Poke the Box: There Are No Silver Bullets in Investing

Let’s Start with Safal Niveshak
Just in case you missed any of this on Safal Niveshak over the last few days…

• I have opened admission to the 4th batch of my Mastermind Value Investing Course. Click here to know more and join now.
• Read my interview with Niveshak, the monthly magazine released by the Finance Club of Indian Institute of Management, Shillong.
• Aswath Damodaran shares two bitter truths of stock valuation, and how you can avoid them.
• Read when I (almost) dumped Ben Graham’s The Intelligent Investor, and why you mustn’t.
• Hilarious but honest take on how a lot of companies that come out with their IPOs really operate and sell their shares to public.

Book Worm
Howard Marks’s memos are a treat to read. In fact, this is one resource apart from Buffett’s letters and Munger’s speeches that I would recommend you to read – in case you had to read just three things in your life to learn how to invest sensibly. Marks has also written a brilliant book called The Most Important Thing. Here’s an extract from that book where Marks talks about how investors fall for the delusion of high returns without risk, which creates a ground for permanent loss of capital…

When a market, an individual or an investment technique produces impressive returns for a while, it generally attracts excessive (and unquestioning) devotion. I call this solution du jour the “silver bullet.”

Investors are always looking for it. Call it the holy grail or the free lunch, but everyone wants a ticket to riches without risk. Few people question whether it can exist or why it should be available to them. At the bottom line, hope springs eternal.

But the silver bullet doesn’t exist. No strategy can produce high rates of return without risk. And nobody has all the answers; we’re all just human. Markets are highly dynamic, and, among other things, they function over time to take away the opportunity for unusual profits. Unskeptical belief that the silver bullet is at hand eventually leads to capital punishment.

Warren Buffett said, “Rising prices are a narcotic that affects the reasoning power up and down the line.” So it’s not unusual to see people believing in silver bullets. First, there’s usually a germ of truth. It’s spun into an intelligent-sounding theory, and believers get on the loudspeakers to convince others. Then it produces profits for a while, whether because there’s merit in it or just because buying on the part of new converts lifts the price of the subject asset.

Eventually, the appearance that (a) there’s a path to sure wealth and (b) it’s working turns it into a mania. But after the fact — after it has popped — a mania is called a bubble.

Stimulate Your Mind
Here’s some amazing content I read in recent times…

• Great article on Charlie Munger’s Expert-Generalist life hack.
• Prof. Sanjay Bakshi on the use of leverage and its connection to risk and return.
• A nice piece on why true value investing includes quality and growth.
• Do you know the three timeless principles of Benjamin Graham?
• Here’re a dozen things you can learn from James Montier on investing.
• An interesting take on how criminals built capitalism.

Keep poking.

Don’t aim at success. If you’re dedicated, it must happen.

Be cool, even as the weather’s getting hot.

Be kind to others, and to yourself.

Stay happy, stay blessed.

With respect,
Vishal Khandelwal
Chief Poker – Poke the Box