Investing

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My Interview with Kenneth Jeffrey Marshall

Note: This interview with Kenneth Jeffrey Marshall was originally published in the November 2017 issue of our premium newsletter – Value Investing Almanack (VIA). To read more such interviews and other deep thoughts on value investing, business analysis and behavioral finance, click here to subscribe to VIA.

Kenneth Jeffrey Marshall - Value Investing Almanack - Safal Niveshak

Kenneth Jeffrey Marshall is an American value investor, teacher, and author. He teaches value investing in the masters in finance program at the Stockholm School of Economics in Sweden, and at Stanford University. He also teaches asset management in the MBA program at the Haas School of Business at the University of California, Berkeley. He is the author of the 2017 bestselling book Good Stocks Cheap: Value Investing with Confidence for a Lifetime of Stock Market Outperformance published by McGraw-Hill. He holds a BA in Economics, International Area Studies from the University of California, Los Angeles; and an MBA from Harvard University. He splits his time between California and Sweden.

Safal Niveshak (SN): Thanks for doing this interview, Kenneth! Please tell us a little about your background and journey, and how you got into value investing?

Kenneth Marshall (KM): Well, I was first shown value investing in the late 1980’s. But it wasn’t like some sudden enlightenment. It actually took me a decade to get it. I’d rather not think about the cost of that delay.

The Art of Asking Good Questions

Two hunters are out in the jungle when suddenly one of them collapses. His pulse is gone and his eyes are glazed. The other guy yanks out his cell phone and calls the emergency services.

He gasps, “My friend is dead! What should I do?”

The operator says “Calm down, sir. I can help. First, let’s make sure if he’s really dead.”

After few moments of silence, the operator hears a loud gunshot. Back on the phone, the guy says “OK, now what?”

The hunter was dumb but given the high adrenalin and panicky situation, the operator’s question wasn’t brilliant either, was it?

There’s some truth to the saying – the quality of your questions determine the quality of solutions. Computer programmers know this very well. They call it GIGO, i.e., garbage in garbage out.

Good question begets good answer. Bad question leads to bad answer.

The Wisdom of Intelligent Investors (Special E-Book)

If the history of stock market is anything to go by, investors often make decisions that can undermine their ability to build long-term wealth. As such, it is often very valuable to look back in history and study closely the principles that have guided the investment decisions of some of the best minds and practitioners in this field through both good and bad markets.

By studying these experienced investors, we can learn many important lessons about the mindset required to build long-term wealth.

With this goal in mind, here is a special e-book that aims to offer the wisdom of some of the best investment minds of current times from India and abroad.

13 Secrets to Becoming a Better Writer

Note: Obviously this post is not about investing, so you may skip if you don’t want to read anything on Safal Niveshak except investing. Just that writing well – the topic of this post – can also help you think through your investments better. Most great investors write well for a reason. Now that got you interested, isn’t it? Read on.

There was a time when my writing hurt. Even my close friends were not interested to read what I would write.

That made me afraid to write because I feared offending others. I was afraid of the backlash I thought I would receive from what I wrote. I was afraid of people judging me. I was afraid of what people would say when they read what I had to say.

This was sometime in 2003 when I was about to get into a career of, well, writing about stocks. However, things improved over years as I wrote a lot. Apart from that, I read a lot of books on good writing. That helped me move past the fear of judgment and into a place where I could be confident about what I wanted to write about.

Latticework of Mental Models: Impact Bias

Nobel laureate Albert Einstein formulated his theory of relativity mainly with the help of Gedankenexperiment. It’s a German term for thought experiments. In a thought experiment, one doesn’t conduct an actual test in the lab but uses imagination and logic to explore problems and generate insights.

Imagination is more important than knowledge, said Einstein. So let’s start today’s discussion with a thought experiment.

Imagine there was a sophisticated device which could measure happiness. Taking inspiration from the thermometer, we’ll call our device Happymeter. Once we attach this instrument to someone’s skull, it would show the amount of happiness and content that person is feeling at that time.

We’ll select two volunteers for our Gedankenexperiment. Our Happymeter tells that the present mental state of these individuals is 1000 units each. Now, these volunteers go through (in our imagination) two wildly different events.

1. The first person wins 10 million dollar lottery.
2. The second person gets into a terrible accident and both his legs are amputated.

Can you guess each person’s mental state one year down the line after the above two events have happened? In the first case, would his mental state be less than or more than 1000?

Of course, it would be more than 1000. Isn’t it? After all, he’s a wealthy man now.

The Books That Made Me – Part 1

Hope you had a great start to 2018, and hope you have been able to maintain your new year resolution thus far. 🙂

A new year is not just about looking forward to what may transpire over the next 360+ days, of where you may go, but also to take stock of where you have come from. Like, for me, when it comes to reading books, a new year is not just a time to prepare a rough list of the books I wish to finish during the coming months, but also to look back at the books I have read in the past and would like to re-read.

2017 was one such year when most of the books I read were the ones I had read multiple times over the years. I don’t see 2018 turning out to be any different.

One of the few filters I use to choose the books I read is Taleb’s Lindy Effect. This, in simple words, means that a non-perishable thing (like technology, or books) that has survived the most, will survive the most. So, a book that has survived 50 or 100 or 500 years, and is still widely read because it contains timeless wisdom, will survive another 50 or 100 or 500 years because, well, it’s wisdom is timeless.

In this series of posts, I aim to profile such books that have stood the test of time (almost, as some will be just 10+ years old) and have inspired me the most over years. In the first part today, I am profiling books on life and living that have inspired me the most. The subsequent parts will include my favourite books on thinking, learning, decision making, and investing.

The Books That Made Me - Part 1 - Safal Niveshak

Let me start right away with the books that have inspired me the most in the way I live my life and conduct my daily affairs. This is not an exhaustive list but is made up of the books on life and living I go back to time and again, and return wiser.

Safal Niveshak’s 2017 Annual Letter to Tribe Members

Dear Tribe Member,

Trust 2017 treated you well. It certainly was great for Safal Niveshak.

Here is a brief update on what transpired during the year. The tribe crossed 40,000 members (readers of our free newsletter, Safal Niveshak Post). We conducted nine value investing workshops during the year, meeting 430+ tribe members in the process.

The Mastermind Value Investing Course student count increased by 25%. Our premium newsletter – Value Investing Almanack – which is about to complete three years, gained 20% new members. It continues to receive inspiring reviews from its subscribers.

We also relaunched our free online value investing course – Value Investing Masterclass – in a new avatar. It now consists of updated and more lessons than the previous version. The subscription to this course jumped from 7,500 to 15,000 in less than a year after the relaunch, much better than our expectations.

Latticework of Mental Models: Domain Dependence

Imagine this. You are escorted into a room. On one corner there’s a table with three items on it: a box of board-pins, a matchbox, and a candle. Your task is to attach the candle to the wall, so the wax doesn’t drip onto the table.

A psychologist named Karl Duncker first designed this experiment in 1945.

About seventy-five percent of the participants who take part in this experiment try following solutions.

First, they try to pin the candle onto the wall. It doesn’t work. Then they try to light the candle and use the dripping wax to attach it to the wall, but that’s usually not strong enough to hold the candle. So that doesn’t work either.

What about you? How would you solve this? Take a moment and think about it.

Very few people see the solution at once. Some people find it after only a minute or two of thought. Others see it after stumbling through several unsuccessful attempts. Most fail to solve it without some outside help.

A Short Guide to Reading and Learning for Investors

I had written a lengthy post in 2015 on the subject of required reading for investors, which also included thoughts from Prof. Sanjay Bakshi and my own reading spectrum.

This latest post is an update on the same and includes my revised reading spectrum (not a major change over last time, but some meaningful additions).

For a change, I am not writing much in today’s post and would rather let the following two illustrations do the talking (Click on the images below to download them in large size).

The core idea is that, in true pursuit of wisdom in investing and life, we must read much more of what has endured over time (like supertexts, history, biographies, etc.) than what is ephemeral (like newspapers etc.)

I will end with a thought from Elon Musk on how to learn things deeper. Musk answered this to a question on how he does that himself –

It is important to view knowledge as sort of a semantic tree — make sure you understand the fundamental principles, i.e. the trunk and big branches, before you get into the leaves/details or there is nothing for them to hang onto.

You see, often it happens that we want to dive into the deep end before we learn how to swim. So when you want to learn a new subject, identify the fundamental principles first – the trunk and big branches. Learn those things first and deep, and you’ll be able to figure out the leaves and figs – mostly noise – much easier.

Finally, use the Feynman Technique when you want to learn something clearer and deeper…

Let me know your thoughts on these illustrations in the Comments section of this post, and a few of the supertexts – on investing, human, behavior, thinking, learning, etc. – that you think others and I must read and that are not covered above.

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.