Investing

This page contains our best articles on the subject of value investing and investment behaviour.

If you wish to receive these and all future such articles straight into your email, subscribe below to my free newsletter - The Safal Niveshak Post - that offers practical, time-tested insights to help you navigate stock market with confidence. Subscribers call it a "gold mine" for investors, and it's read by 80,000+ people across 120+ countries.

* No charge. No spam. Only wisdom.

Meditations on Mortality in Life and Investing

There is a story, not often told, in Mahabharata where the eldest of the Pandavas, Yudhishthira, comes upon a lake and finds that his brothers lay dead on its banks.

Before beginning the search into his brothers’ murder, the prince in exile finds himself burning with thirst and reaches into the lake to drink, not knowing that it was drinking from the lake that brought his brothers’ end.

At that moment a celestial appears, a Yaksha, no god or angel but instead a presence of power presiding over the lake. The Yaksha warns Yudhisthira not to drink lest he suffers the fate of his brothers.

He has an alternative: Yudhisthira can instead answer Yaksha’s questions. There are said to be eighteen questions that Yaksha asked Yudhisthira, but here is the one that concerns what I am writing today.

Investing and the Art of Stillness

This is the fourth issue of Outside the Box newsletter, and is authored by my friend Arpit Ranka.

In this post, Arpit talks about how we, as investors, need to embrace the good, bad, and ugly side of every investment thesis/strategy and be willing to live through all the seasons, if we have to stand a chance to succeed in the long run. Over to him.

The Art of Stillness
by Arpit Ranka

The noted English singer and songwriter John Lennon said, “Life is what happens while you are busy making plans.”

As an investor, I can tweak this thought to — “Investing is what happens when you are busy pursuing the next big investment idea.”

No doubt that ideation is a very integral part of any investment process but then equally central is to develop a mindset, which allows us to capitalize on the full potential of that investment strategy.

Remembering the 2008 Crisis, and A Few Lessons Learned

It seems like yesterday, but it was ten years ago. I was in the US for a conference and, on 15th September 2008, was visiting the Wall Street to check out the heart (maybe, the dark underbelly) of the global financial system.

I had just reached there after a visiting the site of the World Trade Center, which was tragically brought down on 11th September seven years ago.

Now, another tragedy was about to happen just five miles from where I was. This time it wasn’t about loss of lives but of livelihood.

Lehman Brothers declared bankruptcy and the world financial system was on the verge of collapsing. It was, and remains, the largest bankruptcy filing in the US history, with Lehman holding over US$ 600 billion in assets, supported by less than US$ 25 billion of own capital. That’s around 23-times debt to equity. In such a highly leveraged structure, a 4-5% percent decline in asset values would wipe out all capital, which it did.

Of Politics, Biases, and Investing

First, an update. I did my Value Investing Workshop in Bangalore yesterday, and received an overwhelming reponse…

The upcoming sessions are in Chennai (23rd Sept), Mumbai (30th Sept), and Hyderabad (7th Oct). If you wish to register for any of these, please click here.

Coming to this post, this is the third issue of Outside the Box newsletter, and is authored by my friend Ninad Kunder.

The 9 Biases of Value Investors

“The first principle is that you must not fool yourself — and you are the easiest person to fool.” ~ Richard Feynman

In the 1970s, two psychologists – Daniel Kahneman and Amos Tversky – proved, once and for all, that humans are not rational creatures. They discovered what we now know as “cognitive biases,” showing that humans systematically make choices that defy clear logic.

Now, having these biases and getting influenced by them is often not a bad thing. These have helped us survive for ages. Also, while we don’t always make decisions by carefully weighing up the facts, we often make better decisions as a result. This is applicable to most of what we do in life.

However, when it comes to investment decision making, our biases may get us into (big) trouble. What is more, the irony about these biases is that the more we read about them, the more we believe that we don’t suffer from them as much as others do.

In this second issue of Outside the Box newsletter, my friend Neeraj Marathe pokes a hole in this kind of thinking.

Being A Father

Welcome to the first edition of Outside the Box, Safal Niveshak’s new, free newsletter.

Now, what’s new here? Well, this newsletter will not be authored by me (you must be thanking goodness!), but a few of my friends in the value investing circle.

I have been connected to these people over the past few years, and highly respect their thoughts and ideas about investing, decision making, learning, and life in general.

Now, who are these people? In an alphabetical order, they are – Arpit Ranka, Gaurav Sud, Jatin Khemani, Neeraj Marathe, Ninad Kunder, Samit Vartak, Shyam Sekhar, and Vitaliy Katsenelson.

While these gentlemen are well-known in the value investing circles, I would introduce them better as we move forward and also have a few others join in.

[Read more…] about Being A Father

The Books That Made Me – Part 3

This is the third part of the series on books that have inspired me the most. Read Part 1 and Part 2. Here are the books I have profiled so far –

1. Life and Living

The Bhagavad Gita (~ 200 BC)
Autobiography of A Yogi (1946)
Man’s Search for Meaning (1946)
Who Moved My Cheese (1998)
Jonathan Livingston Seagull (1970)
Meditations (~ 180 AD)
One Small Step Can Change Your Life (2004)
How to Stop Worrying and Start Living (1948)
As a Man Thinketh (1903)
The Alchemist (1988)
Anne Frank: The Diary of a Young Girl (1947)

2. Learning, Thinking, Decision Making

[Read more…]

A Hidden Cost Called Rented Suit Liability

Lloyd’s of London, a 300-year-old insurance body, collects more than 33 billion pounds in gross premium every year. Its history goes back to the 17th century.

In 1906, when a major earthquake destroyed more than 80 percent of the Californian city of San Francisco, Lloyd paid out all the policyholder claims, irrespective of the terms of their policies. That cemented Lloyd’s reputation in the American market.

However, in the 1990s, this insurance behemoth was brought to its knees by a risk that had gone unnoticed for decades. After California earthquake episode, Lloyd started underwriting wide-ranging general liability cover to US businesses, including asbestos manufacturers.

Thousands of employees who had worked in asbestos plants were diagnosed with asbestosis, a deadly lung disease, twenty years later. These workers claimed the compensation from their former employer in 1990s. The employer, in turn, claimed it to the insurance companies like Lloyd who wrote the policy in the 1960s. Lloyd had failed to understand the nature of future risk and thus faced near bankruptcy.

Latticework of Mental Models: Lollapalooza Effect

Value Investing Workshop in Bangalore (9th Sept), Chennai (23rd Sept), Mumbai (30th Sept). Click here to register now. Few seats remain!

Why were Warren Buffett and his creation, Berkshire Hathaway, so unusually successful?

In 2007 Wesco Annual Meeting, someone asked the above question from Charlie Munger. He replied –

If that success in investment isn’t the best in the history of the investment world, it’s certainly in the top five. It’s a lollapalooza.

Lollapalooza in the conventional sense means something outstanding of its kind. A person, a thing or an event that is particularly impressive, or extraordinarily attractive. But being multidisciplinary learners, we shouldn’t be satisfied with the conventional definitions, should we? Moreover, Charlie Munger doesn’t use lollapalooza just for its dictionary meaning.

Here’s the definition of Lollapalooza taken from the book Poor Charlie’s Almanack –

Lollapalooza is, as personified by Charles Munger, the critical mass obtained via a combination of concentration, curiosity, perseverance, and self-criticism, applied through a prism of multidisciplinary mental models.

When Charlie Munger uses the word lollapalooza, he often attaches the word “effects” (as in “lollapalooza effects”) which means that multiple factors are acting together in ways that are feeding back on each other. [Read more…] about Latticework of Mental Models: Lollapalooza Effect

An Early Bird Or The Second Mouse?

It took the world by surprise when Warren Buffett announced that he’d be donating all his personal wealth to Bill Gates foundation. Till then people imagined Buffett and Gates as two fierce businessmen trying to outdo each other for the top spot on the Forbes list of billionaires. Bill Gates has dominated that list for a good part of last 25 years. Buffett has also remained in top five for the same period.

So Buffett’s decision came out as a shocking announcement. However, very few people knew that Warren Buffett and Bill Gates had been very close friends since 1991. They watch movies, go on family vacations and play bridge together.

In 1996, Bill Gates wrote about an incidence when Buffett invited him to play a game of rolling dice. He showed a set of four dice to Gates and proposed that both of them choose once die each from the set and discard the remaining two. Then whoever rolls a higher number most often would be the winner. [Read more…] about An Early Bird Or The Second Mouse?