The One Percent Almanack

Wit and Wisdom on Investing, Business, and Life

Vishal Khandelwal

Life 2.0: Recycling Wealth

People generally go about philanthropy the wrong way. Like money, the social impact of your efforts has a tendency to compound provided you get involved early.

Philanthropy is harder than business. You are tackling important problems that people with intellect and money have tried in the past and had a tough time solving. ~ Warren Buffett

Few years back, one of my friends asked me if I would donate money for charity. My smart-alec answer to him was, “Charity begins at home. So I choose to donate myself first.”

And then, to further flaunt my deep thinking abilities, I backed it up with another logic.

“In case of emergency, recommends the flight safety announcements, you should wear the oxygen mask yourself first and then help the other person. So I believe that I should first get rich myself and then only think about charity and giving back to society.”

I thought it wasn’t a selfish attitude. It was a perfectly rational answer to anybody who wanted to exploit my guilt about not giving back to society.

“So how much money do you think you should have before you can call yourself rich?” asked my friend.

Of course I didn’t have any answer to that question, which made me wonder if I was just making up rational sounding excuses to avoid thinking about a difficult subject. Perhaps I was.
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InvestorInsights: Jayendra Kulkarni

Jayendra Kulkarni, a value investor from Mumbai, shares his 20-year journey in stock market and recounts his discovery of value investing and how it helped him build a framework for finding value.

In this issue, we profile a Mumbai-based value investor, Jayendra Kulkarni. Jayendra has been investing for close to 20 years and invests largely in small and medium sized businesses.

Safal Niveshak (SN): Could you tell us a little about your background, how you got interested in investing, and how you’ve evolved over time as an investor?

Jayendra Kulkarni (JK): I did my Hotel Management from IHM, Mumbai and then a Business Management Diploma. I don’t have any foundational background of Finance. So I started from ground zero – clueless. Naturally the learning curve was steep. It was not intimidating though; simply because I did not know, what I did not know.

I worked for the stock broking division of Apple Finance in the mid 90’s in Marketing and Dealing and that for me was the embarking point. I’d heard about ‘book value’ and ‘PE ratio’ and would spend days sifting through Capital Market and Dalal Street Journal searching for what I thought were under-priced stocks. When only a few of what I thought were Eureka stocks, worked out, I slowly began realizing that the investing process is not a simple two dimensional graph.
[Read more…] about InvestorInsights: Jayendra Kulkarni

Behaviouronomics: Hyperbolic Discounting

Hyperbolic discounting is a remnant of our animal past. Rats never give up a piece of cheese today to get two pieces tomorrow. Humans aren’t very different too.

Few months back when I quit my job to join Vishal at Safal Niveshak, I had to return my laptop to my earlier employer, and buy a new one for myself. This got me started on the herculean task of selecting from thousands of choices available on numerous e-commerce websites. After weeks of excruciating process of comparing, shortlisting, and researching, I finally zeroed in on my final choice. Then started the wait for online discounts.

Very soon, the so called online-sale-season (i.e., weekend) arrived which offered a ‘whopping’ Rs 75 discount on my selection. So much for the patience, but for a self-proclaimed prudent consumer it still was a good deal!

Just when I was about to place the order, I saw the option of same day delivery for an additional Rs 100. Guess what yours truly did? He didn’t hesitate for a moment to take the offer.

Ironically, I waited for a week for a small discount but when the time came for buying I couldn’t wait another day and forked out extra money just to get my toy immediately. What happened to my admirable qualities of patience and prudence?

A little research on Google revealed that the introduction of ‘get-it-now’ caused me to behave irrationally. Scientists, as usual, have a name for this tendency – Hyperbolic Discounting.

On one hand, when I am forced to wait for six days, I don’t mind waiting for seven days. But when I am told that I can get something today instead of tomorrow, my temptation refuses to wait for another day.
[Read more…] about Behaviouronomics: Hyperbolic Discounting

Spotlight: The Folly of Macroeconomic Forecasting

Is it worth studying the macro factors while analysing a stock? The answer is both Yes and a No. We explore what kind of macro should an investor be concerned about and what should be avoided.

We don’t know what lies ahead in terms of the macro future. Few people if any know more than the consensus about what’s going to happen to the economy, interest rates and market aggregates. Thus, the investor’s time is better spent trying to gain a knowledge advantage regarding ‘the knowable’: industries, companies and securities. The more micro your focus, the great the likelihood you can learn things others don’t.~ Howard Marks

We look at opportunities, as they come along, we try to figure whether we can understand the long term economic prospects of the business. A lot of times the answer is no, then we forget it. We are not making any judgment about where the market is going or we are not looking at any macro factors.

My partner Charlie Munger and I have been working together now 55 years. We’ve talked about every business you can imagine and stocks. We have never had one decision that involved a macro factor. It just doesn’t come up.” ~ Warren Buffett

A profession that has been the butt of most jokes is that of an economist. Though I am sure it is not fun being an economist, whose work involves examining a system with, literally, billions of different moving parts and then trying to come up with predictions or reasonable explanations that, quite frankly, don’t actually exist.

I still remember what they taught me in my college’s macroeconomics class. The equations were always assuming something.

If government increases spending by X, output would grow by Y, but only if you assume taxes weren’t used to support the spending, only if you assume full employment, only if you assume full price elasticity, only if you assume no substitution effect, etc. In short, macroeconomics was and remains a science that behaves with the certainty of physics, but has the track record of alchemy.
[Read more…] about Spotlight: The Folly of Macroeconomic Forecasting

Welcome to Safal Niveshak’s School of Value Investing & Multidisciplinary Thinking

I was recently at one of India’s leading business schools, and was very surprised to see that what they teach their Finance students has not changed a bit from what I learned when I was in such a school myself almost 13 years back. Beta, CAPM, efficient market theory, and derivatives still rule the roost. Students are trained in mock trading, and exposed to a steady stream of business media so that they can take quick and effective trading decisions.

Anyways, while I was there and as I interacted with students, I realized that the lack of proper education in what works and what doesn’t in the real world finance is a grim reality of today’s business education. And things don’t seem like changing a bit.

But a start can definitely be made. And so I decided to frame the curriculum of a business school, if I were to set up one in the future, that taught students the art of value investing, multidisciplinary thinking, and almost everything else they would need to do well in their financial careers.

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