stoic
For anyone that is not familiar, Stoicism is an ancient Greek philosophy that focuses on living life with virtue, tolerance and self-control. It also deals with one of our biggest worries: our own mortality. It sets out to remind us of how unpredictable the world can be. How brief our moment of life is. How to be steadfast, and strong, and in control of yourself. And finally, that the source of our dissatisfaction lies in our impulsive dependency on our reflexive senses rather than logic.
The Daily Stoic is one of my favourite books about Stoicism and includes 366 meditations for each day of the year on wisdom, perseverance and as the author Ryan Holiday calls it, ‘The Art of Living’. The best part about the book is that, instead of long winding chapters, it provides a less-than-2-minute read for each day of the year that helps you to reassess your perspectives, see your thoughts and actions in new light and find new ideas about living a better, almost worriless, life.
A stock I bought as recently as mid-February 2020 is down 60% from my original purchase price. I bought more of the stock after it fell 20% from my first purchase, more after it fell 20% from the second purchase, and more after it fell 40% from the third purchase. My total investment in the stock is around 3% of overall stock portfolio, and it is down 55% from the total invested amount.
My total equity investment – stocks and funds – is down around 25% in the last one month.
My total financial net worth is down 15%.
So, what saved the day for me as far as my total financial net worth is concerned? Cash in hand, that I started building up from the end of 2019, in search for investment opportunities that were not to be found anywhere. Plus some income that came in over the past few weeks.
[Read more…] about How I’m Investing My Own Money Through the Crisis
“And once the storm is over, you won’t remember how you made it through, how you managed to survive. You won’t even be sure, whether the storm is really over. But one thing is certain. When you come out of the storm, you won’t be the same person who walked in. That’s what this storm’s all about.” ~ Haruki Murakami
“In the midst of chaos, there is also opportunity.” ~ Sun Tzu
In a 1959 speech, American President John F. Kennedy famously said: “When written in Chinese, the word ‘crisis’ is composed of two characters — one represents danger and one represents opportunity.”
Although today it is widely recognized that this is not the correct interpretation of the Chinese characters, Kennedy’s wisdom about a crisis yielding unique opportunities may be more important than ever.
While it may sound selfish to treat a crisis of this magnitude, as COVID-19 is, as an opportunity, why not do it when it may help you and those around you deal better with it and survive well through it?
In this context, here are 11 things you can do while you are confined to your home and have a lot of time to indulge in them. The world after six and twelve months is likely to look way different than what it is today. But without worrying about the uncertainty of it, let’s get down to do what we can do now, when we have time.
Let’s start right away.
[Read more…] about 11 Positive Things to Do Amidst the COVID-19 Crisis
All I am reading and hearing all around is this.
Volatility is your friend. Stick to the long term. Don’t touch your portfolio. Keep some cash. Invest that in a staggered manner. Recheck your asset allocation. Shuffle your stock portfolio. Don’t borrow to invest. Don’t speculate. Quickly search for new stock ideas. Stop watching news.
Well, let’s cut it all.
[Read more…] about Shaken by Stock Market Carnage? Forget Everything
Admission to the 11th batch of The Safal Niveshak Mastermind – my premium, online course in Value Investing – is now open, and will remain so till 31st March.
I’ve lined up a lot of things that you will receive when you become a part of The Safal Niveshak Mastermind. Here’re the key ones…
[Read more…] about Mastermind Value Investing Course: 11th Batch Admission Ends on 31st March