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.

Risk, Volatility, and Investing: 5 Big Lessons from Howard Marks’s Latest Memo

“If you were to read just five books in your life to become a sensible investor,” I often suggest people seeking my view, “…they have to be Warren Buffett’s letters, Poor Charlie’s Almanack, Peter Lynch’s One Up on Wall Street, Ben Graham’s Intelligent Investor, and Howard Marks’s memos.”

Well, if you don’t know who Howard Marks is, let me tell you he is the CEO of Oaktree Capital and is one of the most famous investors who manages to keep a low profile, despite managing almost US$ 90 billion.

Marks is also the author of an amazing book – The Most Important Thing: Uncommon Sense for the Thoughtful Investor. In its ultimate praise, Warren Buffett writes, “This is that rarity, a useful book”.

Apart from the investing gems he has shared through this book, Marks also writes regular memos for investors where he outlines his investment philosophy, in line with what Buffett does via his annual letters to shareholders.

Here is what Buffett has to say about Marks’s memos – “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something…”

From whatever I have read in his memos, Marks focuses a lot on risk control and seeks to exploit market cycles. He prefers judgment to mechanical quantification, and believes in the power of checklists.

Marks’s latest memo is a masterpiece in itself. One particular reason it touches a chord with me is because it talks about a pain-point – the concept of ‘risk’ – that I feel as an investor each day, and maybe you do too.

Here are 5 big ideas I have pulled out from the memo. If you wish to learn anything and everything about investment risk, this one memo will help you do that.

In fact, reading this memo would provide you with all the big lessons that even a one-year MBA in Investment Risk won’t provide.

So, let’s get going with 5 big lessons from Howard Marks’s latest memo (the emphasis is mine).

10 Investing Gems from Peter Lynch’s One Up on Wall Street

This article was originally published in June 2012. I was re-reading Lynch’s book and thought of re-publishing these amazing lessons again.

Peter Lynch's One Up on Wall Street Apart from Benjamin Graham’s The Intelligent Investor, there is no better book to get started for beginners than Peter Lynch’s One Up On Wall Street.

The easy-going and simplistic stock picking style discussed in this book brought Lynch great success in his profession as a fund manager at the US mutual fund company, Fidelity.

The best part about this book is that it’s low on number crunching but high on anecdotal stories. Moreover, readers are given a clear picture on how to get off to a good start in the stock market.

One Up On Wall Street offers insight into the mind of one of the greatest money managers of all times.

Lynch helps you discover that he is a normal guy (like you and me) who thinks rationally, believes in doing his own independent research on companies, asks plenty of questions, and gets caught off guard by the market at times, just like anyone else.

Anyone thinking about buying individual stocks must read this book before they ever make their first stock purchase.

When NOT to Sell a Great Business You Own

Consider this. If you want to multiply your money 100x in 25 years, you want your investment to return 20% every year.

In other words, Rs 1 growing at 20% per annum will turn to Rs 100 after 25 years, excluding all dividends.

But if you sell this stock after 20 years (instead of holding for 5 more years), you will get just Rs 40. The remaining Rs 60 would come only between the 21st and 25th years.

Even if you earn 15% return per annum, your Rs 1 would turn to around Rs 35 in 25 years. But 50% of these returns would come only between the 21st and 25th years.

Follow @safalniveshak on Twitter

Did you know there’s a Safal Niveshak page on Twitter where I share varied content on all days, even when I do not post on the website?

You see, it’s easy for me to share the varied thoughts I get during a normal day in 140 characters than in 500 words. And thus, I am more active there than you see me on the Safal Niveshak website (which though is still the most important platform for me to perform)

Anyways, here’s what you’ll get when you follow me i.e., @safalniveshak on Twitter –

Fresh Safal Niveshak content
Classic Safal Niveshak articles
Curated ideas on investing from across the web
My random thoughts on investing and life
Key lessons from the world’s best investors

For example, here are a few things I have tweeted recently –

If you wish to receive thoughts like these on a regular basis, I invite you to get on board and follow @safalniveshak on Twitter.

When I Had Plenty of Money, But Not Much Wealth

Most of what we think we know about people with a lot of money – the enviable lifestyle of the rich and famous – comes from television, movies and novels. A lot of it is inaccurate.

Apart from the happiness that is showcased, financially well-to-do people have their own set of concerns – uncertainty over their relationships, anxiety about their children, fear of isolation and, of course, fear of losing their financial wealth.

In fact, I have known plenty of such “poor rich” people over the last few years, who have lots of money and assets…but not much else.

They are financially wealthy but emotionally, physically, spiritually, mentally and even socially, bankrupt.

Imagine your own life. If you own one big house (or even five) but you live in an unhealthy, stressed, over-worked, sleep-deprived, over-medicated body that’s going to die twenty or thirty years too soon (as many do), are you really wealthy?

So maybe health equals wealth.

Or if you’re a millionaire but you live in an unhealthy marriage with a spouse you haven’t spoken (heartily) to for a year and kids who never see you invest time into their lives, are you really rich or do you just have lots of money?

Confessions of a Stock Market Analyst

Note: This article was originally written in June 2012. I am re-publishing it given that I have received quite a few emails in the recent past with people asking me what made me quit my “great” job in the stock market that promised a “bright” future.

Confessions of a Stock Market Analyst I’ve received several emails from readers of Safal Niveshak asking why I left my “lucrative” job as a stock market analyst.

“It must be a well-paying job! So why in the world did you leave it?” asked one of them a few days back.

I’ve shared my reasons to leave my job with them in private, but thought there was a need to confess in the open – to the entire Safal Niveshak tribe.

After all, even you might be wondering what really hit me to have left the “safety” of a job that promised a “bright” future.

So here is a confession from an (ex) stock market analyst on “why in the world” he left a well-paying job to start a mission that some have called “a journey into the unknown”.

Can You Sum Up Your Investing Philosophy in 10 Words?

Life is short, and thus brevity is beautiful.

Allen Saunders understood this when he defined life in just about than ten words – “Life is what happens to us while we are making other plans.”

When Mahatma Gandhi was asked how an individual can change the world, he said in ten words – “Be the change you wish to see in the world.”

Our own Benjamin Graham distilled the secret of sound investment into just three words – “Margin of safety.”

I remembered these quotes from Saunders, Gandhi, and Graham when my daughter challenged me to summarize “truth” in no more than 10 words.

I replied, “Be exactly who you say you are.”

Anyways, this gave me an idea for this post. This is also what led me to this post from Jason Zweig where he asked his readers to sum up their investing philosophies in less than 10 words.

50% of the "early bird seats" for my Kolkata Value #Investing Workshop are gone! Register now if you wish to attend – https://t.co/dVRV8D4bmd

— Vishal Khandelwal (@safalniveshak) August 1, 2014

So, today, I put forth this challenge to you – Sum up your investing philosophy in 10 words or less, and share in the Comments section of this post.

Industry Analysis: Banking – Part 1

First a warning – Banking is not within my circle of competence. This post is an attempt to put forward whatever little I have studied and know about this industry. It’s now upon you to build on the same and learn more about how this industry works.

About Banking
Wikipedia defines a bank as…

…a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank links together customers that have capital deficits and customers with capital surpluses.

Banks have come a long way from the temples of the ancient world, but their basic business practices have not changed.

50% of the "early bird seats" for my Kolkata Value #Investing Workshop are gone! Register now if you wish to attend – https://t.co/dVRV8D4bmd

— Vishal Khandelwal (@safalniveshak) August 1, 2014

Banks issue credit to people who need it, but demand interest on top of the repayment of the loan. Although history has altered the fine points of the business model, a bank’s purpose is to make loans and protect depositors’ money. Even if the future takes banks completely off your street corner and onto the internet, or has you shopping for loans across the globe, the banks will still exist to perform this primary function.

Now, due to their importance in the financial system and influence on national economies, banks are highly regulated in most countries.

How to Identify Managers Who Can Run Away With Your Money

One of the first written codes of law in recorded history come from Hammurabi, who ruled the kingdom of Babylon 1,750 years before Jesus walked the earth.

He is known for the set of laws called Hammurabi’s Code, which were written almost 3,800 years ago, and were inscribed on stone tablets standing over eight feet tall. Owing to his reputation in modern times as an ancient law-giver, Hammurabi’s portrait is in many government buildings throughout the world.

Here is one of the several laws that Hammurabi formulated in his times…

If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death.

Well, if Hammurabi’s Code was to be implemented in today’s times, we would have seen a lot of corporate managers being taken to task in the ways the law suggested.

One Big Investing Lesson from Bhagavad Gita

Karmanye vadhikaraste, ma phaleshou kada chana,
Ma karma phala hetur bhurmatey sangostva akarmani

This verse is from Bhagavad Gita, where Lord Krishna explains Arjuna to him to perform his duties, as the latter was not willing to fight the epic war of Mahabharata.

Karmanye vadhikaraste, ma phaleshou kada chana – You have the right to perform your actions, but you are not entitled to the fruits of the actions.

Ma karma phala hetur bhurmatey sangostva akarmani – Do not let the fruit be the purpose of your actions, and therefore you won’t be attached to not doing your duty.

In essence, Krishna asks Arjuna to keep on performing his duties without being attached to the result of his actions. “Forsake do-ership,” Krishna says.

What Krishna tells Arjuna is encapsulated in the idea of Karma Yoga or the “discipline of action”. The word karma is derived from the Sanskrit kri, meaning ‘to do’.