Vishal Khandelwal

Super Investor: Philip Fisher on Four Dimensions of Investing – Part 3/4

March 30, 2017

This is the third leg of the “Four Dimensions of Investing” series. The first two were discussed as part of Value Investing Almanac’s special reports (previous issues). It’s recommended that you read the first two parts before reading this.

Philip Fisher’s investment classic Common Stocks and Uncommon Profits ranks pretty close to Benjamin Graham’s The Intelligent Investor and for many years, it has been part of the curriculum in the investment class at the Stanford Graduate School of Business. Fisher is also known for his scuttlebutt approach. In the book’s introduction, Kenneth Fisher, Philip Fisher’s son, describes the Scuttlebutt approach thus –

Scuttlebutt means avoiding malarkey mills and seeking information from competitors, customers, and suppliers, all of whom have a vested interest in the target company, and few of whom have any reason to see the firm unrealistically. It means talking to the sales representatives of a company’s competitors, who inherently have a basis to see the target company negatively but typically don’t if the target is great. It means talking to the research people and management people of competitors as well. If all those folks see reality and strength in the target’s operations and respect it and even fear it, well, simply said, it isn’t Enron. You can count on it.

Today we’re going to look at the third dimension of conservative investing that Fisher has discussed in this lesser known book – Conservative Investors Sleep Well – about which Kenneth writes, “It is simply the best treatise I know on how to buy and hold growth stocks without taking much risk.

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Investor Insights: Brent Beshore

March 22, 2017

Note: This interview was originally published in the March 2017 issue of Value Investing Almanack. To read more such interviews and other deep thoughts on value investing, business analysis and behavioral finance, click here to subscribe to VIA.

Brent Beshore - Value Investing Almanack

Brent Beshore is the Founder and CEO of adventur.es, a family of North American companies that invests in family-owned companies with unfair advantages. For the past nine years, Brent’s firm has started, funded, bought, and operated organizations across a wide range of industries.

The companies adventur.es owns have recruited doctors for the U.S. military, provided online public relations to some of the world’s largest organizations, manufactured cutting-edge home solutions, created software products for small businesses, curated the latest in women’s fashion to sell on the internet, and even helped make a couple of blockbuster movies.

Brent founded adventur.es in 2007 with the goal of creating an organization that allowed him to do what he loved, in places he enjoys, with people he admires. Since then, adventur.es has made over 50 investments, and was ranked #28 on the 2011 Inc. 500. Brent reads a lot, writes occasionally, dabbles in wine-making, and was nominated for a VH1 Do Something Award for helping his hometown of Joplin, Mo. recover from the devastating tornado.

As you would have understood from Brent’s profile, he isn’t a typical public markets investor like the ones I usually profile in this series, but an owner of private businesses. The thoughts Brent has shared in this interview, however, are equally valuable for a public market investor, as you would realize as you read forward.

So, over to Brent!

BookWorm: Delivering Happiness

March 15, 2017

As an investor, you need to know what makes a business great and this book offers an intensely personal and practical framework to think about the culture of a company. Tony Hsieh’s book is filled with great stories, insights, and tips you can put to use in your business and in your life.

In most companies, employee compensation is a major line item under the costs head. So, it’s a common practice to hire best employees at the lowest cost possible and then retain them as long as possible. But there’s one company which gives its new employees an option to quit the job within the first week and pays them US$ 3,000 bonus for doing so. It’s a strange practice, isn’t it? Hiring a new employee comes with its own cost, and most new employees aren’t very productive for first few days because they are still getting acquainted with the new environment and perhaps learning new skills. So why would a company let go of employees who haven’t contributed anything and have incurred a cost for the company?

There’s is a strong reason behind this “Zappos Offer,” claims Tony Hsieh, founder of Zappos – an online shoe company. Zappos is an extraordinary business story – building a US$ 1 billion online business selling shoes in less than a decade. In a world crowded by thousands of mom and pop e-commerce companies, what makes Zappos special is its unique culture and its unconventional ways of doing business. In 2009, Jeff Bezos (Amazon) acquired it for US$ 1.2 billion on the condition that Zappos will continue to operate as it is without any change. That’s quite similar to what Warren Buffett does when he acquires a company for Berkshire Hathaway.

Behaviouronomics: Empathy Gap

March 10, 2017

There is difference between how you believe you will act under certain circumstances and how you actually act when the time comes. When asked in the cold light of day how we will behave in the future, we turn out to be very bad at imagining how we will act in the heat of the moment.

Remember the mental model called Curse of Knowledge? I had written about in in Latticework series sometime back. If you can’t recall, let me refresh your memory. ‘Curse of knowledge’ says that better-informed people find it extremely difficult to think about problems from the perspective of lesser-informed people. In other words, the more knowledgeable you are about a subject, the more unnatural it becomes for you to communicate that knowledge in a simple and clear way. That’s why effective teaching is such a difficult task. Being knowledgeable about something doesn’t ensure that you can teach it effectively.

Curse of knowledge isn’t just limited to knowledge. It’s equally applicable to emotions. Being in a calm state, it’s not easy to relate to the actions of another person who is in an emotionally high state. That’s the genesis of the idea called empathy, which is the ability to relate to another person whose emotions are reaching a boiling point. However, putting yourself in other’s shoes is easier said than done. It’s a challenge and very few people possess the talent to practice empathy.

Spotlight: The Hollywood Principle of Investing

March 5, 2017

Until last year I maintained two demat accounts. It wasn’t intentional, but because of laziness, I had been procrastinating the task of consolidating all my holdings into a single account. So, when I called the old broker to reveal that I am closing the account and moving all my stocks to a different demat account, he wasn’t pleased. Grudgingly he gave me the form to be filled and made one last attempt to hold me back. But I had already made up my mind.

Of course, the relationship manager at the new brokerage house was very happy to know that I was going to use his services exclusively for buying and selling stocks. So, when he offered to come to my house and collect the documents, I felt I was troubling him unnecessarily for an administrative work. But he insisted for a personal meeting. Next day when he showed up at my doorstep it was evident that collecting the documents was just an excuse.

His real intention was to sell me one of his “star performing” investment products. Knowingly or unknowingly he was deploying a powerful weapon of persuasion on me. Reciprocity. Because he took the trouble to come all the way to my house, I was more likely to say yes to his sales pitch to reciprocate the favour.

Even after knowing his intentions, it took great efforts to decline his request. Although he left without making a sale, he did succeed in leaving a lump of guilt in my heart for not returning his favour. From that day, I swore to myself – when it comes to dealing with relationship managers and brokers, use The Hollywood Principle.

The Hollywood studios and the agents get thousands of calls from amateur artists and this is what most agents tell the new Hollywood aspirants – “Don’t call us, we’ll call you.” This is a response most people get after auditioning for a role in a Hollywood movie. And not just in Hollywood, “Don’t call us…” is a stereotypical request from a hiring organisation to a potential candidate, suggesting that the candidate will not be hired.

In investing, that’s the attitude you need to have with your broker. You need to tell him – “Don’t call me, I’ll call you when I need you.” Your broker may have the best of intentions but there is a serious misalignment between the fundamental incentives of a brokerage firm and what’s best for a small investor. I don’t need to remind you that a broker makes money only when his clients transact. If your stock goes up by 10x in few years, the only way your broker can make money is by convincing you to sell your 10-bagger stock.