The One Percent Almanack

Wit and Wisdom on Investing, Business, and Life

Vishal Khandelwal

Life 2.0: Is Getting Rich Worth It?

Some of the greatest things, the greatest discoveries, have come about by serendipity. Let’s explore its magic here.

I recently wrote about the mental model of Inversion in Safal Niveshak’s Latticework series. ‘Inversion’ suggests that sometimes you stumble upon very useful insights by inverting the problem.

Now, what use is a mental model if you can’t implement it? So let’s use it, for the sake of personal amusement, to investigate one of the most popular problems in the world.

Yes I am talking about the conundrum of – “How to get rich.” The inherent assumption here is that everyone wants to be rich and they are just looking for the “how” part. Keeping that in mind, one of the ways to invert this question is to ask – “Is getting rich worth it?”

Before you decide to skip this article thinking that it’s another one of those “money can’t buy happiness” rant, just stick with me for few more lines and I promise that you won’t regret.

I consider this as an opportunity to wear my curiosity cap and look at the real and practical problems faced by super rich. Now given the fact that the author, yours truly, isn’t so rich (money wise), is it justified for him to comment on problems of rich? So in my defence all I have to say is that I never let my lack of first-hand experience with a topic stop me from speculating on it.

Unlike previous Life 2.0 articles, this post doesn’t aim to provide any ‘how to’ advice. My intention is to share with you a different perspective, the view from the other side of the fence where grass seems greener.
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InvestorInsights: Swanand Kelkar

Swanand Kelkar, a professional money manager talks about his journey into the world of investing and shares his insights about picking great businesses.

Swanand Kelkar is Executive Director at Morgan Stanley and portfolio advisor for Indian equities. He joined Morgan Stanley in 2007 and has 10 years of investment experience. Prior to joining the firm, he worked in the equity investment department at HSBC Asset Management. Swanand received his Bachelor’s degree in commerce from the University of Mumbai and an M.B.A. from the Indian Institute of Management, Ahmedabad. He is also an associate member of the Institute of Chartered Accountants of India. Swanand writes a regular column for the Mint newspaper on investing and markets.

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?

Swanand Kelkar (SK): I was born and brought up here in Mumbai and my parents were teachers. I am a Chartered Accountant and then went on to do my MBA from IIM Ahmedabad.

Ever since I was a kid, I had this fascination about seeing money grow. Most of my friends used to spend their pocket money but I used to save as much as I could and lend it within my family at usurious rates of interest. My family would playfully indulge me and this bug of seeing a hundred rupees become hundred and ten bit me for life.

My career choices, as you can see, have been related to this. I personally started investing in the equity markets as a twenty year old at the peak of the TMT bubble. Like a classic novice investor, I got sucked in at the top, invested based on hearsay and lost my shirt (two months’ worth of articleship stipend, which seemed like a fortune then). It was baptism by fire really.

It was during my MBA days that I began to figure out the method behind the madness and started understanding the difference between investing and speculation. My tiny portfolio started doing well (it was 2003) and I gained some confidence. I wanted to get into something related to equities after MBA which would convert my passion into my day job. Luckily, I got into the buy side and have now been a professional investor for over ten years, of which eight years were at Morgan Stanley Investment Management.
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BookWorm: The Little Book of Talent

An overview of one of the best books about the mental model of Deliberate Practice. If you want to become a better reader and thinker, this is a must read.

“I don’t count my situps, I only start counting when it starts hurting, when I feel pain, that’s when I start counting, because that’s when it really counts.”

I think you can guess who must have said this. The confidence and attitude oozing out of this sentence says that it could be none other than the greatest pugilist that the world has ever seen in the history of boxing – Muhammad Ali.

Ali began training at the age of 12 and won the world championship when he was 22 years old. A child prodigy, born with a gift for throwing lightning fast punches. But was he really born wearing boxing gloves and a knack for knocking people out? Of course not.

Multiple researches have established that talent is determined far less by our genes and far more by our actions: specifically the combination of intensive practice and motivation that produces brain growth.

Ali earned his talent by sweating out countless hours, practicing each and every move, working on his stamina and training his mind. He probably raked in more than ten thousand hours of practice much before he was 22.

The rule of ‘ten thousand hours’, a scientific finding, says that all world-class experts in every field have spent a minimum of ten thousand hours intensively practicing their craft. That’s how a talent is built. This 10,000 hour heuristics was made popular by Malcolm Gladwell’s book Outliers.

So, does it mean anybody who spends ten thousand hours doing something will become a world class expert in that activity? Of course not. There is more to the rule than the number 10,000. It’s Deliberate Practice which holds the key to developing expert level skills.

Deliberate Practice is defined as the form of learning which fuses the notion of attentive repetition with the willingness to operate on the edge of your ability, aiming for targets that are just out of reach. That’s what Muhammad Ali meant when he said – “I don’t count my sit-ups. I only start counting when it starts hurting, when I feel the pain…”

The idea is that development of skill is nothing but brain development. With quality practice, brain builds new and stronger neural pathways that result in dexterity in the skill.

Most of the professional sports people and performers have access to cutting edge techniques for harnessing Deliberate Practice, but majority of us don’t really have that luxury. In fact, how many of us really want to competeand perform at the world class expert level? I guess not many.
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Behaviouronomics: Illusion of Control

False understanding of the world around you can lead you to an illusion where you think you have more control on the things which are truly random.

Happiness and freedom begin with a clear understanding of one principle. Some things are within your control and somethings are not.” ~ Epictetus

Every day, shortly before nine o’clock, a man with a red hat stands in a square and begins to wave his cap around wildly. After five minutes he disappears.

One day, a policeman comes up to him and asks: “Sir! May I ask what you are doing?”

“I’m keeping the giraffes away,” replies the man.

The puzzled police man looks around and tells him, “But there aren’t any giraffes here.”

“Well, I must be doing a good job, then.”

You can safely assume that the man with the red hat wasn’t in the pink of his mental health but is it just a case of misplaced understanding of causation vs correlation? Actually there is more to it. The man is convinced that absence of evidence (giraffes) proves his prowess in controlling the giraffes. The man suffers from what is known as…

Illusion of Control (IOC)

IOC is basically the tendency to believe that we can influence something over which we have absolutely no sway. Where does this behavioural quirk come from? In millions of years of evolution, Mother Nature has hard wired this cognitive bias in human brain to increase the chances of survival in a hunter gatherer environment. It’s nature’s way to deal with uncertainty.

As a result of inability to deal with unknown, cognitive stress is created, and to avoid this stress the human mind tries to get rid of uncertainty, even if it means being wrong. IOC is a nice trick to get rid of this uncertainty.

Having a sense of control over the future has long been considered a fundamental motive and a highly adaptive trait for humans. It is well established that an absence of perceived control leads to depression, pessimism, and withdrawal from challenging situations. In contrast, possessing a general sense of control leads to self-esteem and optimism. Without any sense of control it would be difficult to carry out basic tasks. For that matter, it’s good to have an illusion (confidence) that you would be able to drive back from office to home.
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Spotlight: Value Investing During Turbulence

The current volatility in the market is creating unfounded panic but at the same time it holds the dangers for others to start loading up recklessly. We explore the current market turbulence in the light of age old wisdom from Buffett and Klarman.

“I don’t know and I don’t care!”

This was my response to a friend who called me last week asking how much more markets could fall. This fellow is a VP in a stock broking company, and was seemingly trying to check on my prediction of the next market move, and how far or close it was to his own prediction.

“Why do you guys make a fool out of people by constantly making horrific predictions?” I asked him.

“What do you mean by horrific predictions? We also make some brilliant ones,” he replied. I laughed out loud and shared with him some brilliant predictions I had recently come across, made by one of his clan –

Nobody Knows

After the crash in 2008 people would ask me, “Well, what are you doing differently now? What are you doing now?” And my answer was, “Well, it’s the same thing I’ve always been doing. I’m looking for cheap stocks.”

It doesn’t really change whether the stock market is rising or it is falling. You would always want to look out for stocks selling at discounts to their intrinsic values, isn’t it? So that activity doesn’t change.

It’s not based on what the US Federal Reserve or India’s RBI is going to do; it’s not based on what China or Brazil is going to do. It’s the same activity throughout market cycles.

But most people I see in the stock market are made nervous by volatility, especially when stock prices are fast on their way down. The Indian market, as represented by the BSE-Sensex has been falling since February 2015, but the fall has been gradual and with some intermittent rises. The reason people have gotten extremely worried now (starting late-August) is simply given the magnitude of fall.


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